KERRY GROUP ANNUAL REPORT GLOBALLY 2018 CONNECTED WINNING LOCALLY CONTENTS 25,000+ Employees
Kerry Group is a global leader in taste and nutrition serving the food, beverage and pharmaceutical industries, and a leading supplier of added value brands and Globally customer branded foods to Connected the Irish, UK and selected Winning international markets. Locally + Our Partners pages 2-3 Our Graduates pages 16-17 STRATEGIC Our Chefs pages 40-41 REPORT Our Scientists pages 44-45 4 2018 Results Financial Highlights Our Regulatory Team page 87 6 Kerry Group at a Glance 10 Chairman’s Statement 12 Chief Executive’s Review 16 Our People 22 Our Business Model 24 Our Markets 26 Strategy & Financial Targets 29 Strategic Advantage 30 Financial Key Performance Indicators 32 Financial Review 42 Business Review: Taste & Nutrition 47 Business Review: Consumer Foods R&D 49 Sustainability Review 900+ Scientists 73 Risk Report How we add value Kerry has developed an unparalleled suite of capabilities, deployed through the engine of Kerry’s business model. + Kerry Group at a Glance pages 6-9
Our Business Model pages 22-23
DIRECTORS’ REPORT 88 Board of Directors 90 Report of the Directors Governance Report 96 Corporate Governance Report 101 Audit Committee Report 106 Nomination Committee Report 110 Remuneration Committee Report
FINANCIAL STATEMENTS 132 Independent Auditors’ Report 138 Financial Statements 146 Notes to the Financial Statements
SUPPLEMENTARY INFORMATION Sustainable Growth 203 Financial Definitions €1m committed to tackling hunger and malnutrition through the Realigning Agriculture to Improve Nutrition (RAIN) Programme in Niger. + Sustainability Review pages 49-72 Pictured: John, Aisling, Makayla and Saoirse Brosnan, Minard West, Lispole, Co. Kerry, Ireland.
2 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 3 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry STRATEGIC STRATEGIC REPORT We partner with our local customers partner with our local customers We our fully leveraging and suppliers, help nourish global capabilities to taste exceptional the world through and nutrition. 2018 RESULTS
FINANCIAL Group Volume Growth HIGHLIGHTS Revenue (Like-For-Like)* of €6.6bn +3.5 % 2017: €6.4 billion 2017: +4.3%
Net Cash from Free Cash Flow* Operating Activities of of
(72% cash €651m €447m conversion) 2017: €671 million 2017: €501 million (83% cash conversion)
Trading Profit Group Trading up 3.1% Margin* of €806m 12.2% 2017: €781 million (up 4.2%) 2017: 12.2%
Basic EPS Constant Currency down 8.3% Adjusted EPS* 305.9 cent +8.6 % 2017: 333.6 cent (up 10.1%) 2017: +9.4%
Total Dividend per Share Return on Average Capital + up 12.0% to Employed* of Details of the Group’s business performance in 2018 are presented 70.2 cent 12.0 % in the Chief Executive’s Review pages 12-15 and 2017: 62.7 cent (up 12.0%) 2017: 13.0% in the Business Reviews pages 42-48
Total Shareholder Return of (6.8%) (2017: +38.6%)
* See Financial Key Performance Indicators section pages 30-31 and the Supplementary Information section page 203 for definitions, calculations and reconciliations of Alternative Performance Measures.
4 Kerry Group Annual Report 2018 Continued • Continued strong business growth ahead of our markets • Group margin maintained despite currency strong related headwinds • Kerry’s Taste & Nutrition technologies and systems underlying driving a strong pipeline of innovation performance • Foods division performed well relative to a challenging consumer marketplace • The Board recommends a final dividend of 49.2 cent per share (an increase of 12.1% on the final 2017 dividend) payable on 10 May 2019 to shareholders registered on the record date 12 April 2019
900+ €6.6bn R&D Scientists Group Revenue
147 Manufacturing Locations Globally
Pictured: Kerry Global Technology and Innovation Centre in Naas, Co. Kildare, Ireland.
Kerry Group Annual Report 2018 5 KERRY GROUP Follow our journey of progress AT A GLANCE and innovation overleaf
Delivering taste and + Details of the Group’s business nutrition to millions performance in 2018 are presented of people around the 140+ in the Chief Executive’s Review Sales in over pages 12-15 and in the Business Reviews pages 42-48 world every day 140 countries
Our Mission Statement About Us Kerry Group will be: Since our modest beginnings in 1972, in a greenfield site in − a world leader in taste and nutrition serving the food, Listowel, Co. Kerry, Ireland we have grown from strength to beverage and pharmaceutical industries, and strength to become a leading player in the global food and beverage industry, with current annualised sales of €6.6 billion. − a leading supplier of added value brands and customer branded foods to the Irish, UK and This journey has been one of dynamic growth and strategic selected international markets. acquisition, guided by our in-depth understanding of international market dynamics, insights into consumer trends, shifting taste Through the skills and wholehearted commitment of our preferences and evolving nutritional requirements. employees, we will be leaders in our markets – excelling in product quality, technical and marketing creativity and As an organisation, we never stand still and are clear with our service to our customers. colleagues, customers and stakeholders; who we are, what we do, how we do it, where we are going and why we matter – We are committed to the highest standards of business we call this The Kerry Way. and ethical behaviour, to fulfilling our responsibilities to the communities which we serve and to the creation of long term Kerry Taste & Nutrition has successfully grown to become the value for all stakeholders on a socially and environmentally largest and most technologically advanced developer and provider sustainable basis. of taste and nutrition solutions in the world. We are the industry reference and the customer preference in the global food and beverage industry.
Kerry Foods, the Group’s consumer foods division, has grown its presence with retail partners in the Irish, UK and selected international markets. Many of the division’s brands are household names in their respective markets including category leading brands such as Dairygold, Richmond, Fridge Raiders, Cheestrings 25,000+ and Denny. Kerry Foods is also a leading provider of customer Employees branded chilled foods.
Group Revenue Group Trading Profit by Division by Division €6.6bn 80% Taste & Nutrition €806m 89% Taste & Nutrition Revenue 20% Consumer Foods Trading 11% Consumer Foods Profit
6 Kerry Group Annual Report 2018 Pictured: John and Owen Brosnan on their family farm, which is SDAS certified under the Origin Green programme. Pictured: Kerry Taste & Nutrition Discovery Centre, Beloit, Wisconsin, USA.
From a small dairy company in the BUILDING A GLOBAL south west of Ireland to a global ORGANISATION leader, the Kerry journey is a story of how belief and vision were combined to create a unique company.
THE EARLY YEARS
1972 Establishment of North Kerry Milk Products 1990 Listed on London Stock Exchange 1999 Commissioned processing facility in 2008 Roll-out of 1 Kerry ‘go-to-market’ 2015 Opening of the Global Technology & 2018 Opened our first manufacturing plant in Listowel, Co. Kerry. Dedicated to the 19 April 1990. Minais Gerais, Três Corações, Brazil. programme. Innovation Centre in Naas, providing in Russia, producing ingredients for the manufacture of dairy proteins for export 1994 Invested in Latin America with 2001 Acquisition of Golden Vale brings the 2009 Continued growth of Kerry Foods a focal point for scientific research, meat processing and snacks market. to the U.S. acquisition of a facility in Irapuato, Mexico. Cheestrings brand to Kerry Foods, which with acquisition of Breeo Foods. innovative processing technologies and Extended our taste and clean label 1974 Formation of Kerry Co-operative to grow Acquisition of DCA Food Industries Inc. is now marketed in 8 European countries. Global Technology & Innovation Centre market leading technology platforms. capabilities with the acquisition of integrated dairy processing business. brings international capability in coatings, 2003 Acquisition of foodservice branded business opened in Beloit, allowing Acquisition of Red Arrow, a leading Fleischmann’s Vinegar Company Inc., 1978 Opening of new headquarters in Tralee, bakery and fruit ingredients. Da Vinci Gourmet, a supplier of flavoured customers to work side-by-side with provider of natural smoke flavours. a USDA certified all-natural producer Co. Kerry. Acquisition of Mattessons Wall’s syrups for speciality coffee chains. Kerry’s research teams to develop Expanded beverage systems of specialty ingredients. 1982 Diversification into the convenience meat brings major UK household brands 2004 Global Functional Ingredients & Actives unique and innovative products. capabilities with acquisition of Island Acquisition of AATCO Food Industries business with the acquisition of Denny & into Kerry Foods. platform developed, through the acquisition 2011 Completed the acquisition of Cargill Oasis, a leader in all-natural premium LLC, a leading Oman headquartered Duffy’s in Ireland. 1997 Acquired SDF Foods, Malaysia – Kerry’s first of Quest; a leader in the innovation and Flavor Systems, strengthening Kerry’s cocktail mixes. provider of culinary sauces, providing 1984 Established U.S. Office in John Hancock move into manufacturing in South East Asia. application of bio‑ingredients and extracts and flavours capability. Kerry Taste & Nutrition is born, a strategic platform for business Tower in Chicago. 1998 Further expanded in Europe with the pharma ingredients. 2014 Opened R&D centre in Singapore to delivering better taste, health and development in the Middle East 1986 Transition from Kerry Co-op to Kerry acquisition of the food ingredients division Continued to build a flavour and beverage support innovation in the Asia Pacific, wellbeing globally. and Africa. Group plc with the launch on the Dublin of Dalgety (DFI) with manufacturing facilities portfolio through the acquisition of Middle East and Africa region. 2017 The acquisition of Ganeden, a producer Stock Market. located in the UK, France, Germany, Italy, the Manheimer, Flavurence, Fructamine, Regional Development & Application of patented probiotics, significantly 1987 Kerry opened its first overseas food Netherlands, Hungary, Poland and Ireland. Oregon Chai and Laboratorios Krauss. Centres opened in Moscow, Dubai strengthens Kerry’s position in the ingredients manufacturing plant in With it came dedicated flavour capability 2005 Acquisition of Noon Foods, UK, producers and Durban. nutritional actives market. + Jackson, Wisconsin. through the UK and Australian based of authentic Asian ready meals for the Acquired Taste Master and Tianning Details of the Group’s business performance 1988 Acquired Beatreme to become the No.1 Mastertaste flavour business. Extended UK market. Flavours in Asia further expanding our in 2018 are presented in the Chief Executive’s speciality food ingredients company in the presence in the Asia Pacific region with the Announced the establishment of the first taste foundational technology portfolio Review pages 12-15 and in the Business Reviews manufacturing plant in Hangzhou, China. U.S., at a cost that equated to Kerry’s market acquisition of the ingredients business of and footprint to meet local consumer pages 42-48 capitalisation at the time. Australian food group Burns Philp. preferences within the region.
DEVELOPING A FOOD INGREDIENTS BUSINESS Creating Value for Kerry has a proven track record of sustainable delivery and value KERRY GROUP + creation for all its stakeholders. The value created by Kerry for a KERRY GROUP Taste & Nutrition all Stakeholders number of its stakeholders is outlined below: AT A GLANCE Business Review AT A GLANCE pages 42-46 Consumer Foods SHAREHOLDERS Kerry has a longstanding history of sustained delivery of results combined Business Review with delivering on sustainability initiatives. The Group has delivered pages 47-48 compound TSR of 16% since going public in 1986 EMPLOYEES Kerry has an ambitious collaborative culture. We invest in leadership, professional and technical capabilities for employees, and provide opportunities for personal growth and career development Revenue by Region CUSTOMERS Kerry works across a broad range of customers and end use markets to Taste & Nutrition improve food and beverage products through innovation and enabling At Kerry Taste & Nutrition, we understand speed to market consumers want to enjoy delicious meals and beverages made from ingredients they know and CONSUMERS Kerry has a number of platforms to educate and empower customers 52% Americas trust. This is driving manufacturers, retailers and 27% Europe and their consumers to make better food, beverage and lifestyle choices, foodservice providers to re-evaluate their recipes, 21% APMEA including the Kerry Health and Nutrition Institute (KHNI) €5.4bn processes and the ingredients they use in the 73% Developed SUPPLIERS Kerry has an extensive network of suppliers spread across the globe development of their products. 27% Developing Kerry makes a positive contribution to governments in the territories GOVERNMENT In a $75 billion fragmented market, Kerry has the in which we operate through tax contributions, procurement from local largest and broadest range of taste, nutrition and vendors and job creation functional ingredient solutions and technologies COMMUNITY Kerry works with local and international partners (e.g. World Food available to re-formulate existing products and Revenue by End Use Markets (EUM) Programme and Concern Worldwide) to support local community create new products across all food and beverage development and improve health and nutrition in some of the world’s end use markets. poorest communities Meat We inspire and are inspired by food, and our Bakery & Confectionery global team of expert food scientists, chefs, Cereal, Sweet & Other Meals baristas, brewers, mixologists, bakers and Dairy nutritionists bring with them a deep passion and Snacks + commitment to their work, building our reputation Beverage €114m 900+ Pharma Key Performance Dividend paid as a trusted supplier to the world’s leading food, Indicators pages 30-31 R&D scientists to shareholders beverage and pharma companies. Sustainability Review pages 49-72 At Kerry, we know success in the food and beverage industry requires an ability to stay €1.2bn 90% ahead of ever-changing consumer demand. We Payroll of €1.2bn of waste diverted understand and innovate to fill the gap between from landfill what consumers are looking for and what is technically possible.
150+ We empower our customers to deliver products The KHNI has published 150+ articles, 13 white that will delight and nourish their consumers 15,000+ papers and hosted 6 across the globe. products specialised webinars since 2016 €1m Committed further €1m in 2018 to improve nutrition among some of the world’s poorest people through the RAIN programme in Niger. We also work with the World Food Programme.
Kerry Group Annual Report 2018 7 8 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 9 Shanghai GB Ireland R est ofEurope Revenue by Region by Revenue Kerry Group Annual Report 2018 2018 Annual Report Group Kerry olutions Meal S E Convenience F Countries with manufacturing facilities Fresh veryday Goood to
Singapore 32 Bangalore Brand P Label rivate Durban Revenue by Channel by Revenue Revenue by Category by Revenue Campinas Naas Tralee Beloit es San Juan del Rio chnology & Innovation Centr Global Headquarters Global and Regional Te Manufacturing Plants Sales O ices Key to the success in the categories in which Kerry Foods play play Foods in which Kerry in the categories the success to Key to the market offerings product innovative bring to is the ability and consumers. and engage our customers excite to Kerry Foods is home to many of the market’s best-performing best-performing of the market’s many is home to Foods Kerry Richmond, Fridge including Dairygold, brands and best-loved can be brands Foods Kerry CheestringsRaiders, and Denny. convenience stations, service supermarkets, in kitchens, found of the length and breadth venues and entertainment stores international as well as in some selected the UK and Ireland, customer Foods Kerry these brands, In addition to markets. in in leading supermarkets can be found products branded the UK and Ireland. Kerry Foods is the consumer foods division of Kerry Group Group division of Kerry foods is the consumer Foods Kerry products food and is a leading supplier of chilled and frozen meat, snacking focussing on dairy, in the UK and Ireland, and meal solutions. Consumer Foods WHERE WHERE WE OPERATE CHAIRMAN’S STATEMENT
Kerry continues to successfully invest in developing its business model and deploying it in local markets across the globe.
In this, my first Chairman’s statement, I am pleased to report another year of positive business performance, as the Group achieved good volume growth and progress in the development of the strategic growth priorities. The Group continued to deliver broad based volume growth, with very strong performance in most developing markets across the globe, particularly in Asia as the Group further invested in capabilities and capacity to meet evolving local consumer preferences.
Taste & Nutrition continued to successfully advance the deployment of its unique business model into local markets across the globe in conjunction with investments in the Group’s strategic growth priorities. Kerry opened its first manufacturing facility in Russia, as well as establishing its first manufacturing footprint in the Middle East through the acquisition of AATCO Food Industries LLC. There were a number of significant strategic acquisitions announced that further enhanced Kerry’s industry-leading foundational technology portfolio, noteworthy examples being Fleischmann’s Vinegar Company, Inc. and Ariake USA.
Consumer Foods further advanced its strategic growth priorities with the ‘Food To Go’ category delivering strong growth in the year. This performance was achieved in a challenging environment, as the uncertainty in relation to the UK’s exit from the European Union impacted UK consumer confidence in the second half of 2018 and resulted in reduced consumption in a number of the division’s core categories.
10 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 11 14% 14% Kerry Co-operative 28% Retail Kerry Group Annual Report 2018 2018 Annual Report Group Kerry North America UK C R Ireland
19 1 19 4 3% % 3% % % Europe ontinental est ofWorld 58% Institutions Shareholder Analysis Shareholder Chairman Philip Toomey 2019 18 February Our People continued Kerry’s to central Our people are and development. The growth successful its achieve is well positioned to Group based objectives on the strength future and the teams leadership of the executive employees. of all Kerry commitment Prospects the that confident remains Board Your business model and strategies Group’s value shareholder deliver to will continue in the and benefit our other stakeholders The view of management come. to years is the business 2019 outlook for regarding Review. in the Chief Executive’s presented and on on behalf of the Board, Finally, thank to I would like a personal note, the throughout and everyone Edmond their contribution for organisation Kerry the ongoing success of the Group. to While in South Africa the Board visited the visited While in South the Board Africa new manufacturing the Group’s for site a market in Durban and undertook facility during which the Board tour immersion for markets saw the different firsthand in South Africa products the Group’s meet with to and had the opportunity I made During 2018, major customers. in Ireland, our operations to additional visits and the UK. Turkey Singapore, Operational Visits Visits Operational the As part of an ongoing programme, held in meeting was Board June 2018 in Centre, Application Regional Kerry’s on Durban, South The visit focused Africa. Sub for & Nutrition Strategy Taste Kerry’s (SSA) and Middle East, Africa Saharan sub- (MENAT) and Turkey North Africa members Board It also afforded regions. meet and engage with to the opportunity many from talent and emerging leaders key countries in the sub-regions. Board & Management Changes & Management Board and as Director Michael Dowling retired the following Chairman of the Board General Annual Meeting on 3 May Group’s thank Michael As Chairman, I wish to 2018. the Kerry to his enormous contribution for Michael served the years. over organisation and as a 2015 1 January as Chairman since behalf On of 1998. 3 March since Director Michael to tribute pay I wish to the Board, the to and dedication his commitment for his years throughout of the Group success of service. Marguerite announced, As previously Chief Financial appointed Larkin was succeeding 30 on 2018 Officer September up the position Brian Mehigan who took to I would like Officer. of Chief Strategy this Executive to Marguerite welcome his thank Brian for position and to Board and to the Board to personal contribution since of the organisation the governance Director his appointment as an Executive 2002. on 25of the Company February the to service unstinted Brian provided member of as a key has served and Board the years. over team leadership the Group’s who Rogers Christopher I also welcome as a non-Executive joined the Board and Chairman of the Audit Director Christopher 2018. in May Committee financial and food has considerable and I industry experience and beverage him making a significant to look forward the Board. to contribution Together with the interim dividend of dividend of the interim with Together brings the total this per share, cent 21.0 cent, an 70.2 to the year dividend for of 12% on 2017. increase The Board recommends a final dividend of recommends The Board of 12.1% increase (an per share cent 49.2 on 10 final dividend) payable on the 2017 on the registered shareholders to 2019 May 12 April 2019. date record Dividend Sustainability of awareness see an increasing We and the importance sustainability with growth of balancing economic and social wellbeing. environmental the heart of everything is at Sustainability ‘Towards the Group’s we do and through value we promote 2020’ programme benefits all our stakeholders. that creation our has beenGood made across progress on detail and more in 2018 areas target key is presented performance our sustainability section of this Review in the Sustainability 72. on pages to 49 report
We continue to pursue organic and organic pursue to continue We opportunities which growth acquisition business model and build on the Group’s integrated. can be structurally Strategic Development Strategic new Group’s of the year is the first 2018 plan and the management team strategic implementing start has made a successful and priorities growth for the strategic Kerry’s above. as noted expansion margin business the Group’s model embraces & Nutrition and Kerry in Taste leadership positioning selected leadership in its Foods’ Strategic platforms. foods consumer is growth for our platforms of development growth organic continued underpinned by investment.and acquisition of In a year investment,significant acquisition the a net at acquisitions ten completed Group of €502m.cost In October, the Group hosted its first first its hosted the Group In October, in Asia. on South was focus Its day investor provided was an overview Asia,East where of responsible intrinsic culture Kerry’s into It is region. in the growth sustainable a businessunderpinned by model that has and local with customers resonates record a track for the platform provided in the region. growth organic of strong demonstration an excellent was The event successfully continues to of how Kerry business its model in developing invest across it in local markets and deploying the globe. CHIEF EXECUTIVE’S REVIEW
The Group achieved volume growth in 2018 well ahead of the market, where the rate of change continues to accelerate.
The food and beverage industry and end-to-end supply chain are experiencing unprecedented disruption, as consumers are demanding more than ever before and are challenging traditional business models. The application of Kerry’s leading taste and nutrition technology portfolio through our leading business model continues to drive significant value for our customers as they seek to meet rapidly changing consumer demands and increase speed to market. Major global consumer trends such as authenticity, healthfulness, convenience, clean label, sustainability and premiumisation, aligned with local consumer preferences continue to generate increased innovation opportunities.
Sustainability continues to emerge as a growing priority, especially for consumers, as they try to make a positive impact through their food choices. As the industry seeks to respond, Kerry’s innovation capabilities and continued progress against key sustainability goals supports customer ambition and value creation for a broader set of stakeholders.
12 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 13 + & Nutrition Taste Business Review pages 42-46 Consumer Foods Business Review pages 47-48 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry Kerry’s Ganeden® and probiotics Kerry’s enhancing immunity branded Wellmune® well, as grow to continued ingredients with reach their market broadened they wider a number of new launches into and Mexico In LATAM, applications. good growth, America delivered Central a solid overall delivered while Brazil and Bakery Snacks The performance. good delivered & Confectionery EUMs label cleaner solutions with Kerry’s growth, also was Kerryconnect driver. a key in the region. deployed successfully again once The global Pharma EUM the by driven growth, strong delivered in of excipients performance excellent North America and APMEA. acquired the Group In the last quarter Inc. Vinegar Company, Fleischmann’s all-natural certified (FVC), a USDA that ingredients of specialty producer and clean taste further supports Kerry’s a number of EUMs. across label strategies acquired the Group end, the year Since and Southeastern Mills’ (SEM) coatings seasonings business. manufactures SEM base in located strategically its from also reached Georgia. The Group Rome, USA, Ariake acquire to agreement clean label natural which produces from solutions derived taste savoury facility its at pork and vegetables poultry, These Virginia. in Harrisonburg, Kerry’s further enhance acquisitions and clean authentic taste extensive while complementing label portfolio, heritage. from-food-for-food the Group’s 2.8% in Americas of growth Volume Meat, Beverage by 2.8% driven EUMs and Snacks Americas in the Americas region revenue Reported 2.5% reflecting by €2,745m, to increased lower pricing of 0.5%, growth, 2.8% volume business of acquisitions from contribution 6.2% currency translation and an adverse impact of 6.0%. of product In North America, high levels the marketplace, across churn continued clean label, demands for as consumer and new experiences new world taste evolve to continued formats convenience End Use Market Meat Kerry’s pace. at meeting growth, strong (EUM) delivered authentic ethnic demands for consumer preservation shelf life natural flavours, of alternative range and a broader The Beverage products. protein-based good growth, deliver to EUM continued and applications development as Kerry’s launch a helped customers expertise across new products number of innovative including cold of categories a variety and functional beverages refreshing brew, EUM The Snacks health beverages. well, in particular with growth performed snacks. healthier savoury through Volume growth in Taste in Taste growth Volume – well of 4.1% & Nutrition ahead of the market Business Review & NUTRITION TASTE revenue & Nutrition reported Taste €5,351m, to as volume 3.7% by increased business from and the contribution growth by partially offset were acquisitions headwinds. currency significant translation €805m, to 5.0% by grew profit Trading improvement a 20 basis points reflecting 15.1%. to margin in trading 4.1% Kerry’s industry-leading research and research industry-leading Kerry’s to increased expenditure development in additional investment €275m due to €269m). Net Nutrition (2017: & Taste €286m to amounted expenditure capital continued as the Group €297m) (2017: priorities for strategic in its invest to technologies in particular taste growth, facilities. The market and developing cash flow of €447m free achieved Group of 72% in the cash conversion reflecting €501m/83%). (2017: year Constant currency adjusted earnings per adjusted currency Constant cent 353.4 to 8.6% by increased share Basic cent). 325.4 adjusted: currency (2017 to 8.3% by decreased earnings per share primarily due cent) 333.6 (2017: cent 305.9 the one-offto tax impact US of favourable in the prior year. reform Group trading margin was maintained maintained was margin trading Group 12.2%,at a 20 basis points reflecting & Nutrition and in Taste improvement improvement underlying margin positive offsetby adverse in Consumer Foods in a resulting rates exchange sterling reduction. 60 basis points margin Taste & Nutrition delivered 4.1% volume volume 4.1% & Nutrition delivered Taste 0.5%. by decreased and pricing growth businessConsumer Foods’ volumes pricing decreased and 1.1% by increased 0.4%. by Group revenue on a reported basis on a reported revenue Group billion reflecting €6.6 to 3.1% by increased and contribution growth volume strong partially offsetby acquisitions, from Business movements. currency adverse and pricing 3.5% by grew volumes against a backdrop 0.5% by decreased in the year. costs material of lower raw Results While UK and Irish consumer foods foods While UK and Irish consumer challenges impacting encountered markets sentiment,consumer growth with market Kerry’s the year, across reducing rates a solid division delivered Consumer Foods underlying performance. The Group again delivered volume growth growth volume delivered again The Group & Nutrition Taste markets. ahead of its in North growth volume sustained achieved America, in Latin growth America, solid and in Europe a good performance in APMEA. growth strong continued 2.3% 10.1% Volume growth in Europe Volume growth in APMEA of 2.3% driven by Beverage, of 10.1% driven by Meat, Meat and Dairy EUMs Meals and Snacks EUMs
Europe APMEA Reported revenue in the Europe region Reported revenue in the APMEA region increased by 1.7% to €1,422m, reflecting increased by 10.1% to €1,105m, reflecting 2.3% volume growth, lower pricing of 10.1% volume growth, a decrease in pricing 0.6%, an adverse transaction currency of 0.5%, an adverse transaction currency impact of 0.2%, contribution from business impact of 0.1%, contribution from business acquisitions of 1.4% and an adverse acquisitions of 3.4% and an adverse translation currency impact of 1.2%. translation currency impact of 2.8%.
The region delivered a good performance, The APMEA region continued to deliver given the very strong comparatives very strong growth well ahead of the particularly in the second half of 2017. market across the region’s developing The Beverage EUM delivered strong markets. The Meat EUM delivered performance across a number of very strong growth through customer beverage categories within both retail partnerships with a number of new and foodservice channels. The Meat innovations as customers broaden their EUM continued to deliver good growth, ranges to meet consumers’ changing with Kerry’s clean label technologies, needs for authentic taste, value and innovative texture solutions and meat-free increasingly, food safety. The Meals EUM technologies being successfully deployed continued to perform strongly in South in a number of new market launches. East Asia and Greater China across both the retail and foodservice channels, as The Dairy EUM continued to perform well new authentic cooking taste profiles in the rapidly evolving ice cream category, were deployed across a number of new with a number of new launches in both products. The Snacks EUM delivered good premium and dairy-free ranges using growth due to the continued development Kerry’s taste technologies. Russia delivered of new snacking occasions across the strong growth, particularly into the Meat region. Sub-Saharan Africa achieved strong and Snacks EUMs, while production growth, through better-for-you applications commenced in Kerry’s first manufacturing into the Beverage and Snacks EUMs. facility in the country, providing a key platform for future business development Good progress was made through and growth. Foodservice played a key role investments in ongoing footprint expansion across a number of EUMs, particularly in in Indonesia, China and Malaysia. Four the Beverage and Meat EUMs. acquisitions were completed in the The opening of Kerry’s first manufacturing year; Hangman – a leading China-based plant in Russia, 18 September 2018. producer of sweet and savoury flavours, Pictured: Andrei Razin, Minister for SIAS Food Co. – a leading China-based Agriculture for the Moscow Region; Olivier Picard, Managing Director Kerry supplier of culinary and fruit ingredients Russia; Edmond Scanlon, Chief Executive and systems to the foodservice and Kerry Group and Malcolm Sheil, President food manufacturing industries, Season & CEO Kerry Europe. to Season – a leading South African supplier of taste ingredients and systems + to the African snack and food sectors, Taste & Nutrition Business Review and AATCO Food Industries LLC – a pages 42-46 leading Oman headquartered provider of culinary sauces to the foodservice channel, Consumer Foods Business Review pages 47-48 providing a strategic platform for business development in the Middle East and Africa.
14 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 15 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry Chief Executive ScanlonEdmond Chief Executive 2019 18 February While there continues to be uncertainty be uncertainty to continues there While of the UK’s the outcome to with respect Union, Kerry the European from exit a managed that anticipates currently of outcome will bethe most likely transition has mitigation The Group the negotiations. short limit the potential to plans in place of a ‘no-deal’ implications term scenario. UK cautious on the remains Kerry it landscape, but is confident consumer the market. outperform to will continue in invest to will continue The Group and pursue business development strategic M&A opportunities aligned to priorities. growth Future Prospects Future the rapidly adapt to to continues Kerry and in investing changing marketplace, business the Kerry further developing outperform consistently model to evolving to and respond our markets and customer trends local consumer industry through requirements leading innovation. has a strong & Nutrition Taste Kerry’s pipeline with good growth innovation particularly in developing prospects, the business footprint where markets out of roll and successful expansion led in-countrythe consumer approach we continues. Within Consumer Foods build on the strategy to will continue and investing core the of realigning the whilst navigating in adjacencies, environment. uncertain current
‘Everyday Fresh’ delivered solid growth, solid growth, delivered Fresh’ ‘Everyday Richmond the Richmond range. led by sausages successfully chicken were well launched in Q2 and contributed softer Kerry’s performance. overall to good growth delivered offerings butter in label brands particularly with private Meal Solutions’ the UK. ‘Convenience reduced by impacted year, had a difficult as well as the activity promotional period weather. of warm extended well with strong performed Go’ to ‘Food the year. in Cheestrings across growth relaunched was brand Raiders The Fridge and now encompasses during the year of snacking products range a broader demographic. a wider consumer across Consumer confidence softened Consumer confidence half of the in the second noticeably consumption reduced leading to year, The a number of categories. across to continues environment UK retail change major structural undergo consolidation increased through further growth of major retailers, and ranges, volumes of discounter stores on high street and pressure more the need for – all leading to and dynamic supply chains. streamlined Reported revenue increased by 0.6% 0.6% by increased revenue Reported and the €1,339m, growth to as volume business acquisitions from contribution currency foreign by partially offset were profit trading headwinds. The divisional points to 60 basis by decreased margin improvement as the underlying margin 7.5% than offsetby transaction more was in a trading resulting headwinds, currency €100m. to of 7.1% decrease profit Business Review CONSUMER FOODS
1.1% in Consumer growth Volume – a solid of 1.1% Foods growth with market performance the year across reducing rates Pictured: Kerry Graduates Juan Alda Bechini, OUR Theresa Ziemer, Tomaz Verdinek and PEOPLE Kelsey Hunter.
Globally connected and winning locally
Our Culture Our people are the heartbeat of our business. We collaborate as a globally connected, locally led, high performing team. We leverage our diverse, entrepreneurial and results focused culture, talents and expertise to innovate and lead to better value for our customers, our shareholders, our people, our communities and our environment.
We strive for excellence in the delivery of our core business capabilities and differentiate ourselves as an organisation through our people. Our groupwide approach to people leadership is underpinned by our shared goal of nurturing a positive environment where all our people are inspired to develop themselves, to learn together and to grow our business; winning for our customers and for Kerry. Every day, our 25,000+ people leverage our global expertise and taste and nutrition capabilities to develop innovative food and beverage solutions that offer new growth opportunities for our customers. We represent more than 117 nationalities with operations across 147 locations; we are committed to fostering a great place to work, where our people can be at their best and are able to contribute fully to our shared success.
With 25,000+ employees throughout the world, the Group’s diverse high performance teams are central to our innovative culture and ongoing success.
16 Kerry Group Annual Report 2018
Strategic Report Directors’ Report Financial Statements 17
Kerry Group Annual Report 2018 2018 Annual Report Group Kerry
Our Graduate Programme continues its continues its Programme Our Graduate the developing of history successful and expertise of Kerry generation next leadership. sustainable INSPIRE Our Values + At Kerry, we truly value individual uniqueness and we come together Sustainability Review to uphold our shared commitments to ‘lead to better’ for our customers, pages 49-72 our people and our shareholders. As such, we nurture an inclusive and collaborative team environment where we deliver with excellence and embrace our entrepreneurial spirit to create new growth and sustainable value for our customers. Our core values are:
COMMITMENT Customers | Passion | Science | Technology
VALUE TEAMWORK CREATION Respect | Diversity | Success | Results | Empowered | Sustainable | ROI OUR VALUES Accountable
ENTREPRENEURSHIP EXCELLENCE Ownership | Innovation | Quality | Safety | Agility | Drive Integrity | Ethics
Commitment Teamwork Excellence Entrepreneurship Value Creation
We are wholeheartedly We value and respect We execute with We are swift and We prioritise our work to committed to the success each other. We embrace excellence in everything responsive, adapting provide greater value for our of our customers and Kerry. our global diversity as a we do. We continuously quickly to the changing customers and the business. We take great pride in our key driver of innovation develop our skills and market. We seek We generate maximum food and beverage heritage and success. We improve our performance. innovative ideas to drive returns on our investments and continuously strengthen are empowered and We strive to deliver the business forward and and continuously seek our science, technology accountable for delivering superior quality and achieve new levels of better ways to deliver and applications expertise greater results for our never compromise on the success for our customers long term value on a to passionately serve stakeholders, Kerry and safety of our colleagues and for Kerry. socially and environmentally our customers. our careers. or products. We operate sustainable basis. with integrity and adhere to the highest standards of business and ethical behaviour.
18 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 19
Kerry Group Annual Report 2018 2018 Annual Report Group Kerry
vesting in new HR technology to manage our people processes more manage our people HR technology more to in new processes vesting trengthening people leader capabilities to grow and lead our business people grow leader capabilities to trengthening In S people leaders on our 3,500 inspiring our people relies Kerry, At the future. for our customers. for deliver and alignment to clarity create to and their ability of the the role we rearticulated groups, and focus research through During 2018, all for and set of objectives framework in a new resulting people Kerry, leader at With management process. our performance through people reinforced leaders, our activities planned, this will help strengthen development ongoing leadership helping our people to growth, for as a catalyst talent nurturing to commitments building sustainable, and to with Kerry careers and rewarding successful develop results. exceptional deliver teams that and diverse effective opportunities through against our improvement progress monitor to continue We within pulse surveys and targeted teams ongoing dialogue with our leadership work, to place and be a great thrive continues to Kerry our business, ensure to engagement, employee to including our approach will be reviewing We succeed. effectiveness and alignment continued its ensure to our groupwide in 2019, survey Launched in October 2018, Launched in October 2018, organisation. the and efficiently across effectively one-stop is a our people,mySuccess for experience which enables portal a better a mobile enabled single and HR colleagues. It offers leaders candidates, external increase complexity, which will reduce all people information point of access for our also upgraded We Kerry. business for performance improved speed, and drive opportunities, development to access enhance to learning management system within Kerry. their careers progress helping our people to with our business needs. – – – – As a global business, we appreciate and value our dynamic mix of people mix of our dynamic bring who and value Asglobal business, a we appreciate to our organisation enable to and thought leadership new perspectives, experiences established our Global Having our customers. for innovate and grow continuously nurturing to our commitment advance to continue we in 2016, Programme Diversity and excel our success to can contribute everyone where culture workforce a diverse and personally. professionally educating our people and on the awareness include raising 2018 from Highlights global career promoting and Belonging Inclusion in Kerry; of Diversity, importance Diversity, establishing a Groupwide technology; connected new opportunities through activities on focused across collaborate to taskforce Inclusion & Belonging employee talent; of diverse new sources attract to processes our recruitment to enhancements Kerry; volunteering and a series of working arrangements; flexible more offer to local initiatives strategic also strengthened have our main locations. We across activated programmes Club of the 30% Irish Chapter our membership of the through within Ireland, partnerships Bia. with Bord conjunction in Inclusion Forum, & Diversity and the Agri-Food across from groups has been engaging representative during 2018 One significant activity and Inclusion Diversity, to approach and build upon our current us refresh help to Kerry action in 2019. for and set of objectives strategy in a revised Belonging, which has resulted of our elements core are improvement on continuous dialogue and a focus Two-way in 2017, initiated programme, ourVoice Group Kerry Our culture. and collaborative inclusive our closely with people our more engaging and connecting for global platform is a key employee business Groupwide first in our of our people goals. Almost 90% participated our by reinforcement with the positive delighted and we were 2017 in engagement survey committees our follow-up Through of Kerry. direction people of their belief in the future in our people and business improvement we identified opportunities for groups, and focus capabilities. and our leadership our communications processes, include: in 2018 level a global at ourVoice to in response Activities undertaken
90% Nearing 90% participation in ourVoice rates feedback programmes Enhancing our Employee Experience Fostering Diversity, Diversity, Fostering and Inclusion Belonging Promoting a –– Safety First, Quality Always. Food safety and the safety of our people are core priorities for Kerry, and our commitment to our people and our customers is reinforced safe and healthy through our ‘Safety First, Quality Always’ way of working. We embed this approach in all workplace and key processes across the company, including research, development and applications (new product development), procurement (supplier management programmes) and working practices engineering (sanitation and safety by design). for our people We continue to invest in our people, our processes and infrastructure, strengthening our functional capability through technical learning and career development opportunities, and creating new roles in our supply chain to enhance our global capabilities. These global capabilities include workplace safety, food microbiology, + food safety innovation and culture, sanitation, and auditing to improve our own global quality, safety, health and environmental standards and policies as well as to meet Sustainability Review pages 49-72 industry and regulatory requirements. With strong capital investment in our plants and in state-of-the-art quality system management software, we are reinforcing our best in class systems that will protect our people, consumers, customers and our planet for the future through our Kerry culture of ‘Safety First, Quality Always’.
–– Code of Conduct. Through our Kerry Code of Conduct we focus critical attention on ethical business practices and provision of a safe and healthy workplace. Our programme of compliance modules, covering Information Security, Intellectual Property, Anti-Fraud and Code of Conduct, has been completed by 80% of our people over the past two years. This will be an ongoing focus for our business throughout 2019.
Achieving results ethically and in compliance with all relevant legislation will always be an absolute expectation at Kerry Group. We operate a zero tolerance approach to labour abuses and support effective abolition of child and forced labour worldwide. The Group’s ‘Express a Concern’ hotline provides a mechanism by which employees can report issues in confidence through an independent channel.
–– Health & Wellbeing. Personal health and wellbeing of all our people is paramount. At Kerry we appreciate the importance of having a supportive wellbeing programme in place. Our framework has four pillars – nutritional, physical, emotional and financial – to support locally appropriate initiatives and drive a better awareness of the importance of wellbeing throughout our communities. We will continue to develop and embed wellbeing practices through our leadership development and employee effectiveness programmes.
8% >102,000 Health & Safety 8% Learning & Development year-on-year improvement courses completed
20 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 21 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry In line with our aim to be the first choice for the best talent around the world, our reward the world, our reward the best around for talent be choice the first In line with our aim to and the support both the business to strategy locally advantageous are programmes and potential their performance, needs of our people on recognising as well as focused business creation. value the pay monitor proactively to will continue and equality gender pay to committed are We appoint We it is comparable. ensure to doing similar roles colleagues of male and female of development the career encourage to based on merit and will continue and promote with regards practices and recruitment our promotion to attention all our people, paying all levels. at representation female support greater to gender, to it encompasses and financial rewards, than just pay is about more Reward’ ‘Total Kerry, At and worldwide opportunities in an development, growth personal learning, career robust we established a Global all our people During 2018, can flourish. where culture inclusive and of our regional and consistency the further growth promote to Framework Recognition each celebrate enable our people to These programmes programmes. local recognition to better and leading to values shared other’s living Kerry’s day-to-day – by achievements support our vision. At Kerry we pride ourselves in our ability to offer opportunities for all our people to for all our people opportunities offer to in our ability we pride ourselves Kerry At our ‘world of opportunity’ Through initiative and personally. professionally grow over supported we programmes, our global mobility and 2018 throughout promoted of the assignments in all corners for people with our relocating during 2018, 500 moves and and Kerry our customers for local growth drive to expertise their world, contributing our global on leveraging focus explicit With an experiences. and life cultural gain new to typically employees, our early career encourage we leaders, future develop to footprint seek out global opportunities less and those with to than 5 year’sgraduates experience, currently this group progression; support career their to experiences their broaden to in Kerry. moves of all international a quarter over represents component be a core continues to Programme Development Graduate renowned Kerry’s opportunities for pipeline, providing talent our future strengthen to of our strategy disciplines, enabling longer of core a wide range across work and develop to graduates to our approach we revisited 2018 In the organisation. for leadership sustainable term further build and to marketplace graduate in today’s competitive remains Kerry ensure for 2019. on our offering
Our Global Recognition promotes Framework the further growth our of and consistency and local regional programmes. recognition Rewards and Rewards Recognition
Strengthening our Strengthening Pipeline Talent
500+ 500 moves Over supported through of opportunity’ our ‘world and global initiative programmes mobility OUR Adding value by offering BUSINESS so much more to customers MODEL and consumers A. FOUNDATIONAL TECHNOLOGIES
Global & Regional CPGs t e tic a te Emerging Natural Brands Dairy, Savoury, Smoke & Grill, Citrus, Tea & Coffee, Beverage & Sweet Global & Regional Retail Development Retailers (Store Brands) & Applications The evolution of Kerry’s model – how we create value Product Process Culinary Technologies Kerry Brands Since our establishment in 1972, Kerry has evolved and developed its & Insights ingredient solutions portfolio, which represents the majority of the Group’s Global & Regional Chains Farm ingredients Consumer sales to the Food and Beverage industry. This has been achieved through and third party Independent Operators commodities Meat Beverage investment in the people and in the capabilities needed to drive the three tritio e e Dairy Bakery & Confectionery Convenience Food cogs of Kerry’s value creation engine, as well as through the acquisition ctio a it Meals Cereal & Sweet Brands Snacks Pharma Service of additional foundational technologies, providing a broad foundation to Proteins, Fibre, Enzymes, Probiotics, Emerging Channels Fermented ingredients, Texturants create customer-tailored solutions. Pharma
Kerry’s proven business model enables us to innovate through leveraging our globally connected capabilities in an agile and seamless fashion. A. FOUNDATIONAL TECHNOLOGIES A consumer centric culture and the successful deployment of our Authentic Taste, wide-ranging capabilities in local markets through our expansive Nutrition, Wellness & Functionality infrastructure mean that Kerry can successfully meet local consumer Kerry’s leading foundational technology portfolio needs, deliver on our strategy and drive sustainable business performance. provides an unparalleled platform for the innovation of new solutions to meet the needs of today’s consumer, utilising our Authentic Taste to er a e a tairca e and Nutrition, Wellness & Functionality platforms. Our Authentic Taste platform is founded on a ‘from-food-for-food’ heritage and philosophy, Integrated with a broad range of foundational technology Solutions Global & Regional CPG capabilities in Dairy, Savoury, Smoke & Grill, Citrus, t e tic a te Emerging Natural Brands Single Multiple Tea & Coffee, BeverageDairy, andSavoury, Sweet Smoke amongst & Grill, Citrus others., Ingredient Ingredients Tea & Coffee, Beverage & Sweet Global & RegionalRetailers (Store Brands) Our Nutrition, Wellness & Functionality platform Development Retail delivers benefits such as natural preservation, & Applications Product Process Kerry Brands Culinary Technologies Value-add immunity support, digestive health, sustainable & Insights Global & Regional Chains step Foundational Technologies efficiencies, fortification and cleaner labels. These Farm ingredients Taste & Independent Operators Consumer Taste Nutrition Oering andbenefits third part arey achieved by leveraging this broad commodities Nutrition Convenience foundational technology tritio platform e e which includes Food Solutions Brands Proteins, Fibre, Enzymes, c Probiotics,tio a it Fermented Service Ingredients and TexturantsProteins, amongstFibre, Enzymes, others. Probiotics, Meat Food Beverage Pharma Pet Emerging Channels Fermented ingredients, Texturants Kerry’s business model – the industry leader Together they enable better, more authentic taste Pharma The speciality ingredients and flavours sector is made up of many single with simple, natural, better-for-you nutrition. ingredient specialists, a few multiple ingredient players, and very few providers of integrated solutions.
Integrated solutions providers perform an extra step in the supply chain, and the value add these providers offer to customers can vary significantly Kerry’s business depending on their capabilities. At one end of the spectrum, there are model comprises companies who can create a limited number of integrated solutions into 3 core inputs a limited number of applications. Kerry, at the other end of the spectrum, A. Foundational Technologies – Authentic has developed an unparalleled suite of capabilities, deployed through Taste, Nutrition, Wellness & Functionality the engine of Kerry’s business model. This makes Kerry the only truly B. A unique integrated technology value holistic integrated solutions provider, with a wide breadth of customised creation engine – deployed through integrated solutions deployed across a wide range of market applications. specialist end use market teams C. Unparalleled channel and customer access
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an obal obal obal Gl Retaile Gl Em Ke Gl Ph Independent Co Br Em nne C. CHANNELS & CUSTOMERS CHANNELS & C. Kerry’s Taste & Nutrition and Consumer Taste Kerry’s uniquely positioned divisions are Foods and foodservice the retail across the broadest provide channels to grow successfully to market to routes our unique our business and leverage and nutrition solution capabilities. taste in existing, invest to will continue We sub-channelsnew and emerging and of our the breadth leverage selectively this range capabilities across of channels. and set is diversified, Our customer and regional global to from ranges need local with a common leaders, and support in meeting today for demands. consumer tomorrow’s business model is The Kerry truly unique and has enabled the and strengthen to organisation with value-add relationships evolve work to The ability our customers. at with customers collaboratively launch to concept from stage every Kerry in the marketplace, differentiates on take to and enables our customers the challenges and opportunities that presents. marketplace today’s C. C. a e Operators giona giona giona ds Natural Brands Ch nc ns Re Re Re & an on ie
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Technologies Technologies Nu Ta So Product Process Product Process Pharma Beverage Bakery & Confectionery Cereal & Sweet Pharma Beverage Kerry Foresight & Insight Foresight Kerry Development Development & Applications & Applications Meat Dairy Meals Snacks KERRY BUSINESS MODEL BUSINESS KERRY t Pe Technologies Technologies Product Process Product Process Food B. INTEGRATED TECHNOLOGY VALUE CREATION VALUE TECHNOLOGY INTEGRATED B. TED TECHNOLOGY VALUE CREATION VALUE TED TECHNOLOGY Pharma Consumer, Customer, Sensory & Analytical, Market and Regulation Sensory & Analytical, Market Customer, Consumer, Meat Culinary Culinary & Insights & Insights Beverage Bakery & Confectionery Cereal & Sweet Pharma A unique integrated technology value creation engine creation value technology A unique integrated teams specialist end use market through – deployed INTEGRA
Beverage The engine of our model is powered by three core elements – Culinary & Insights, & Insights, – Culinary elements core three by The engine of our modelpowered is – driving maximum value Technologies Process Product and & Applications, Development of expertise and layering leveraging and the targeted their seamless integration through and capabilities. geographies channels and of end use markets, a variety cover & Insights Culinary Kerry’s preferences consumer ahead of ever-changing stay to Group the world, enabling the across demands. consumer future into foresight and providing and local immersed in regional chefsOur globally-connected are of professional network state-of-the-art Kerry’s culinary leverage They preferences. and consumer cuisines, tastes unique deliver that wholesome recipes create to and authentic processes suites kitchen methods. authentic cooking natural from solutions derived taste insightful, facilitate is designed to platform & Nutrition Discovery Taste Our proprietary and the rapid ideation for serving as a catalyst our customers, with discovery interactive nutrition solutions. and co-creation taste of innovative teams & Applications Development and inter-connected dedicated Kerry’s work with They life. to and products artisans who bring our recipes the innovative are teams analytics and regulatory sensory and consumer and nutrition experts, our taste Kerry’s process. and production development, commercialisation the product throughout rapidly to solutions in response and provide innovate teams & Applications Development requirements. changing consumer with our , together Technologies Process Product industry-leading The Group’s of our understanding engineering expertise, and depth of process breadth unparalleled value drive to enable Kerry heritage, supply chain, and our from-food-for-food the entire consistent, of manufacturing safe and high-quality finding new ways that by products can trust.consumers & state-of-the-art of both our Taste the breadth Kerry’s replicate pilot plant facilities within our Global Located and those of our customers. processes Nutrition manufacturing both to accessible are centres these commercialisation Centres, & Innovation Technology enabling teams, technology process and product teams and applications our development to market. and speed development efficient product our value as we focus End Use Markets around model is anchored centric Our consumer in the market. new winning products develop engine to creation B. B. Development Development & Applications & Applications Meat Dairy Meals Snacks Food Meat Culinary Culinary & Insights & Insights
it it ctio a ctio a ea & Coffee, Beverage & Sweet ea & Coffee, Beverage & Sweet Proteins, Fibre, Enzymes, Probiotics, Fermented ingredients, Texturants Proteins, Fibre, Enzymes, Probiotics, Fermented ingredients, Texturants tritio e e tritio e e t e tic a te Dairy, Savoury, Smoke & Grill, Citrus, T Dairy, Savoury, Smoke & Grill, Citrus, Dairy, Savoury, Smoke & Grill, T t e tic a te
it it Farm ingredients and third party commodities Farm ingredients and third party commodities ctio a ctio a ea & Coffee, Beverage & Sweet ea & Coffee, Beverage & Sweet Proteins, Fibre, Enzymes, Probiotics, Fermented ingredients, Texturants Proteins, Fibre, Enzymes, Probiotics, Fermented ingredients, Texturants tritio e e tritio e e t e tic a te Dairy, Savoury, Smoke & Grill, Citrus, T t e tic a te Citrus, Dairy, Savoury, Smoke & Grill, T Farm ingredients and third party commodities Farm ingredients and third party commodities OUR Where the consumer is at the MARKETS centre of everything we do
Kerry is a consumer-led A. Kerry continues to meet a wide range of rapidly evolving consumer organisation. Our business CONSUMER preferences. Across the global consumer landscape, today’s most model, structures and strategies PREFERENCES pronounced preferences include clean and cleaner label, convenience, continue to evolve, centred nutrition & wellness, authenticity and premiumisation. These distinct around a deep understanding preferences can mean different things to consumers in different parts of of diverse local consumer the world. Central to Kerry’s approach is the fundamental understanding preferences across the globe. of how to address these needs and support customers as they seek to innovate to win in today’s marketplace. These ever-evolving consumer preferences are redefining consumption occasions right across end use markets and channels. B. Kerry serves the consumer through eight major end use market END USE categories, across a vast range of applications with over 15,000 different MARKETS products. As consumer preferences increasingly transcend traditional end use market category boundaries, Kerry’s breadth of applications expertise is more relevant than ever in positioning the Group as the + industry preference as an innovation partner. Business Model C. Kerry serves the market through a number of different channels in pages 22-23 CHANNELS Retail and Foodservice. These routes to market are changing at an unprecedented level, creating challenges and opportunities. Business Reviews pages 42-48 Retail: This channel is experiencing major change as consumer purchasing behaviour evolves, creating challenges for traditional retail business models (e.g. traditional high-street) and opportunities for businesses that can address emerging needs of growing sub-channels (e.g. online, convenience). Many large consumer packaged goods companies are struggling to keep pace with this change, as many smaller companies are gaining share, leading to market fragmentation. Foodservice: This channel has been revolutionised over the past decade and menus continue to evolve at pace, as foodservice businesses seek to meet consumer needs and preferences through new platforms (e.g. snacking, beverage), enhancement of nutritional aspects of menus (calorie counts), limited time offers/seasonal products and home delivery services. These dynamics are leading to increased levels of innovation within the foodservice channel. Kerry’s holistic business model and deep understanding of the end-to-end supply chain ideally positions the Group to support customers in meeting these continually evolving needs by bringing more products to market in an expedient manner.
CUSTOMERS Kerry’s customer base broadly comprises one third global companies, one third regional leaders and one third local/smaller players. The Group works effectively across this wide range of customers and tailors its approach to best serve each individual customer type, addressing the challenges and opportunities within the categories in which they operate, and supports them as they innovate and move into new categories, new channels and new end use markets.
24 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 25 Operators Local/ smaller Independent customers Brands Kerry Group Annual Report 2018 2018 Annual Report Group Kerry Channels Emerging Convenience Meals & Other Cereal, Sweet Global Chains & Regional Dairy & Pharma
Digital: Clean label customer connected Bakery Sustainability Confectionery CHANNEL Food safety FOODSERVICE Premiumisation
Regional customers Localisation CONSUMER Snacks A. CONSUMER PREFERENCES MARKETS B. END USE Personalisation C. CHANNELS
& CUSTOMERS 140+ Convenience Authenticity Nutrition & Wellness Kerry Brands Meat Beverage RETAIL Pharma CHANNEL Brands Natural Emerging/ Sales in over 140 countries Sales in over (Store Global Brands) Retailers Global & Regional CPG Global customers & Regional The Group has clear strategic priorities for growth, STRATEGY STRATEGIC which are the main drivers of our medium-term organic & FINANCIAL PRIORITIES growth targets and focus areas for capital allocation. These are complemented by our margin expansion TARGETS FOR GROWTH objectives and underpinned by a returns discipline.
TASTE & NUTRITION CONSUMER FOODS
STRATEGIC AUTHENTIC NUTRITION, WELLNESS DEVELOPING PRIORITIES FOODSERVICE TASTE & FUNCTIONALITY MARKETS FOR GROWTH Kerry’s Unique Proposition
OVERVIEW Our Authentic Taste platform is The combination of Authentic Our Nutrition, Wellness & We have an excellent track record of growth Kerry has an unrivalled position as a partner We are a leader in our chilled foods’ founded on a ‘from-food-for-food’ Taste and Nutrition, Wellness & Functionality platform delivers in Developing Markets as customers continue to the Foodservice channel. The breadth of categories in the UK and Ireland. heritage and philosophy, with a Functionality through application is benefits such as natural preservation, to realise the potential of having a partner our offering and depth of capabilities allows TM We will continue to drive growth and broad range of foundational where significant value is added for immunity support, digestive Trhealth,ueTaste with Kerry’s local knowledge and global customers to work with Kerry right across outperform our markets in our core technology capabilities in Dairy, our customers, and this intersection sustainable efficiencies, fortificationTM expertise and capabilities. their menu, both in enhancing the taste Ultranor business by responding to key Savoury, Smoke & Grill, Citrus, is the sweet spot for Kerry – and cleaner labels. These benefits TM proposition and improving the nutritional TM Kerry’s target is to continue to achieve consumer trends in meat, meals and Tea & Coffee, Beverage and with our strategic positioning,TrueTaste are achieved by leveraging thisUp broadgrade value and functionality of their products. average volume growth in developing dairy, while also leveraging this core Sweet amongst others. industry-leading capabilities and foundational technology platform which
TM markets of 10%+ per annum over the five Kerry’s target is to achieve average volume expertise in developing and expanding applications expertise. TM includes Proteins, Fibre, Enzymes, Prodiem year plan. growth in Foodservice of 7% per annum over adjacent categories. Upgrade Probiotics, Texturants, Food Protection TM TM the five year plan. and NaturalTM Tr PreservationueTasteEmulgold Solutions TrueTaste TM ProdiemTM amongst others. Durafresh
TM TM TM TM Ultranor Upgrade Selected brands Upgrade BRANDS/ TrueTaste TM Durafresh TM POSITIONING TM TM TM TM TM TM TM TM PlantfareTM Upgrade Prodiem UltranorProdiemDairySource TMTM TMTM TM TM TM TM
TM TM TMTM TM TM TM TMTM TrueTaste ProPlantfarediemTM DuraEmulgoldfreshTM Durafresh Biobake
TM TM TM FOCUS • Enhance authentic Upgrade• Enhance technologyDura portfolioBiobakefresh withTM TM • Enhance nutrition, wellness & • Expand our footprint and roll out our • Targeting strategic accounts: new Our focus is on continuing to grow and TMTM TM consumer-led in-country approach platforms, menu nutritional development, outperform in our core business, where we and natural taste technologies that deliver across functionalityTM Emulgold technology portfolio Plantfare Plantfare through organic investment limited time offers and seasonal products enjoy leading positions, while also expanding technology portfolio TMboth strategic pillars • Further leverage industry-leading Prodiem TM and M&A our offering in targeted adjacencies. • Advance our leading authentic • Drive innovation in new and DairycleanSource label portfolio into a broader • Brand strategy: selective geographical TM TM cooking taste capabilities fast-growing applications areas rangeTM of Biobakeapplications in line with • Global foundational technology and sub-channel deployment, supported • Core business: continue to outperform by TM Plantfare Biobake as part of our Chef to Shelf Durafresh– e.g. plant protein evolving consumer demands portfolio selectively deployed by our digital strategy, along with innovating to meet key consumer trends programme with strategic customers enhancement of our brand portfolio of authentic taste, healthfulness and • Invest in the fundamental foodTM • Further investment in scientific Biobake convenience • Leverage authentic and science and further expand and clinicallyDairy Sourcevalidated nutrition • Holistic business model selectively • New and emerging sub-channels: e.g. natural taste capability network of research partners programmes in conjunction with the deployed, aligned to local consumer convenience and health • Adjacent categories: focus on growth PlantfareTM preferences priorities of snacking, out-of-home to deliver world taste • Evaluate and explore strategic development of the Kerry Health and • Further embed Kerry’s cross functional experiences Nutrition Institute • Invest in capabilities to continue to teams within our customers’ innovation and food-to-go solutions which will partnership and M&A opportunities be driven by new consumption TM deliver sustainable growth into the future and culinary development processes Biobake occasions, new channels and a broader customer base
• Achieved volume growth of 5.8%, a good • Achieved volume growth ahead of our • Further developed • Delivered a number of innovations • Expanded our industry-leading clean • Strong organic performance, with KEY 2018 performance in light of the very strong markets, which were challenged in the Taste Sense™ sugar-reduction encapsulating Kerry’s unique taste label capability and bio-processing volume growth of 9.5% despite a backdrop ACHIEVEMENTS comparatives in the prior year year due to softer consumer demand technology with a number of & nutrition positioning technology capacity with our plant of volatility in many developing markets new launches in Rochester • Further strengthened customer • Achieved strong growth in our adjacent • Acquired Fleischmann’s Vinegar • Established first manufacturing relationships by tailoring our offering • Further leveraged our capabilities • Further enhanced our existing footprint in Russia and also completed categories, particularly in snacking through Company – further supporting right across the menus of a number of and industry-leading technology plant-based protein capability and an acquisition in the Middle East, the Cheestrings and Fridge Raiders ranges Kerry’s clean label strategy strategic customers position in smoke & grill expanded with Ojah technologies establishing a platform in these • Fridge Raiders successfully relaunched • Agreed to acquire Ariake USA – regions for future business growth • Expanded our Foodservice presence • Further expanded our • Ganeden® probiotics & Wellmune® to a wider market and demographic significantly complementing the through internal deployment of resources foundational technology immunity enhancing ingredients had • Acquired a number of different Group’s authentic taste and clean and leveraging new acquisitions with portfolio with technology a number of new launches across a businesses across a range of label portfolio positioning in the Foodservice channel innovation and strategic wide range of end use markets developing markets – China, India, authentic taste acquisitions Middle East and South Africa
26 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 27 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry + Business Model pages 22-23 Priorities Strategic Expansion Margin for page 28 Core Adjacencies New occasions New channels New customers chieved volume growth ahead of our growth volume chieved in our adjacent growth strong chieved ore business: continue to outperform by by outperform business: to continue ore on growth focus categories: djacent ridge Raiders successfully relaunched relaunched successfully ridge Raiders Selected brands A F and demographic a wider market to C A A challenged in the which were markets, demand softer consumer due to year in snacking through particularly categories, ranges Raiders the Cheestrings and Fridge innovating to meet key consumer trends trends consumer meet key to innovating healthfulnessof authentic taste, and convenience priorities of snacking, out-of-home and food-to-go solutions which will new consumption by be driven new channels and a broader occasions, base customer
We are a leader in our chilled foods’ a leader in our chilled foods’ are We in the UK and Ireland. categories and growth drive to will continue We in our core our markets outperform key to business responding by in meat, trends consumer meals and this core while also leveraging dairy, and expanding in developing expertise categories. adjacent Our focus is on continuing to grow and grow to is on continuing Our focus we business, where in our core outperform leading positions, while also expanding enjoy adjacencies. targeted in our offering • • • • • CONSUMER FOODS
ging sub-channels: e.g. d our Foodservice presence presence d our Foodservice and strategy: selective geographical geographical selective and strategy: chieved volume growth of 5.8%, a good of 5.8%, growth volume chieved argeting strategic accounts: new accounts: strategic argeting urther embed Kerry’s cross functional cross urther embed Kerry’s customer urther strengthened F innovation within our customers’ teams processes and culinary development A strong in light of the very performance prior year in the comparatives F our offering tailoring by relationships the menus of a number of right across customers strategic Expande of resources deployment internal through with new acquisitions and leveraging channel positioning in the Foodservice T menu nutritional development,platforms, and seasonal products time offers limited Br New and emer and health convenience and sub-channel deployment, supported along with strategy, our digital by portfolio of our brand enhancement Selected brands
Kerry has an unrivalled position a partner as an unrivalled has Kerry of channel. The breadth the Foodservice to and depth of capabilitiesour offering allows right across work with Kerry to customers their menu, both in enhancing the taste the nutritional improving and proposition of their products. and functionality value volume average achieve is to target Kerry’s 7% of in Foodservice per annum over growth plan. year the five FOODSERVICE • • • • • • • 2018 €1.4bn we fastest are the are growing ss model selectively ootprint and roll out our ootprint and roll + = oundational technology technology oundational we division’s leading strategic priorities for growth are Authentic are priorities growth for strategic leading division’s & Nutrition Taste vest in capabilities to continue to to continue in capabilitiesvest to cquired a number of different a number of different cquired stablished first manufacturing manufacturing first stablished largest are the are businesses across a range of businesses a range across – China, India, markets developing and South Africa Middle East volume growth of 9.5% despite a backdrop a backdrop despite of 9.5% growth volume markets developing in many of volatility and also completed in Russia footprint in the Middle East,an acquisition in these establishing a platform business growth future for regions A deployed, aligned to local consumer local consumer aligned to deployed, preferences S E Holistic busine In the future into growth sustainable deliver Expand our f in-country consumer-led approach investment organic through and M&A Global f deployed selectively portfolio customers with strategic In our industry
• • • with performance, organic trong • • • • We have an excellent track record of growth growth of record track an excellent have We continue as customers Markets in Developing a partner of having the potential realise to local knowledge and global with Kerry’s and capabilities. expertise achieve to continue is to target Kerry’s in developing growth volume average the five of 10%+ per annum over markets plan. year DEVELOPING MARKETS The Taste combined with Nutrition, Wellness & Functionality. These are intrinsically These are & Functionality. Wellness with Nutrition, combined Taste great on delivering of working focus ways and philosophy as Kerry’s intertwined, wellness their nutrition, whilst enhancing and functionality. products, tasting Markets our leading positions in Developing advance also continues to The Group channel. and the Foodservice in the chilled cabinet, categories division is a leader in its The Consumer Foods and is further growth. to drive on bestfocused in the changing marketplace positioning offering its Enhance nutrition, wellnessEnhance & portfolio technology functionality industry-leading leverage Further a broader into clean label portfolio in line with of applications range demands consumer evolving in scientific investment Further nutrition and clinically validated with the in conjunction programmes Health and of the Kerry development Nutrition Institute Expanded our industry-leading clean Expanded our industry-leading bio-processing and label capability with our plant capacity technology in Rochester our existing enhanced Further and capability protein plant-based with Ojah technologies expanded Ganeden® & Wellmune® probiotics had enhancing ingredients immunity a a number of new launches across of end use markets wide range NUTRITION, WELLNESS NUTRITION, WELLNESS & FUNCTIONALITY • • • Nutrition, Wellness & Our Nutrition, Wellness delivers platform Functionality preservation, benefits such as natural support,immunity health, digestive efficiencies,fortification sustainable and cleaner labels. These benefits this broad leveraging by achieved are which platform technology foundational Enzymes, Fibre, includes Proteins, Protection Food Texturants, Probiotics, Solutions Preservation and Natural amongst others. • • • Enhance technology portfolio with portfolio technology Enhance across technologies deliver that pillars both strategic and in new innovation Drive areas applications fast-growing plant protein – e.g. food in the fundamental Invest and further expand science partners of research network strategic and explore Evaluate and M&A opportunities partnership a number of innovations Delivered unique taste Kerry’s encapsulating & nutrition positioning Vinegar Fleischmann’s Acquired – further supporting Company clean label strategy Kerry’s – USA Ariake acquire to Agreed the significantly complementing and clean authentic taste Group’s label portfolio • • • • • • • The combination of Authentic of Authentic The combination & and Nutrition, Wellness Taste is application through Functionality is added for significant value where and this intersection our customers, – Kerry spot for is the sweet positioning, with our strategic capabilities and industry-leading expertise. applications Enhance authentic Enhance taste and natural portfolio technology our leading authentic Advance capabilities taste cooking Shelf as part of our Chef to programme authentic and Leverage capability taste natural world taste deliver to experiences developed Further sugar-reduction Sense™ Taste with a number of technology new launches our capabilities leveraged Further technology and industry-leading & grill position in smoke our expanded Further technology foundational with technology portfolio and strategic innovation acquisitions authentic taste • • • • • • TASTE & NUTRITION TASTE is platform Taste Our Authentic on a ‘from-food-for-food’ founded with a and philosophy, heritage of foundational range broad capabilitiestechnology in Dairy, & Grill, Citrus, Smoke Savoury, and & Coffee, Beverage Tea Sweet amongst others. AUTHENTIC AUTHENTIC TASTE KEY 2018 ACHIEVEMENTS STRATEGIC STRATEGIC PRIORITIES GROWTH FOR OVERVIEW BRANDS/ POSITIONING FOCUS STRATEGY STRATEGIC & FINANCIAL PRIORITIES FOR TARGETS MARGIN EXPANSION
OperatingOperatingOperatingOperating PortfolioPortfolioPortfolioPortfolio KerryExcelKerryExcelKerryExcelKerryExcel KerryExcelKerryExcelKerryExcelKerryExcel LeverLeverLeverLeverageageageage EvolutionEvolutionEvolutionEvolution SavingsSavingsSavingsSavings InvestmentInvestmentInvestmentInvestment
OPTIMISEOPTIMISEOPTIMISEOPTIMISE LEVERAGE LEVERAGE LEVERAGE LEVERAGE DIFFERENTIATEDIFFERENTIATEDIFFERENTIATEDIFFERENTIATE DRIVEDRIVEDRIVEDRIVE EFFICIEN EFFICIEN EFFICIEN EFFICIENCYCYCYCY RE-INVESTRE-INVESTRE-INVESTRE-INVEST TO TO TO GROWTO GROW GROW GROW OPTIMISE LEVERAGE DIFFERENTIATE DRIVE EFFICIENCY RE-INVEST TO GROW e e e e e e e era era era era e err err err err plat orm plat orm plat orm plat orm e e e e o n ation o n ation o n ation o n ation tec nolo ies tec nolo ies tec nolo ies tec nolo ies an act rin an act rin an act rin an act rin e cellenc e cellenc e cellenc e cellence eee Fra mentation Fra mentationFra mentationFra mentation re sponsere re responsesponsesponse Leverage e e e e e e e era era e ra e1ra e ro tesKerry ro tes ro tes ro tes toplatform to mar etto to mar et mar et mar et New e foundational e e e mar ets mar ets mar ets mar ets technologies Manufacturing S ppl S ppl S ppl S ppl c ain c ain c ain c ain e cellence e cellence excellencee cellence e cellence Fra gmentation o ocalisation o ocalisationcalisationcalisation o response o ootprint o o ootprint ootprint ootprint e e e e c annels c annels c annels c annels eo rap ies eo rap ies eo rap ies eo rap ies ommercial ommercial ommercial ommercial e cellenc e cellenc e cellenc e cellence eee ncr ncr ncrease ncrease ease ease R R DR R DDD Leverage e e e e e e e era era e ra eroutesra e c stomer c stomer c stomer c stomer to marketcentres centres centres centres New markets Supply chain excellence Localisation of footprint ana e ana e ana e ana e c rn c rn c rn c rn it it it it a ilit a ilit a ilit a ilit Ser ice Ser iceSer iceSer ice e cellenc e cellenc e cellenc e cellence eee err connect siness err connect siness err connect siness err connect siness Ser ices Ser ices Ser ices Ser ices Leverage e e e e e e e era era e ra ecustomerra e ootprint ootprint ootprint ootprint centres New channels/geographies Commercial excellence Increased R&D Leverage footprint Manage churn with agility Service excellence Kerryconnect/Business Services
Medium Term Our overall target of 10%+ average adjusted EPS These return metrics ensure that there Financial Targets growth represents a balance of volume growth and is an appropriate balance between growth margin expansion, supported by the reinvestment and return. The medium term of cash in our strategic priorities. The metrics financial targets are of return on average capital employed and cash We believe that the delivery of these financial based on a combination conversion represent a balanced assessment of targets should underpin a Total Shareholder of growth and return. performance over time. Return outperformance relative to our peers.
Strategic Growth Medium Term Targets Volume growth Margin Expansion On average over Taste & Nutrition 4% to 6% p.a. Taste & Nutrition 40bps p.a. life of plan Consumer Foods 2% to 3% p.a. Consumer Foods 20bps p.a.
Group 3% to 5% p.a. Group 30bps p.a.
Above assumes 2% above market growth rates
Constant currency adjusted EPS* +10% p.a.
Returns ROACE* 12%+ Cash conversion >80% Relative Total Shareholder Return – outperforming peers
Cash conversion is expressed as a percentage of adjusted earnings after tax. *Adjusted EPS and ROACE are calculated before brand related intangible asset amortisation and non-trading items (net of related tax). The medium term targets above for the period commencing FY2018 were outlined at the Group’s Capital Markets Day in October 2017. Full definitions can be found on pages 30-31.
28 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 29 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry
Proven Success Sustainable Natural, community based heritage community Natural, future a sustainable for Investing against targets delivery Strong performance to Milestones linked management health & wellbeing Innovative supporting programmes globally communities 32 years of consistent results results of consistent 32 years 1986 since revenue for 10% CAGR profit trading for CAGR 14% EPS adjusted for 13% CAGR price on share 16% CAGR on dividend per share 17% CAGR
People Market Market Leader Proven leadership and leadership Proven capability management results-driven Ambitious, and collaborative culture Investment in leadership, professional and technical capabilities for the future personal for Opportunities growth and career fulfilment Global mobility programme teams inclusive and Diverse & recognitionReward focus Global Leader in Taste & Nutrition in Taste Global Leader Industry & Beverage Food to & Nutrition business Taste Largest Markets in Developing & in Taste Global Leader Meat/Nutrition solutions into market Alternative Meat in Clean Label Global Leader solutions (in particular natural taste) & natural preservation 10 top In 5 of the world’s drugs blockbuster in our chilled foods’ Leader in UK and Ireland categories We have a long history of sustained profitable growth. growth. profitable of sustained history a long have We through be achieved to will continue strategy Group of our people. and expertise the commitment Industry-leading business modelIndustry-leading & Nutrition positioning Unique Taste of technology with long runway opportunities deployment all customer Winning across and channels segments growth strong Further markets in developing potential global footprint Extensive meet local needs to platform consolidator Proven Growth Potential Technology Leader portfolio technology Unrivalled expertise Deep and research science of partners global network aligned to of product breadth Unparalleled expertise process on technology Unique expertise solution delivery for integration application Industry-leading & culinary expertise infrastructure Best-in-industry of global and local technology centres & application CAGR = Compound Annual Growth Rate. = Compound Annual Growth CAGR STRATEGIC STRATEGIC ADVANTAGE FINANCIAL KEY The metrics outlined below are the The Group also has a range of non-financial important measurement indicators of metrics that are used to measure performance PERFORMANCE Group performance in meeting its financial with customers, suppliers, community, INDICATORS objectives. The Group’s financial objective environmental targets and employee is to maximise shareholder return by engagement. These non-financial metrics delivering on the targets of growth in are shown in the Sustainability Report business profitability and meeting return and complement the financial metrics on investment hurdles. detailed below.
GROWTH
Constant Currency Key Financial Volume Growth Trading Margin Expansion Adjusted EPS Growth Performance bps Metric 3.5% +0 +8.6%
Definition1 Volume growth represents sales growth Trading margin expansion represents Constant currency adjusted EPS This measure is defined as profit after Cash conversion is defined as free cash TSR represents the change in the capital value year-on-year, excluding pass-through the change in trading margin in the growth represents adjusted EPS in the tax before non-trading items (net of flow, expressed as a percentage of adjusted of Kerry Group shares plus dividends reinvested. pricing on raw material costs, currency current year compared to trading current year compared to adjusted tax), brand related intangible asset earnings after tax. impacts, acquisitions (net of disposals) margin achieved in the prior year. EPS achieved in the prior year amortisation and finance income and and rationalisation volumes. Trading margin represents trading profit calculated on a constant currency costs, expressed as a percentage of expressed as a percentage of revenue. basis. Adjusted EPS is considered average capital employed. more reflective of the Group’s underlying trading performance than basic EPS.
Performance The Group achieved continuing volume The Group maintained its trading The Group achieved constant The Group achieved ROACE of 12.0% The Group achieved Cash Conversion of The Group achieved a TSR of (6.8%) in 2018, Commentary Directgrowth from in Ex2018ce ofl 3.5%, which was a margin of 12.2% in 2018. This represented currency adjusted EPS growth of 8.6% in 2018. This was a strong performance, 72% in 2018. This was impacted by the which outperformed the mean and median of Direct fromDirect Excel fromstrong Ex ceperformancel relative to the good underlying growth being offset in the year reflecting a consistent solid as it was impacted by the timing of level of planned capital investment for growth Kerry’s peer set. This result was also ahead of the marketplace. by sterling related challenges arising performance. investments made in the year and and working capital due to revenue growth MSCI Food, Beverage & Tobacco producers index, in the Consumer Foods business, foreign currency movements. and investment for the rollout of Kerryconnect as global markets were affected by a number of Volume Growth Trading Margin EPS ROACECash TSR Volume GrowthVolume Growth Trading MarginincreasedTrading business Margin investments and EPS EPS ROACECROACECin the Americas.ash ash factors including uncertaintyTSR around globalTSR trade ExpansionKerryconnectExpansionExpansion spend. and Brexit negotiations.
The Group has achieved compound growth of 76% in TSR over the course of the last five years.
Historical Performance 8.6% 9.4%8.6% 8.6% 39% 39% 39% +70bps +0bps +0bps+70bps +70bps+0bps +0bps+0bps +0bps 12.3% 9.4% 12.3% 12.39.4%% 100% 100% 100% +40bps +60bps+40bps +40bps 3.4% 3.4% 3.4% (7%) +60bps +60bps 9.1% 9.1% 9.1% 14.4% 14.4% 14.4% 83% 83% 83% 89% (7%) 89% 89(7%%) 4.3% 4.3% 4.3% 353.4 341.2353.4 353.4 85% 570 85% 72%85570% 570 72% 72% 12.2% 12.2% 12.2%12.2%12.2% 12.2% 12.2%12.2% 12.2% 323.4 341.2 323.4 323.4341.2 13.6% 13.6% 13.6% 76% 3.8% 3.8% 3.8% 11.1% 11.5% 11.1% 11.1%11.5% 11.5% 301.9 301.9 301.9 12.9% 13.0% 12.9% 1213.9.0%% 13.0% 501 501 501 76% 76% 3.6% 3.5%3.6% 3.6% 3.5% 3.5% 278.9 453 35% 35% 35% 278.9 278.9 12.0% 12.0% 12.0% 62% 453 62% 62453% 447 447 447 53% (10%) 53% 53(10%)% (10%) 2.4% 2.4% 2.4% 303 303 303 37% 37% 37% 14% 14% 14% 14% 14% 14% 2014 2015 20162014 20172014 20152018 2015 2016 2016 2017 20172018 20142018 2015 201620142014 2017 2015 20152018 2016 2016 2017 20172018 2018 2014 2015 201620142014 2017 2015 20152018 2016 2016 2017 20172018 2018 2014 2015 20162014 20172014 20152018 2015 2016 2016 2017 20172018 2018 2014 2015 20162014 20172014 20152018 2015 2016 2016 2017 20172018 20182014 2015 20162014 20172014 20152018 2015 2016 2016 2017 20172018 2018
ra in ar in pansion ra in ar in ra in pansion ar in pansion onstant rrenc ste onstant S onstant rrenc ro t rrenc ste ste S ro t S ro t as on ersion as on ersion as on ersion nn al SR ro t nn al SR nn al ro t SR ro t ol me ro t ol me ro t ol me ro t ra in ar in ra in ar in ra in ar in ste S cent ste ste S cent S cent R R R Free as Flo Free as Free Flo as Flo ompo n SR ro t ompo n SR ompo n SR ro t ro t
Strategic Volume growth is an important Trading margin expansion is a key EPS growth is a key performance ROACE is a key measure of the return Cash conversion is an important metric as it TSR is an important indicator of how Linkage metric as it is seen as the key driver of measure of profitability. It demonstrates metric as it encompasses the the Group achieves on its investment in measures how much of the Group’s adjusted successful the Group has been in terms top-line business improvement. This improvement in the product mix being components of growth important to capital expenditure projects, acquisitions earnings is converted into cash. of shareholder value creation. is used as the key revenue metric, as sold and also improvement in the the Group’s stakeholders. Volume and other strategic investments, Kerry operates a pass-through pricing operating efficiency of the business. growth and margin expansion are the expressed as a percentage of what model with its customers to cater two key drivers of EPS growth. resources are available to the Group. for raw material price fluctuations. Pricing therefore impacts like-for-like revenue growth positively or negatively depending on whether raw material prices move up or down.
Link to Volume growth is a metric in the short Trading margin expansion is a metric in Constant currency adjusted EPS ROACE is a performance metric for the Cash conversion is a performance metric TSR is a performance metric for the Remuneration term incentive plan and is a key driver of the short term incentive plan and is a key growth is a performance metric for the long term incentive plan. for the short term incentive plan. long term incentive plan. adjusted EPS growth, which is a metric driver of adjusted EPS growth, which is a long term incentive plan. for the long term incentive plan. metric for the long term incentive plan.
¹ These are non-IFRS measures or Alternative Performance Measures. Definitions, calculations and reconciliations for these are set out above and within the Supplementary Information section – Financial Definitions on pages 203-206.
30 Kerry Group Annual Report 2018
100 15 15 15 400 400 400 100 100 100 100 100 5 5 5 15 15 15 350 350 350 80 12 80 80 80 80 80 4 4 4 12 12 12 Raw data Raw dataRaw data 300 300 300 12 12 60 60 60 60 3 250 250 250 60 60 3 3 9 9 9 9 9 9
200 200 200 40 40 40 40 40 40 2 2 2 6 6 6 6 6 6 150 150 150
20 20 20 20 1 1 1 100 100 100 3 3 3 20 20 3 3 3 50 50 50 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Strategic Report Directors’ Report Financial Statements 31 % %) 76 (7 2018 o t % % o t 39 89 R % %) % %) 76 (7 2018 TS 76 (7 2018 % 37 o t (10%) % % o t % % + KPIs Non-Financial in our detailed are Review Sustainability page 51 o t 39 89 R nn al SR r ompo n SR r o t 39 89 R % % TS 35 53 TS Kerry Group Annual Report 2018 2018 Annual Report Group Kerry % % 37 (10%) 37 (10%) nn al SR r ompo n SR r (6.8%) 14% 14% nn al SR r ompo n SR r 2014 2015 2016 2017 % % % % 35 53 35 53 Total Total Return Shareholder Shareholder 14% 14% 2014 2015 2016 2017 14% 14% 2014 2015 2016 2017 Total Shareholder Return (TSR) Return Shareholder Total The Group achieved a TSR of (6.8%) in 2018, in 2018, of (6.8%) a TSR achieved The Group the mean and median of which outperformed peer set. also ahead of the was This result Kerry’s index, producers & Tobacco Beverage MSCI Food, by a number of affected were as global markets trade global around including uncertainty factors negotiations. and Brexit of growth compound has achieved The Group years. of the last five the course over in TSR 76% of how indicator is an important TSR has been in terms the Group successful creation. value of shareholder the metric for is a performance TSR plan. incentive long term TSR represents the change in the capital value value in the capital the change represents TSR plus dividends reinvested. shares Group of Kerry Price Share Share Dividend 72% 447 2018 %
501 83 EPS 72% Cash 447 2018 ROACE 72% 447 2018 Conversion Return Growth 570 100% ash % % as on ersion Free as Flo 501 83 501 83 % RETURN 453 85 570 100% 72% ash 570 100% % ash Margin Growth Volume Volume as on ersion Free as Flo 303 Expansion 62 as on ersion Free as Flo 2014 2015 2016 2017 Drivers of Shareholder Return of Shareholder Drivers % % Cash Conversion 453 85 453 85 % % 303 62 2014 2015 2016 2017 303 62 2014 2015 2016 2017 Cash conversion is an important metric as it is an important Cash conversion adjusted how much of the Group’s measures cash. into earnings is converted Cash conversion is defined as free cash is defined as free Cash conversion adjusted of as a percentage expressed flow, earnings after tax. Cash conversion is a performance metric is a performance Cash conversion plan. incentive the short term for The Group achieved Cash Conversion of Conversion Cash achieved The Group the by impacted This was 72% in 2018. growth for investment of planned capital level growth revenue due to and working capital of Kerryconnect the rollout for and investment in the Americas. 0 80 60 40 20 100 % 0 80 60 40 20 100 .0 0 80 60 40 20 100 12 2018 % .0 13 % % .0 .0 12 2018 % 12 2018 .9 EC 12 % 0 80 60 40 20 100 12.0% % .0 AC R .0 13 13 % .6 RO 13 % Employed (ROACE) Employed .9 % EC .9 EC 12 0 80 60 40 20 100 12 0 Return on Average Capital Capital on Average Return 80 60 40 20 100 4% AC R AC R 14. 2014 2015 2016 2017 % ROACE is a performance metric for the metric for is a performance ROACE plan. incentive long term ROACE is a key measure of the return of the return measure is a key ROACE in investment on its achieves the Group acquisitions projects, expenditure capital investments, and other strategic of what as a percentage expressed the Group. to available are resources The Group achieved ROACE of 12.0% of 12.0% ROACE achieved The Group performance, a strong This was in 2018. the timing of by impacted as it was and the year made in investments movements. currency foreign This measure is defined as profit after is defined as profit This measure (net of items non-trading before tax asset intangible related brand tax), and income amortisation and finance of as a percentage expressed costs, employed. capital average .6 % RO Performance evaluation takes account all of performancekey indicators. Remuneration is directly with linked performance versus targets. Business strategy is set the Board by of Directors and all Kerry employees work achievingtowards these goals. .6 13 RO 13 4% 4% 14. 2014 2015 2016 2017 14. 2014 2015 2016 2017 0 3 6 9 12 15 6% 9 6 3 0 15 12 2018 8. 9 6 3 0 15 12 353.4 9.4% 341.2 6% 2018 6% 8. 353.4 2018 8. 353.4 % .3 0 50 400 350 300 250 200 150 100 323.4 12 9.4% 341.2 9.4% 341.2 4% EPS 3. % 301.9 .3 % 0 50 400 350 300 250 200 150 100 .3 0 323.4 12 50 400 350 300 250 200 150 100 onstant rrenc ste S ro t onstant rrenc ste S cent 323.4 12 1% 9. 2014 2015 2016 2017 278.9 4% EPS 3. 4% 301.9 EPS 3. 301.9 onstant rrenc ste S ro t onstant rrenc ste S cent onstant rrenc ste S ro t onstant rrenc ste S cent 1% 9. 1% 2014 2015 2016 2017 278.9 9 6 3 0 9. 15 12 2014 2015 2016 2017 278.9 Constant currency adjusted EPS adjusted currency Constant the metric for performance is a growth plan. incentive long term The Group achieved constant constant achieved The Group of 8.6% EPS growth adjusted currency solid a consistent reflecting in the year performance. Constant currency adjusted EPS adjusted currency Constant EPS in the adjusted represents growth adjusted to compared year current in the prior year EPS achieved currency on a constant calculated EPS is considered basis. Adjusted of the Group’s reflective more than performance underlying trading basic EPS. performance is a key EPS growth metric as it encompasses the to important of growth components Volume stakeholders. the Group’s the are expansion margin and growth of EPS growth. drivers key two 9 6 3 0 15 12 9 6 3 0 15 12 12.2% 2018 +0bps +0bps 5 4 3 2 1 0 12.2% 2018 +0bps 12.2% 2018 +0bps 12.2% 12.2% +70bps +0bps 5 4 3 2 1 0 a in ar in pansion a in ar in +0bps 5 4 3 2 1 0 r r 11.5% +40bps 12.2% 12.2% +70bps 12.2% 12.2% +70bps Expansion ading Margin a in ar in pansion a in ar in 11.1% a in ar in pansion a in ar in 2014 2015 2016 2017 r r Trading margin expansion represents represents expansion margin Trading in the margin the change in trading trading to compared year current in the prior year. achieved margin profit trading represents margin Trading of revenue. as a percentage expressed is a key expansion margin Trading It demonstrates profitability. of measure mix being in the product improvement in the sold and also improvement efficiency of the business. operating Tr +60bps Trading margin expansion is a metric in expansion margin Trading plan and is a key incentive the short term which is a EPS of adjusted growth, driver plan. incentive the long term metric for The Group maintained its trading trading its maintained The Group of 12.2%margin This represented in 2018. being offset good underlying growth challenges arising related sterling by business,in the Consumer Foods and business investments increased spend. Kerryconnect r r 11.5% 11.5% +40bps +40bps w data Expansion ading Margin Expansion Ra ading Margin 11.1% 2014 2015 2016 2017 11.1% Tr +60bps 2014 2015 2016 2017 Tr +60bps w data w data Ra Ra 3.5% 2018 4.3% 3.5% 2018 3.5% 2018 6% 3. l 4.3% 4.3% ce % l me ro t l me ro t 3.8 o 6% 3. Volume growth is a metric in the short growth Volume of driver is a key plan and incentive term which is a metric EPS growth, adjusted plan. incentive the long term for The Group achieved continuing volume volume continuing achieved The Group a which was of 3.5%, in 2018 growth the to relative performance strong marketplace. is an important growth Volume of driver metric as it is seen as the key top-line business This improvement. metric, as revenue is used as the key pricing a pass-through operates Kerry cater to model customers with its fluctuations. price material raw for impacts like-for-like therefore Pricing or negatively positively growth revenue material depending on whether raw up or down. move prices Volume growth represents sales growth sales growth represents growth Volume pass-through excluding year-on-year, currency costs, material pricing on raw (net of disposals) acquisitions impacts, volumes. and rationalisation 6% 3. l 4% l 2. 2014 2015 2016 2017 ce % ce % l me ro t l me ro t 3.8 l me ro t l me ro t 3.8 o o Volume Growth Volume 4% 2. 1 4% 2014 2015 2016 2017 Direct from Ex
2. 2014 2015 2016 2017 Volume Growth Volume Volume Growth Volume Direct from Ex Link to Link to Remuneration Key Financial Key Performance Metric Definition Performance Commentary Historical Performance Strategic Linkage Direct from Ex FINANCIAL + Group Key Performance REVIEW Indicators pages 30-31 Financial Statements Delivering another pages 138-202 year of solid performance
The Group delivered another year of solid performance against a backdrop of economic and market uncertainty, combined with increased marketplace fragmentation and industry changes. Adjusted EPS growth in constant currency was 8.6% (2017: 9.4%). This was achieved through consistent organic growth ahead of our markets, underlying margin progression, together with the contribution from the integration of acquired businesses.
The Financial Review provides an overview of the Group’s financial performance for the year ended 31 December 2018 and of the Group’s financial position at that date.
The Key Financial Performance Indicators outlined below are used to track business and operational performance and help the Group continue to drive value creation. The Group has a disciplined financial approach of targeting continued growth while meeting its return on investment objectives. This combination of growth and return ensures the Group’s financial objective of maximising shareholder return is achieved. Marguerite Larkin Chief Financial Officer
A combination Group Group Constant Currency of Growth Volume Growth Trading Margin Adjusted EPS* and Return +3.5% 12.2% +8.6% GROWTH Outperforming Good underlying Basic EPS our market progression (8.3%)1
ROACE* Free Cash Flow Increased Total Dividend
RETURN +12.0% €447m +12.0% On target 72% conversion2 Final dividend of 49.2 cent proposed
Definitions, calculations and reconciliations for these are set out within the Key Performance Indicators section and within the Supplementary Information section – Financial Definitions on pages 203-206. * Before brand related intangible asset amortisation and non-trading items (net of related tax). ¹ Basic EPS in the prior year included effect of a one-off deferred tax credit arising from the US tax reform changes. ² Expressed as a percentage of adjusted earnings after tax.
32 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 33 €’m 13.4 10.2 EPS (5.8) 2017 Cent 781.3 341.2 691.4 601.9 333.6 325.4 12.2% 588.5 (15.8) , pricing (23.6) (24.3) (89.5) (65.6) 6,407.9 , an adverse , an adverse Kerry Group Annual Report 2018 2018 Annual Report Group Kerry , an adverse , an adverse , an adverse , an adverse , pricing decrease of , pricing decrease - €’m 31.2 16.3 EPS 2018 Cent 713.6 (55.1) 353.4 353.4 305.9 805.6 540.5 12.2% 624.4 (67.0) (89.2) (28.8) (25.0) 6,607.6 . . % 3.1% 3.1% 3.7% 3.6% 8.6% (8.3%) change , pricing of 1.1% growth €1.3 billion), including volume to €1.3 billion (2017: (2017: €5.2 of 4.1% growth billion), including volume billion (2017: to €5.4 (2017: €6.4 billion), including volume growth of 3.5% growth billion), including volume €6.4 billion (2017: to €6.6
and contribution from business of 4.2% acquisitions from and contribution . and contribution from business of 0.8% acquisitions from and contribution and contribution from business of 3.6% acquisitions from and contribution related to raw material deflation pass through, an adverse transaction currency impact of 0.3% currency transaction adverse an pass deflation through, material raw to related related to raw material deflation passed through to customers, an adverse transaction currency impact of 0.1% currency transaction an adverse customers, to passed deflation through material raw to related Impact of retranslating prior year adjusted earnings per adjusted prior year Impact of retranslating rates exchange average year current at share Trading margin Trading amortisation software Computer Finance costs (net) costs Finance Non-trading Non-trading items (net of related tax) EPS Adjusted* Brand related intangible asset intangible amortisation related Brand Trading profit Trading Basic EPS Income Income taxes (excluding non-trading items) Brand Brand related intangible asset amortisation Non-trading items (net of related tax) (net of related items Non-trading Adjusted* EPS in constant currency EPS in constant Adjusted* tax). (net of related items asset intangible amortisation and non-trading related brand * Before Profit after taxation after Profit Adjusted earnings after taxation earnings after Adjusted Adjusted earnings before taxation earnings before Adjusted Revenue 2017: Group reported revenue +4.5%, volume growth +4.3%, pricing +2.0%, transaction currency (0.2%), translation currency (2.4%), (0.2%), transaction currency (2.4%), currency translation pricing +2.0%, +4.3%, growth volume +4.5%, reported revenue Group 2017: acquisitions +0.8%. 3.7% by increased revenue Nutrition reported & Taste of 0.5% impact of 0.1%decrease currency transaction an adverse pass deflation through, material raw to related impact of 4.0% currency translation acquisitions +0.9%. (1.9%), currency translation +4.7%, pricing +2.0%, growth +5.7%, volume & Nutrition reported revenue Taste 2017: 0.6% by increased revenue reported Consumer Foods of 0.4%decrease translation currency impact of 0.6% currency translation translation (0.9%), transaction currency pricing +2.0%, +2.4%, growth volume (0.1%), Foods reported revenue Consumer 2017: acquisitions +0.2%. (3.8%), currency translation currency impact of 3.4% currency translation Revenue Revenue 3.1% by increased revenue reported Group 0.5% Analysis of Results Analysis Trading Profit & Margin Group trading profit increased by 3.1% to €805.6m (2017: €781.3m). Group trading profit margin was maintained at 12.2%. Underlying margin expansion attributable to operating leverage, portfolio enhancement, efficiencies and the effect of lower pricing were offset by transaction currency headwinds and increased Kerryconnect investment due to the rollout in LATAM and planning for North America. Trading profit margin in Taste & Nutrition increased by 20 bps to 15.1% (2017: 14.9%), due to the benefits of operating leverage, portfolio enhancement, efficiencies and the effect from lower pricing, partially offset by foreign currency headwinds. Trading profit margin in Consumer Foods decreased by 60 bps to 7.5% (2017: 8.1%) due to significant transaction currency headwinds, partly offset by underlying margin expansion of 10 bps. A comprehensive analysis of the revenue and trading performance of the Taste & Nutrition and Consumer Foods divisions is included in the Business Reviews on pages 42-48.
Computer Software Amortisation Computer software amortisation increased to €25.0m (2017: €24.3m) reflecting the ongoing progression of the Kerryconnect project. The capitalised element of the cost of this project is being amortised over a seven year period.
Brand Related Intangible Asset Amortisation Brand related intangible asset amortisation increased to €28.8m (2017: €23.6m) primarily from recent acquisitions.
Finance Costs (net) Finance costs (net) for the year increased by €1.4m to €67.0m (2017: €65.6m) as acquisition expenditure was partially offset by cash generation and a reduction in pension interest. The Group’s average interest rate for the year was3.8% (2017: 3.5%).
Taxation The tax charge for the year before non-trading items was €89.2m (2017: €89.5m) representing an effective tax rate of 13.0% (2017: 13.4%). The reduction in the effective tax rate was due to changes in tax rates in a number of jurisdictions.
Acquisitions & Joint Ventures During the year the Group completed 10 acquisitions at a total consideration of €502.2m and an investment in a joint venture of €15.6m These investments were aligned to the Group’s strategic priorities for growth, bringing additional taste and nutritional technologies, expanding our presence in developing markets and adding to our foodservice offering.
The Group also announced it had reached agreement for two further strategic acquisitions for an expected total consideration of €325.0m, subject to regulatory approval and customary closing conditions. The acquisition of Southeastern Mills’ North American coatings and seasonings business (SEM) was completed after the year end. The Group also expects to complete the acquisition of Ariake USA Inc. – a leading producer of natural clean label savoury taste solutions by the end of Q2 2019.
Non-Trading Items During the year the Group incurred a non-trading charge of €55.1m (2017: income of €10.2m) net of tax. The charge in the year related to costs associated with the integration of recent acquisitions and the completion of the Brexit Currency Mitigation Programme, where good progress was made in reducing the Group’s sterling transaction exposure. The prior year non-trading income arose primarily due to the one-off deferred tax credit arising from the US tax reform changes.
Adjusted EPS in Constant Currency Adjusted EPS in constant currency increased by 8.6% in the year (2017: +9.4%). This was achieved through volume growth ahead of our markets, underlying margin progression, together with the contribution from the effective integration of acquired businesses. Adjusted EPS increased by 3.6% to 353.4 cent (2017: 341.2 cent) after reflecting the adverse translation currency impact of 5.0%.
Basic EPS Basic EPS decreased by 8.3% to 305.9 cent (2017: 333.6 cent) primarily due to the effect in 2017 of a one-off deferred tax credit arising from US tax reform changes. Basic EPS is calculated after accounting for brand related intangible asset amortisation of 16.3 cent (2017: 13.4 cent) and non-trading item charge of 31.2 cent net of related tax (2017: net credit of 5.8 cent).
34 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 35 €’m 2017 1.53 192.2 1.20 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry 7.80 3.96 0.89 2017 23.72 1,567.8 1,529.6 2,031.7 3,573.2 3,573.2 3,827.0 3,646.7 2,259.2 7,400.2 1.14 1.62 7.85 0.90 4.44 2018 22.50 €’m 2018 189.7 Closing Rates 1,767.0 2,271.4 1,650.8 8,323.7 2,638.5 4,289.3 4,095.6 4,034.4 4,034.4 1.13 1.47 7.62 3.62 0.88 2017 21.30 1.18 1.58 7.82 0.89 4.34 22.72 2018 (2017: 13.0%) which was in line with the Group’s strategic target of 12.0%. The of 12.0%. target strategic Group’s in line with the which was 13.0%) (2017: Average Rates Average Shareholders’ equity Shareholders’ Net assets Total liabilities Total Non-current liabilities Current liabilities Current Total assets Total Current assets Current Other non-current assets Intangible assets Intangible Australian Dollar Australian US Dollar Brazilian Real Brazilian Renminbi Chinese Yuan Peso Mexican British Pound Sterling British Pound Property, plant & equipment plant Property,
Property, Plant & Equipment Property, capital primarily due to €1,529.6m) (2017: €1,767.0m to €237.4m by plant and equipment increased Property, (2017: to €285.5m year amounted in the expenditure Net capital offsetby depreciation. in the year expenditure our and included expanding initiatives, supports our growth investment of capital This planned level €297.3m). of MI, USA; centre taste enhancing our savoury in Rochester, our facility at label clean capability industry-leading in Clark, USA; China. in Nantong, NJ, our facility excellence and expanding Balance Sheet below: December is provided sheet 31 as at A summary balance Kerry’s policy is to pay a dividend each year and has an unbroken record of dividend growth. Over 32 years as a listed as a listed Over 32 years of dividend growth. record and has an unbroken year a dividend each pay policy is to Kerry’s double digit have aim is to The Group’s 16.9%. of rate a compound dividend at its has grown the Group company, each year. dividend growth The Board has proposed a final dividend of 49.2 cent per A ordinary share, payable on 10 May 2019 to shareholders shareholders to 2019 May on 10 payable share, per A ordinary cent dividend of 49.2 a final has proposed The Board the total per share, cent dividend of 21.0 with the interim When combined of 12 April 2019. date on the record registered of 12.0%. is an increase which 62.7 per share), cent (2017: per share cent 70.2 to amounts the year dividend for Dividends Group results are impacted by fluctuations in exchange rates year-on-year versus the euro. The average rates below are below are rates average The euro. the versus year-on-year rates in exchange fluctuations by impacted are results Group assets and liabilities at translate used to below are rates The closing of results. the translation used for the principal rates end. year Exchange Rates Exchange Return on Average Capital Employed Capital on Average Return of 12.0% ROACE achieved The Group movements. currency and foreign made in the year of investments the timing by impacted adversely was ROACE 2018 Intangible Assets Intangible assets increased by €448.9m to €4,095.6m (2017: €3,646.7m) as additions of €478.6m primarily relating to the 10 businesses acquired during the year were partially offset by foreign exchange movements and the annual amortisation charge.
Current Assets Current assets increased by €239.7m to €2,271.4m (2017: €2,031.7m), primarily due to an increase in cash on hand at 31 December 2018.
Retirement Benefits At the balance sheet date, the net deficit for defined benefit schemes (after deferred tax) was €44.0m (2017: €102.0m). The decrease in the net deficit arises mainly due to favourable movement in discount rates, inflation rates and the liability management programme. The net deficit expressed as a percentage of market capitalisation at 31 December 2018 was 0.3% (2017: 0.6%).
Shareholders’ Equity Shareholders’ equity increased by €461.2m to €4,034.4m (2017: €3,573.2m), resulting from profits generated during the year, offset in part by dividends.
A full reconciliation of shareholders’ equity is disclosed in the Consolidated Statement of Changes in Equity on page 142.
Capital Structure The Group finances its operations through a combination of equity and borrowing facilities, including bank borrowings and senior notes from capital markets.
The financing structure of the Group is managed in order to optimise shareholder value while allowing the Group to take advantage of opportunities that might arise to grow the business. The Group targets acquisition and investment opportunities that are value enhancing and the Group’s policy is to fund these transactions from cash flow or borrowings while maintaining its investment grade debt status.
This is managed by setting net debt to EBITDA targets while allowing flexibility to accommodate significant acquisition opportunities. Any expected variation from these targets should be reversible within twelve to eighteen months; otherwise consideration would be given to issuing additional equity in the Group.
Free Cash Flow Free cash flow is an important indicator of the strength and quality of the business and of the availability of funds to the Group for reinvestment or for return to the shareholder. In 2018 the Group achieved free cash flow of €446.5m (2017: €501.3m).
2018 2017 Free Cash Flow €’m €’m Trading profit 805.6 781.3 Depreciation (net) 134.1 134.0 Movement in average working capital (57.1) 93.5 Pension contributions paid less pension expense (40.0) (95.3) Cash flow from operations 842.6 913.5 Finance costs paid (net) (64.5) (60.2) Income taxes paid (46.1) (54.7) Purchase of non-current assets (285.5) (297.3) Free cash flow 446.5 501.3 Cash conversion1 72% 83%
1 Cash conversion is free cash flow expressed as a percentage of adjusted earnings after tax.
36 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 37 - 2.8 €’m 75.2 2017 (8.8) 6.0 501.3 (18.0) €’m (84.4) (34.0) (96.0) Kerry Group Annual Report 2018 2018 Annual Report Group Kerry 2017 (102.2) (367.9) 299.2 (1,341.7) (1,323.7) (226.9) (1,341.7) (1,414.0) 0.5 €’m (2.6) 2018 (27.1) (21.7) 446.5 (59.8) (114.4) (252.1) (281.8) (503.2) (1,341.7) (1,623.5) 4.8 €’m 2018 400.0 (142.2) (798.5) (1,623.5) (1,082.8) Weighted average maturity (years) maturity average Weighted Net debt at end of year Net debt at Over 5 years Between 2 and 5 years Between 1 and 2 years (Increase) in net debt in the year in net (Increase) end of year Net debt at Maturity Profile of Net Debt Profile Maturity Within 1 year Acquisitions (net of disposals) including payments relating to previous acquisitions previous to relating including payments (net of disposals) Acquisitions year end working capital and working capital average between Difference swaps rate on interest movement value Fair net debt adjustment on translation Exchange beginningNet debt at of year Movement in Net Debt Movement Free cash flow Free items Non-trading adjustment translation Exchange cash flows from in net debt resulting Increase Equity dividends paid Equity Exchange impact on net debt Exchange in US dollar denominated borrowings primarily from results adjustment of €27.1m translation rate The exchange of $1.20 a rate in 2017. versus of $1.14 end rate a year at translated Net Debt offsetby the cashflow generated reflecting €1,341.7m) (2017: €1,623.5m was year the end of the Net debt at in the is analysed the year during increase The in the year. and the dividends paid in acquisitions investment below: table Key Financial Covenants A significant portion of Group financing facilities are subject to financial covenants as set out in their facility agreements. The Group’s balance sheet is in a healthy position. With a net debt to EBITDA* ratio of 1.7 times, the organisation has sufficient headroom to support future growth plans. Group Treasury monitors compliance with all financial covenants and at 31 December the key covenants were as follows:
2018 2017 Covenant Times Times Net debt: EBITDA* Maximum 3.5 1.7 1.4 EBITDA: Net interest Minimum 4.75 14.7 16.2
Net debt: EBITDA* EBITDA: Net interest* 3.5x 19.0x 3.0x 17.0x 15.0x 2.5x 13.0x 2.0x 11.0x 9.0x 1.5x 7.0x 1.0x 5.0x 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
* Calculated in accordance with lenders’ facility agreements which take account of adjustments as outlined on page 205.
Credit Facilities Undrawn committed facilities at the end of the year were €750.0m (2017: €1,100.0m) while undrawn standby facilities were €320.0m (2017: €323.0m).
Full details of the Group’s financial liabilities, cash at bank and in hand and credit facilities are disclosed in notes 23 and 24 to the consolidated financial statements.
Share Price and Market Capitalisation The Company’s shares traded in the range €78.05 to €98.85 during the year. The share price at 31 December 2018 was €86.50 (2017: €93.50) giving a market capitalisation of €15.2 billion (2017: €16.5 billion). Total Shareholder Return for 2018 was -6.8% (2017: +38.6%) reflecting a general decline in global equity markets during the last quarter in 2018 arising from uncertainties due to global trade and Brexit.
Financial Risk Management Within the Group risk management framework as described in the Risk Report on page 73, the Group has a Financial Risk Management Programme, which is approved by the Board of Directors and is subject to regular monitoring by the Finance Committee and Group Internal Audit. The Group does not engage in speculative trading.
Further details relating to the Group’s financial and compliance risks and their associated mitigation processes are discussed in the Risk Report on pages 73-86 and in note 24 to the consolidated financial statements.
Summary and Financial Outlook The Group delivered another year of solid performance in 2018 generating revenue of €6.6 billion, trading profit of €806m and free cash flow of €447m, against a backdrop of economic and market uncertainty, combined with increased marketplace fragmentation and industry changes. At year end the balance sheet is also in a good position and with a net debt: EBITDA ratio of 1.7 times, the Group has sufficient headroom to support the future growth plans of the organisation.
The Group looks forward to further financial growth and business development in the year ahead.
38 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 39 €’m 2018 713.6 (55.1) 353.4 540.5 805.6 624.4 (67.0) (89.2) (28.8) (25.0) 6,607.6 €’m 10.2 2017 2017 781.3 341.2 691.4 588.5 (24.3) (65.6) 6,407.9 €’m 533.1 2016 2016 569.1 601.9 323.4 749.6 655.8 (13.0) (23.4) (70.4) Kerry Group Annual Report 2018 2018 Annual Report Group Kerry 6,130.6 13.1 €’m 612.1 2015 2015 (81.1) (86.7) (89.5) 700.1 301.9 525.4 6,104.9 4.0 €’m 2014 2014 278.9 479.9 569.9 636.4 490.3 531.0 (79.6) (52.9) (69.3) €’m 84.4 2013 611.4 257.9 (11.5) (13.6) (18.7) (79.1) 532.3 453.2 (67.6) 5,836.7 5,756.6 €’m (8.7) 410.9 (62.1) 559.0 234.0 488.2 (77.3) **2012 (135.5) (352.2) 5,848.3 0.1 €’m 2011 (5.4) 213.4 449.1 374.5 500.5 (74.6) 5,302.2 €’m 192.1 (0.7) 2010 336.7 470.2 405.4 (68.7) €’m (4.5) (4.3) 163.9 201.2 324.2 360.7 260.7 422.3 286.8 2009 (61.2) 348.0 (73.3) (69.8) (60.5) (46.0) 4,520.7 4,960.0 12 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. as reported. presented are All other years IFRS in 2013. by Benefits’ as required adopted which was ‘Employee 19 (2011) in line with IAS 12 restated was A 20 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 in Adjusted Growth performance. underlying trading of the Group’s reflective more considered and are tax) (net of related items non-trading basis is disclosed on page 204. currency constancy
Adjusted EPS (cent)* Adjusted Non-trading items (net of related tax) (net of related items Non-trading attributable taxation after Profit of the parent owners to Brand related intangible asset intangible amortisation related Brand (12.3) (11.8) (13.9) (14.7) (16.6) (14.4) (18.7) (23.0) (23.6) Adjusted earnings after taxation* earnings after Adjusted Income taxes (excluding non-trading items) non-trading (excluding taxes Income Finance costs (net) costs Finance taxation* earnings before Adjusted Trading profit Trading amortisation software Computer Revenue 10 YEAR EARNINGS HISTORY ** * asset intangible amortisation and related brand before calculated are earningsafter taxation andadjusted taxation earningsbefore EPS,adjusted djusted A strong A strong of history results positive Pictured: Kerry Chefs Richard Troman, Donal Lock, Ciara Mulkerrins, Ciaran Ryan and Rian Morris.
CREATE
40 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 41 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry BUSINESS BUSINESS REVIEW Leveraging our ‘from-food-for-food’ our ‘from-food-for-food’ Leveraging creating at we excel heritage, improving and taste authentic grow help customers to nutrition local and win in today’s consumer-driven marketplace. BUSINESS TASTE & REVIEW NUTRITION
Revenue Kerry’s business model and the application of our leading taste and nutrition technology portfolio continue to drive significant value 2018 for our customers as they seek to meet rapidly changing consumer demands and increase speed to market.
€5,351m The division achieved good growth across an increasingly diverse customer base. Developing markets delivered strong volume growth of 9.5%, with Volume Growth APMEA the main driver. Foodservice delivered a good performance of 5.8% volume growth, particularly considering the strong comparatives in 2017. 4.1% Reported revenue increased by 3.7% to €5,351m, as volume growth and the contribution from business acquisitions were partially offset by significant Trading Margin translation currency headwinds. Trading profit grew by 5.0% to €805m, reflecting a 20 basis points improvement in trading margin to 15.1%. 2018 Kerry’s taste technologies recorded a strong performance across all regions, with TasteSense™ technology and natural extracts being key 15.1% drivers of growth, as consumer demands for reduced sugar and authentic taste were met through innovations across all categories. Kerry’s leading Growth clean label technologies continued to perform well, with its broad protein portfolio, nutritional bioactives, enzyme technologies, food protection +20bps and natural preservation solutions all delivering good growth in the year. An increasing number of innovations brought to market combined technologies from both Kerry’s authentic taste and nutrition portfolios, as Kerry’s Technology & Innovation Centres supported customers from ideation all the way through to launch.
Kerry, the industry’s leading, globally-connected Taste & Nutrition company, provides the largest, most innovative portfolio of Taste & Nutrition Technologies and Systems, and Functional Ingredients & Actives for the global food, beverage and pharmaceutical industries.
42 Kerry Group Annual Report 2018 Strategic Report Directors’ Report 43 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry This acquisition complements Kerry’s Kerry’s complements acquisition This authentic taste portfolio and further develops industry-leading the Group’s theoffering EUM. into meat The Group also reached agreement to USA,acquire Ariake which produces cleannatural label savoury taste solutions derived from poultry, pork and vegetables itsat facility in Harrisonburg, Virginia. highly specialised USA’s extractionAriake technologies and development capabilities produce a suite tailored of solutions across a number EUMs. of These acquisitions extensive Kerry’s further enhance authentic taste and clean label portfolio, from- Group’s the complementing while heritage. food-for-food AMERICAS AMERICAS 2.8% in Business volumes the Americas region 2.8% by increased Kerry’s Ganeden® probiotics and and probiotics Ganeden® Kerry’s Wellmune® branded immunity enhancing ingredients continued well, grow to as they broadened their reach market with a number new of launches wider into applications. Mexico and Central America In LATAM, delivered good growth, while Brazil delivered a solid performance. overall The Snacks and Bakery & Confectionery EUMs delivered good growth, with Kerry’s cleaner label solutions driver. a key successfully also was Kerryconnect deployed in theregion. The global Pharma once EUM again delivered strong growth, driven the by excellent performance excipients in of North America and APMEA. The Group lactose pharmaceutical the acquired manufacturing facility Foremost of Farms – based in Rothschild, Wisconsin, further pharmaceutical Kerry’s strengthening lactose supply base. The Group expanded its bio-processing capacity for natural preservation and food protection at Minnesotathe Rochester, facility during the year. In the last quarter the Group acquired Fleischmann’s Vinegar Inc. Company, (FVC), certifieda USDA all-natural producer of specialty ingredients further that supports Kerry’s taste and clean label strategies across a number EUMs. of Headquartered in California, it has manufacturing facilities Maryland,in Washington, New York, Illinois, Missouri, Alabama and California. Since the year end, the Group acquired Southeastern coatings Mills’ and (SEM) seasonings business. manufactures SEM from its strategically located base in Rome, Georgia.
High levels of product churn of product High levels the marketplace, continued across clean label, as consumer for demands and experiences taste world new continued formats convenience new innovation. drive and evolve to Americas region region Americas and premiumisation trends within the Meals EUM. The Snacks performed EUM well, in particular with growth through innovative healthier savoury snacks and indulgent world taste experiences, as EUM that gains inspiration from other categories. The cereal category remained challenging as traditional consumptionin the year, occasions continued decline. to Kerry’s dairy taste and clean label technologies wellness enhanced from benefited In North America, Kerry’s Meat end delivereduse (EUM) market strong growth, meeting consumer demands for authentic ethnicflavours, natural broader a and preservation life shelf The Beverage continued EUM deliver to good growth, as Kerry’s development and applications expertise helped customers launch a number new innovative of products across a variety categories of including cold refreshing brew, beverages and functional health beverages. of 6.0%. range alternative of protein-based products. & Grill Smoke enjoyed strong growth and business development, as Kerry’s Red technologies Arrow were deployed across a broader range of meat and meat alternative applications, delivering additional clean label, taste attributes. colour and in the Americas region increased 2.5% by €2,745m,to reflecting 2.8% volume growth, lower pricing 0.5%, of contribution from business acquisitions 6.2% of and an impact currency translation adverse Kerry delivered volume growthahead winning by share theof market market through innovation across different Reported revenue categories. customer We innovate with foresight. Working as a locally-led and globally connected team, we combine our culinary creativity with in-depth science and technical expertise to help customers win with consumers today and in the future.
INNOVA
44 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 45 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry EUROPE The Dairy EUM continued to perform perform to The DairyEUM continued cream ice evolving well in the rapidly with a number of new launches category, ranges and dairy-free in both premium technologies. taste using Kerry’s remained dairy markets International Demand challenging during the year. major dairy importing countries from continued primary dairy products for of the the appreciation benefit from to While demand of dairy. nutritional values in particular remained butterfat for was stability market strong, relatively shifts continued in supply/ by impacted demand balances. across role a key played Foodservice a number of EUMs, particularly in the the EUMs through and Meat Beverage of nutritional enhancement continued seasonal with successful menu ranges, a delivering LTOs and repeat products the year. across good performance very 2.3% in Business volumes region the Europe 2.3% by increased The region delivered a good performance, a good performance, delivered The region comparatives strong the very given half of 2017. particularly in the second in developing progress to continued Kerry to engagement customer in-market its preferences local consumer meet evolving revenue Reported the region. across 1.7% by increased region in the Europe 2.3% reflecting €1,422m, to volume adverse an of 0.6%, lower pricing growth, impact of 0.2%, currency transaction business of acquisitions from contribution currency translation and an adverse 1.4% impact of 1.2%. strong EUM delivered The Beverage a number of across performance within both retail categories beverage channels, as Kerry’s and foodservice technology, sugar-reduction TasteSense™ range our protein and extracts, natural of growth. drivers key were deliver to EUM continued The Meat label clean with Kerry’s good growth, solutions texture technologies, innovative technologies being and meat-free in a number of deployed successfully launches, as the category new market The recent pace. at evolve continues to and the Hasenosa in Spain acquisition in Netherlands- shareholding majority well and performing based Ojah are business to development contributing in the new customers to and access category. meat a solid EUM delivered The Bakery delivered with growth performance, consumer meeting evolving through both clean label and premium demands for growth, strong Russia delivered offerings. and Snacks the Meat particularly into in commenced EUMs, while production in the facility manufacturing first Kerry’s future for platform a key providing country, and growth. business development Europe region region Europe continued meet to Kerry localconsumer evolving region the across preferences in-market its progressing by engagement strategy. customer
Pictured: Dr. Khaled Zitoun, Khaled Zitoun, Dr. Pictured: Forde Ciaran Dr. Lisa Ryan, Dr. Kerry Marie Murphy, Aoife and Dr. (KHNI). Health Institute and Nutrition TE We innovate with foresight. Working as a locally-led as a locally-led Working with foresight. innovate We connectedand globally combine our we team, with in-depth science and creativity culinary win customers help to expertise technical the future. and in today with consumers APMEA region Kerry’s business model continued to be successfully deployed, with the selective rollout of our industry-leading 10.1% foundational technology portfolio to Business volumes in APMEA meet rapidly evolving local consumer the APMEA region needs across the region. increased by 10.1%
The APMEA region continued to deliver The Meat EUM delivered very strong Sub-Saharan Africa achieved strong very strong growth well ahead of the growth through customer partnerships with growth, through better-for-you applications market across the region’s developing a number of new innovations, as customers into the Beverage and Snacks EUMs. markets. The APMEA region continues to broaden their ranges to meet consumers’ The foodservice channel continued to evolve as a highly fragmented marketplace changing needs for authentic taste, value outperform the market, with innovations to with broad-based market dynamics and and increasingly food safety. meet consumers’ ‘desire for new’ including consumer trends including convenience, sparkling coffee, and convenience through authenticity, wellness and a desire for new. The Meals EUM continued to perform home delivery, using Kerry’s technologies These trends, together with local consumer strongly in South East Asia and Greater to enhance the overall taste experience. taste preferences, are driving major China across both the retail and consumption change across both retail and foodservice channels, as new authentic The Group continued to invest in its foodservice channels. Reported revenue cooking taste profiles were deployed strategic growth priorities in the region in the APMEA region increased by 10.1% across a number of new products. to improve capabilities and capacity to to €1,105m, reflecting 10.1% volume growth, meet local market opportunities. Good a decrease in pricing of 0.5%, an adverse The Snacks EUM delivered good growth progress was made through investments in transaction currency impact of 0.1%, due to the continued development of ongoing footprint expansion in Indonesia, contribution from business acquisitions of new snacking occasions across the China and Malaysia. Four acquisitions 3.4% and an adverse translation currency region. Local category leaders continued were completed in the year; Hangman – a impact of 2.8%. to innovate through the introduction leading China-based producer of sweet of new authentic world flavours, with and savoury flavours, SIAS Food Co. – a Kerry’s Smoke & Grill, Barbecue and Dairy leading China-based supplier of culinary technologies being deployed across a and fruit ingredients and systems to the range of products. foodservice and food manufacturing industries, Season to Season – a leading South African supplier of taste ingredients and systems to the African snack and food sectors, and AATCO Food Industries LLC – a leading Oman headquartered provider of culinary sauces to the foodservice channel, providing a strategic platform for business development in the Middle East and Africa.
+ Strategic Priorities for growth pages 26-27 Business Model pages 22-23
46 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 47 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry
Kerry Foods is an industry-leading is an industry-leading Foods Kerry of added-value manufacturer and customer branded products chilled food branded the Irish, UK and selected to markets. international The consumer and retail landscape within the UK The consumer and retail pace the year. in continued change at to and Ireland half of the year, in the second softenednoticeably Consumer confidence The UK a number of categories. across consumption reduced leading to through change structural major undergo to continues environment retail of discounter of the multiples, further growth consolidation increased the – all leading to stores on high street pressure and and ranges, volumes and dynamic supply chains. streamlined more need for in the a solid performance the business delivered this backdrop, Against €1,339m, growth to as volume 0.6% by increased revenue Reported year. by partially offset business were acquisitions from and the contribution decreased margin profit The divisional trading headwinds. currency foreign more was improvement the underlying margin as 7.5% 60 basis points to by profit resultingtrading in a headwinds, currency than offsetby transaction €100m. to of 7.1% decrease CONSUMER CONSUMER FOODS
Growth (60bps) 7.5% Trading Margin Trading 2018 1.1% Volume Growth Volume 2018 €1,339m Revenue BUSINESS BUSINESS REVIEW ‘Everyday Fresh’ delivered solid growth, led by the Richmond range. Richmond chicken sausages were successfully launched in Q2 and contributed well to overall performance. The Denny range benefited from increased marketing support in Ireland. The traditional spreads category continued to be challenged, however Kerry’s softer butter offerings delivered good growth particularly with private label brands in the UK, and the Dairygold brand in Ireland maintained its market leadership position.
‘Convenience Meal Solutions’ had a difficult year, impacted by reduced promotional activity as well as the extended period of warm weather. Kerry had further business development with ‘better-for-you’ ranges, while its frozen ready meals outperformed a challenging category.
‘Food to Go’ performed well with strong growth in Cheestrings across the year. Progress continued to be achieved in the development of the out of home segments with good growth particularly with restaurant chains. The Fridge Raiders brand was relaunched during the year and now encompasses a broader range of snacking products across a wider consumer demographic.
48 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 49 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry Kerry Group remains focused on reducing on reducing focused remains Group Kerry of our business footprint the environmental our Sustainability the work of and through we have teams, Council and regional against all annual environmental delivered both surpassing goals for our 2020 targets, we made a Additionally, carbon and waste. sustainable the use of more to commitment of membership through plastic packaging the UK Plastics Pact. action on need for when urgent In a year we know highlighted, change was climate by required is effort greater an even that As the final we enter Kerry. companies like Programme, 2020 of our Towards year looking how we can scale up at we are our impact in our workplace, our positive society. and in our wider marketplace further integrate as we look to In 2019, in our business,sustainability we will new and innovative explore to continue our for value create of working to ways of our journey and advance stakeholders growth. sustainable ScanlonEdmond Chief Executive SUSTAINABILITY SUSTAINABILITY REVIEW As a responsible business,As a responsible and and a leader within the food contribution the important understand we industry, beverage we development. sustainable In 2018, more to can make Kerry action on urgent more of the need for reminders saw numerous issues, change. particularly climate social and environmental & Nutrition leading Taste As the world’s we can create that we believe company, our stakeholders for value the greatest to supporting the transition actively by With the diets. sustainable more healthier, conscious of an increasingly emergence must now meet the products consumer, dual demands of enhancing individual people and wellbeing while protecting the planet. of taste leading portfolio With the world’s is ideally and nutrition solutions, Kerry in support our customers positioned to clean label tasting, of great the creation nutritious more healthier, are that products impact. a lower environmental In and have and our taste evolve to we continued 2018, through in this regard nutrition portfolio such as our joint venture developments leader Ojah. with plant protein the support those beyond also look to We Day Food On World of our products. reach phase of the we launched the second 2018, Improved for Agriculture RAIN (Realigning with the in Niger, Nutrition) Programme for nutrition access to goal of improving people. poorest some of the world’s SECURING SECURING SUSTAINABLE GROWTH Edmond Scanlon speaking at the EDA Scanlon the EDA speaking at Edmond in November. forum platform’ Dairy ‘European RAIN Programme (page 69) Halima Fbid (28) walks one and a half hours to gather water each day with her daughter Lamchara (4). Tahoua, Niger. Photo: Jennifer Nolan.
50 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 51 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry Page Reference Page 55 Page 67 65 to Pages 65 Page 65 Page 23 22 to Pages 64 58, and 68 55, Pages Learning & Development Learning Courses completed our people by >102,000 Special Olympics support to New partnership over athletes 2 Years Reduction in intensity waste base year 2013 Versus 22.7% Development Research, & Application investment Industry-leading €275m Workplace Audits Workplace in sites Across markets developing 100% Leche Project teachers Honduran on nutrition trained 208 Reduction in intensity water base year 2013 Versus 6.6% Responsible Sourcing Certification of milk at maintained suppliers 100% Our Policies Policy Environmental Code of Conduct; Group Policy; Health & Safety Inclusion & Belonging Policy; Diversity, Policy Concerns Disclosure Employee Policy Human Rights Code of Conduct Group Anti-Bribery Policy; SUSTAINABILITY SUSTAINABILITY PILLARS RAIN Programme Commitment to malnutrition tackling €1m 100% Health & Safety reduction Year-on-year incidents in reported 8% Reduction in carbon intensity base year 2013 Versus 16.4% Safety Food with GFSI Sites certification Reporting Requirements Non-Financial Statement across topics on the required information we provide non-financial disclosures to relating with the new regulations In accordance below. can be found on each topic information this report. Relevant Matters Environmental Matters Social and Employee Human Rights Respect for Anti-bribery and Corruption Business Model Non-financial KPIs Note: Non-financial KPIs do not include the impact from recently completed acquisitions. completed recently the impact Non-financial KPIs do not include from Note: COMMUNITY SUSTAINABILITY WORKPLACE WORKPLACE SUSTAINABILITY MARKETPLACE MARKETPLACE SUSTAINABILITY ENVIRONMENTAL ENVIRONMENTAL SUSTAINABILITY KEY HIGHLIGHTS Few industries are as fundamentally linked to sustainability as the Towards 2020 and the food and beverage industry. With a projected world population UN Sustainable Development Goals of almost 10 billion people by 2050, producing enough food to The UN Sustainable Development Goals (SDGs) provide a globally meet the growing demand represents both an opportunity and a accepted roadmap for addressing many of the most urgent global significant challenge. economic, environmental and social challenges. Although the seventeen goals were agreed at international level, the challenges The current food system has a substantial environmental and we face require broad participation and there is a crucial need for social impact. Agriculture accounts for nearly a quarter of all the private sector to play its part. greenhouse gas emissions, uses 70% of fresh water and is a leading cause of deforestation and biodiversity loss. Current diet As a world leader in the food and beverage industry, our most and lifestyle choices are also a leading contributor to disease. significant contribution to the SDGs will come through enabling According to the World Health Organisation, what we eat and our customers improve the healthfulness and nutritional value of drink is now the second highest risk factor for early death, making their products and doing so in a way that does not compromise the what we produce, and how we produce it, critical considerations environment, the rights of others or the long term effectiveness of for the Group. our business.
At Kerry, sustainability is at the heart of our business. We are We will continue to be successful, while playing a positive role in focused on making a positive contribution through our everyday the broader sustainable development agenda and throughout actions and we remain committed to the creation of long term this review, we highlight the SDGs we impact on under each pillar. value for all stakeholders on a socially and environmentally While we touch on a number of the goals, we identify below the sustainable basis. SDGs that have greater strategic relevance for our business and we see the greatest potential for impact and opportunity in SDGs Our Approach 2, 3 and 12. Kerry’s Towards 2020 Sustainability Programme reflects our vision for making the world of food, beverage and pharma better. Launched in 2015, the programme builds on previous initiatives and reflects our heritage as a farmer cooperative. Kerry has grown from those agricultural roots to become a world leader and now, through our global reach, we aim to positively impact on the lives Goal 2: of those we connect with. Zero Hunger Our capabilities support the development of The Towards 2020 Programme is structured around four pillars; cost effective, healthier and more nutritious Environment, Marketplace, Workplace and Community and food. We also support sustainable agricultural aims to protect the natural environment, enhance the lives of production and greater food security through the people who create and consume our products, and connect our responsible sourcing and community us with the communities around us. Under each pillar, we have development programmes. prioritised the most material issues for Kerry and its stakeholders. We have carefully examined the ways in which we can reduce our Goal 3: adverse impacts and identified where our skills and support can Good Health and Wellbeing make a positive difference. We have set measurable targets for Diet is a leading cause in the proliferation improvement in these areas over a five-year period. As we enter of non-communicable disease and at Kerry, the final year of our programme in 2019, we are well positioned to our technologies and expertise support deliver on these targets, providing momentum for further progress customers in the development of healthier in the years ahead. products that can make a positive impact on the wellbeing of consumers.
Goal 12: Responsible Consumption & Production ENVIRONMENTAL MARKETPLACE WORKPLACE COMMUNITY With an increasing population and a tension SUSTAINABILITY SUSTAINABILITY SUSTAINABILITY SUSTAINABILITY between food production and environmental protection, we are committed to sustainable sourcing and production across our operations. SECURING SUSTAINABLE GROWTH Our solutions can also support our customers in the development of more sustainable consumer products.
52 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 53 HIGH alit ro t ro ct Sa et ro ct ar et ea in ar et ealt alent ner aste trition aste Di ersit ncl sion ana ement Consumer omm nit omm nit Kerry Group Annual Report 2018 2018 Annual Report Group Kerry racea ilit Responsi le So rcin limate an e limate conom De elopment aste irc lar aste or place nno ation ro ct nno ation Service omm nit De elopment Retail & Food & Food Retail The assessment will also be central to The assessment to will also be central phase of of the next the development as we Programme our Sustainability alignment continued ensure seek to needs. with business stakeholder and re erences t ics ater an in ons mer man Ri ts Ste ar s ip io i ersit ar etplace ar etplace r st r st ell ein mplo ee ealt mplo ee ransparenc a o r Relations Ris re it eo political Customer Re lation n ironment nimal el are KERRY GROUP
LOW
LOW HIGH
IMPACT ON KERRY GROUP ON KERRY IMPACT IMPORTANCE TO STAKEHOLDERS TO IMPORTANCE Materiality Matrix Materiality The topics covered in this report are are in this report covered The topics of this the outputs designed reflect to assessment.materiality All of these topics risk as part of the broader reviewed are this at assessment however, process, be principal to considered point not all are will page 75). We (see the Group for risks these under review, topics keep to continue organisational to particularly with respect themes. changes and emerging Supplier Processor Primary Producer The outcome of the assessmentThe outcome has good alignment among confirmed stakeholders and external internal topics of sustainability a range across 2020 the Towards that and confirmed to well placed remains Programme issues. our most material The address assessment feedback also supported ongoing engagement through received particularly with regard stakeholders, with for areas, in some topic the evolution to within the plastic packaging example, economy. and the circular of waste area As part of the revised materiality materiality As part of the revised assessment, we engaged a wide with a number through of stakeholders range of channels. In-depth with interviews stakeholders and external internal key priority critical in confirming were our understanding better and for areas The outputs expectations. stakeholders’ supported were these interviews from stakeholder of a broader a survey by findings helped to The survey group. through received the information validate an and provided process the interview and larger a input from for opportunity group. stakeholder diverse more Our approach to sustainability is centred is centred sustainability to Our approach on the and reporting on addressing and its issues Kerry most material for we undertook In 2018, stakeholders. of material review a comprehensive 2020 Towards our that reaffirm to topics positioned is adequately Programme the most significant address to issues.sustainability Materiality Our Value Chain Our Value The pace of change and the scale of the Stakeholder Groups challenges within our industry require that We use a variety of channels to support the engagement process, we work collaboratively to develop shared many of which are tailored for specific stakeholder groups. Our ability to demonstrate a robust engagement process is a core part understanding and common solutions for of our independent AA1000 (AS) accreditation and throughout this many of the issues identified. report we provide examples of how we engage and work with the various stakeholders outlined above. For more on how we create Stakeholder Engagement value for our stakeholders, see page 7. We are committed to ongoing and constructive engagement with our key internal and external stakeholders and through a process of two-way engagement, we incorporate their views into our business activities. o ernment stomers Re lator o ies ons mers We are engaged in partnerships with key stakeholder groups and relevant third parties to help achieve our 2020 goals. In 2018, we participated in a number of new collaborative projects, details of which are laid out in this report. Kerry is also a member of a
number of trade organisations and multi-stakeholder initiatives, omm nit S ppliers through which we seek to advance a healthier, more sustainable i il Societ food system.
Before undertaking the materiality assessment in 2018, we revisited Kerry Group mark the process for stakeholder analysis to ensure we continue to interact appropriately with various stakeholder groups. Having n estors mplo ees clearly identified those who we impact, and those groups that can influence and impact Kerry, we tailored our materiality assessment to ensure input from diverse stakeholder groups. Governance Among our key stakeholders are employees, shareholders, The Group’s Sustainability Council has been established under communities, customers, consumers, government and suppliers delegation from the Board of Directors. It is chaired by a senior including farmers. We understand that among and within these member of the Group’s Executive Committee and reports at least groups, there can be different and sometimes conflicting views. annually to the Board. The Sustainability Council is made up of As part of our engagement we seek to balance these competing functional leadership from across the organisation and its role is stakeholder interests and respond in a way that maximises the to assess the risks and opportunities presented by sustainability, value for all those connected with the organisation. as well as agreeing the means by which these should be addressed.
The responsibility for implementation rests with the relevant functional leadership, while the Council appraises the ongoing Group performance.
Shareholders Audit Committee
Board of Directors Nomination Committee
Executive Management Remuneration Committee
Finance Risk Oversight Sustainability Committee Committee Council
54 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 55 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry Reduction in water intensity intensity in water Reduction year base 2013 versus landfill sent to in waste Reduction year base 2013 versus of the following UN Sustainable Development Goals. Development UN Sustainable of the following Our environmental activities contribute to the achievement the achievement to activities contribute Our environmental 6.6% 30.2% We have a comprehensive monitoring and reporting framework framework and reporting monitoring a comprehensive have We is under ongoing and performance sites all Kerry across in place Directors, and Environmental Health, Safety regional by review the Group’s to With bi-monthly reporting their teams. by supported across improvements deliver to Council, we continue Sustainability and waste. of emissions, water areas the key of the implementation by is supported This performance our across management systems environmental recognised the ISO 14001 to certified were 80% of eligible sites In 2018, sites. increase to also continue We Management System. Environmental Energy with ISO 50001 sites intensive the number of energy locations in 2018. adding a further five Management certification, Reduction in carbon intensity in carbon intensity Reduction year base 2013 versus intensity in waste Reduction year base 2013 versus
16.4% 22.7% We aim to minimise our impacts in accordance with the Group’s with the Group’s in accordance minimise our impacts aim to We environmental integrate and we seek to Policy Environmental all aspects our business. of into Our policy commits considerations responsible carrying out our activitiesus to in an environmentally legislation, with all applicable environmental complying to manner, and continuously practice implementing good environmental performance. improving
At Kerry we are mindful of our impact mindful of our on the we are Kerry At the fundamental and recognise environment our for ecosystem of a healthy importance our that understand We future. shared day-to-day some of to activities contribute challenges environmental key the world’s these address successfully to and our ability operate. to our licence in retaining is vital ENVIRONMENT Reducing Emissions Jacobs Summary Like many organisations, Kerry is conscious of the potential Assurance Statement impact climate change will have on people and the planet, Jacobs has assured Kerry’s greenhouse gas performance and we continue to examine how we can manage the risks and data (Scope 1/Scope 2 emissions and selected Scope 3 opportunities that this presents for our business. Key risks include emissions) as well as water withdrawal and discharge data changing customer and consumer preferences, disruption to from its manufacturing facilities for 2018 in accordance operations and supply chains as well as regulatory and policy with AA1000AS (2008). Jacobs evaluated the systems and responses to mitigate the worst effects of climate change. processes used to collate and report the greenhouse gas, We also see an opportunity for companies like Kerry who are water withdrawal and water discharge performance data. tackling their own emissions and can support a transition to Jacobs has been able to obtain a moderate level of assurance products with a lower environmental footprint. for the data reported in the Group Annual Report 2018.
As part of our ongoing commitment on carbon, we track and report our impact. In 2015, we set a target for a 13% reduction across Scope 1 and Scope 2 emissions (See note 1). We measure Using Water Efficiently and report performance in accordance with the GHG Protocol Water plays a critical role in our business from the production of (See note 2) and our data is independently assured to AA1000AS our raw materials to the manufacture and use of our final products. (2008). We note the recommendations of the Task Force on There is increasing pressure on this shared resource and by 2025, Climate Related Financial Disclosures and aim to incorporate the UN estimates that two-thirds of the global population could be these as part of future reporting in this area. living under water stress conditions.
We are pleased to report that in 2018 we have surpassed our We strive to manage our water use as efficiently as possible,
2020 carbon target, a year ahead of schedule, with a 16.4% especially320 in water stressed areas and our stated goal is to reduce reduction versus our 2013 base year. These savings have been the31 amount0 of water we use by 7% by 2020, versus a 2013 baseline. 310.86 delivered through an ongoing focus on energy efficiency and We30 also0 ensure that we protect natural water sources by meeting the delivery of capital projects with significant carbon local290 requirements around waste water that leaves our sites. reduction potential. 280 270 277.27 In 2018, we made further progress against our target with a 6.6% 260 259.94 reduction250 in water intensity, delivering close to our 2020 goal. In 2019,240 we will continue to pursue opportunities for greater water efficiency230 to ensure we meet our 2020 reduction target. 2013 2017 2018
2020 Target Carbon Intensity kg CO2 per Tonne of Finished Goods 320 Water Intensity 310 310.86 300 4.8 290 4.7 4.4.727 280 4.6 270 277.27 4.5 260 259.94 4.4 4.45 250 4.41 240 4.3 230 4.2 2013 2017 2018 2013 2017 2018
2020 Target 3 kg CO2 per Tonne of Finished Goods M per Tonne of Finished Product 2020 Target
Notes: 1.4. 8Our measurement and target performance is of Scope 1 & 2 We also continue to view our water footprint within the widerM 3 emissions from our manufacturing facilities. This accounts contextt 3.5 of global water risk. Given the uneven distribution of40 water0,000 4.7 4.72
for 98% of Kerry4.7 Group’s Scope 1 & 2 emissions. oduc 2. The GHG Protocol sets the global standard for how to resources,3.0 some of our locations are potentially more challenged 4.6 300,000 measure, manage and report greenhouse gas emissions. 2.5 2.87 2.73 4.5 by water stress. To help determine how increasing competition 3. Kerry’s actual performance has been adjusted to reflect like-for-like 2.0 performance compared to our baseline4.45 year. We use the Novem for scarce water resources may impact Kerry, we use the World200,0 00 4.4 1.5 1.82 Methodology for carbon reporting to adjust our baseline target4.41 Resources Institute’s Aqueduct Tool to help in our assessment. onne of Finished Pr 4.3reduction number in order to account for changes to product mix 1.0 100,000 that have had a material effect on carbon intensity. per T
4.2 3 0.5 M 2013 2017 2018 0 0 2013 2017 2018 M3 per Tonne of Finished Product 2020 Target Water Intensity Absolute Withdrawls
M3 120 56 t Kerry3.5 Group Annual Report 2018 400,000 100 oduc 3.0 80 2.87 300,000 97.96 2.5 2.73 78.87 60 75.76 2.0 200,000 40 1.5 1.82 20 onne of Finished Pr 1.0 100,000 0 per T
3 0.5 2013 2017 2018 M 0 0 Kg Waste per Tonne of Finished Product 2020 Target 2013 2017 2018
Water Intensity Absolute Withdrawls
120 100
80 97.96 78.87 60 75.76 40 20 0 2013 2017 2018
Kg Waste per Tonne of Finished Product 2020 Target Strategic Report Directors’ Report Financial Statements 57 r et r et a a r et a 10% 90% Kerry Group Annual Report 2018 2018 Annual Report Group Kerry s t t sol te it ra ls o c o c onne o Finis e oo onne o Finis e r onne o Finis e r per ter ntensit per a aste per
Landfill Plastic Packaging the in a critical role Plastics play product particularly for industry, food shelf life. and extending protection issue of plastics the use a key has become However, as public and regulators, customers consumers, for of impacts about the long term consciousness grows of environment. As a producer plastics natural on the foods label, our consumer goodsand private branded in their packaging use plastic Foods, division, Kerry Foods undertook Kerry In 2018, offerings. customer their plastics footprint understand significant work to of the UK Plastics membership Pact,and through has set be reusable, to plastic packaging 100% of its for a target 2025. by or compostable recyclable Diverted Waste Diverted
At Kerry, we continue to make excellent progress on waste on waste progress excellent make to we continue Kerry, At by a goal of a 12% set ourselves reduction having reduction we surpassed that In 2017, base year. a 2013 versus 2020, realising the momentum, we continued and last year target remain We a 22.7% base year. against our 2013 reduction as we enter volumes our waste further reducing to committed look at to and we continue of our programme the final year streams. these waste from value greater how we can capture Intensity Waste Waste Food a and we are waste on food a close focus also maintain We of the Champions 12.3 our Kerry supporter through initiative by waste food halve business. aims to Foods The initiative waste food first published its Foods Kerry 2030 and in 2018, annual Champions 12.3 ahead of the second data in event leaders together brought This event in September. New York help to and civil society business, across government from this goal. achieving towards progress accelerate by Waste Disposal Method
t o c r Finis e o onne per r et r et a a r et a 6 1 s t APMEA t sol te it ra ls EUROPE o c o c onne o Finis e oo onne o Finis e r onne o Finis e r per ter ntensit per a aste per
2
AMERICAS AMERICAS onne o Finis e r Finis e o onne per t o c and reuse reduce, to ways exploring we are our sites Across we material, waste we do generate Where materials. recycle In in which this can be utilised elsewhere. find ways seek to landfill and towards from diverted was of this waste 90% 2018, of 3% of an increase uses. This represents other productive is this increase however, 2017, landfill versus sent to waste classifications one site. at waste to a correction to due largely our versus 30.2% landfill by to waste reduced we have Overall, base year. 2013 Generating Less Waste Less Generating model of ‘take-make-dispose’ linear production The current is of resources. value the full capture adequately to fails one that on rise, pressure As levels global population and income operate companies to For grow. continues to resources natural the raw access to continued ensure and to sustainably more a to a transition is a clear need for there required, materials economy. circular more With the aid of this tool, we have identified nine locations have we tool, aid of this With the a careful maintain We sites. water priority are globally that these use at across facilities and our efficiency on water focus We the Group. for that these exceeds locations significantly is the key withdrawal water absolute that however understand we continue sites relevant metric in these and across locations total these In 2018, volumes. in reducing progress make to 24.6%, by reduced the nine sites across withdrawals water base year. our 2013 versus Water Use – Priority Sites – Priority Use Water Location of Priority Water Sites Water of Priority Location MARKETPLACE
Spend on research, development Kerry manufacturing sites €275m & application in 2018 100% with GFSI certification
Kerry manufacturing sites Kerry milk suppliers under an accredited 100% with Sedex membership 100% farm level sustainability programme
As in many industries, the food industry faces Consumers want to know what is in their food and beverage a variety of challenges keeping up with the products. Transparency is increasingly being demanded around how ingredients have been produced and the implications for unprecedented pace of change. Driven by people and the planet. At Kerry, our impact extends from the raw consumer trends, changing demographics materials we source right through to the product’s effect on the and the ever-increasing prevalence of end consumer. Our marketplace goal is to deliver the highest technology, business models are evolving as quality products and use our position in the value chain to contribute positively to the health and sustainability of the marketplace continues to shift. Growing consumer diets. preferences for healthier options, concerns over environmental sustainability, increased Our Marketplace activities contribute to the achievement competition from challenger brands and of the following UN Sustainable Development Goals. alternative food sources are creating a new dynamic within the industry.
58 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 59 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry
Plant Protein 150+ has publishedThe KHNI 150+ articles, Papers 13 White and hosted 6 specialised since 2016 webinars Good for you and for the planet. and for Good you for choice in dietary interested Consumers are such as trends growing by as evidenced sustainable in more and interest veganism and beverages. foods nutrition and functionality taste, combine We create to sources plant protein across solutions with a easy-to-use, high protein footprint. lower environmental We continue work with to We others support to Kerry’s leadership position and engaged are with external centres expertise, of through which share we and acquire new knowledge. The Kerry Health and Nutrition Institute has (KHNI) established itself as a leading source thought of leadership in the area of diet and health. In 2018, KHNI published more than 60 articles and ran a highly successful webinar series attended the by world’s 10 food top and beverage companies. Programme You’ For ‘Better Foods’ Kerry Within our consumer foods division, Kerry Foods, continue we look ourto branded improve how at to products through the ‘Better Programme. The primary For You’ focus the of programme reduce is to calories, saturated fat, sugars, salt and add positive nutrition as appropriate, without taste. on compromising Following on from previous reformulation work and in line with Public Healthreformulation England’s (PHE) targets, in 2018 achievedwe a 13% reduction in salt in our Richmond sausage brand and building on sugar the 5% reduction achieved within the yoghurt continue we category reduce to sugar to in 2017, meet 2020 sugar the PHE’s reformulation targets. Building on previous reformulation achievements, Kerry Foods continues explore new to technologies achieve further to reformulation across its portfolio. Clean Smoke Rei e t Natural Flavour. Pure & Simple. Pure Flavour. Natural using only wood, process With a proprietary heat, natural condensed and filtration, water and completely natural is 100% smoke chemical-free. and flavourful the healthy capture We and and use the tar of the smoke, parts out during the production filtered charcoal of using run our plant instead to process fossil fuels. o itio Re p Re o e TasteSense™ Re ce Rep ace Our TasteSense™ portfolio helps customers helps customers portfolio Our TasteSense™ salt) (sugar, ingredients undesirable remove them with replacing products, their from aroma, preserve healthier options that a while delivering and texture, flavour clean label solution. Consumers want healthier food and beverage and beverage healthier food Consumers want can negatively options, but reformulation impact taste. Better for you, naturally. you, for Better Creating Sustainable Solutions Sustainable Creating We have the industry’s have We leading portfolio taste of and nutrition technologies and our product development and innovation work brings together Kerry’sunrivalled global capabilities to develop leading market solutions based on local needs and taste preferences. lead We the industry with our investment in Research, Development and Application. In 2018, invested we a further €275 million ensure in this area to continue we shape to the food. future of For more see Our Markets page 24. Clean Label Amid growing awareness the of link between diet and health, there is increasing demand from consumers for products they that can trust maintain to and enhance wellbeing. As the world’s leading ideally & Nutrition are we placed company, support to Taste our customers in the development clean healthier, of label product offeringsthat meetthese changing consumerexpectations, while continuing deliver to the same authentic taste firm of favourites and satisfying the demand for new flavours. and exciting According the Health World to Organisation, global 71% of deaths attributable are non-communicable to diseases and with unhealthy diets identified as one four of primary risk factors, there is a growing level scrutiny of on how food and beverage products impact wellbeing. With almost 40% adults of overweight, it’s evident current that dietsand lifestyle increasingly are implicated in a range chronic of conditions. Health Nutrition &
Ensuring Quality & Food Safety Responsible Sourcing We strive to produce safe, high quality products and have stringent Much of the environmental impacts associated with our products food and product safety requirements in place across the Group, occurs in the supply chain, often at farm level. Although we do not as outlined in our Food Safety and Quality Policy. We take a ‘farm own or operate any farms, Kerry is committed to promoting good to fork’ view that incorporates preventive controls through to agricultural practices and to upholding the rights of workers who horizon scanning and embedding best practice. We have rolled out help to produce our raw materials. a global quality management system and in 2018, 100% of our sites achieved Global Food Safety Initiative (GFSI) certification. GFSI With a raw material spend of almost €4 billion, Kerry sources is an industry-driven initiative that reduces food safety risks by products from thousands of suppliers, providing vital support delivering equivalence between effective food safety management to agricultural communities around the world. However, some of systems and we leverage this platform to ensure food safety and the raw materials we use can present social and environmental compliance with quality standards. challenges. Addressing these challenges can prove difficult within a complex and global supply chain and, where possible, we seek Kerry also requires that its suppliers of raw materials comply to work with other stakeholders on a pre-competitive basis to find with strict requirements as laid out in the Group’s Supplier common solutions. Requirements Manual. In 2018, our global Supply Quality Team had a food safety verification audit footprint in 45 countries We continue to work to improve the traceability and sustainability where direct materials are sourced, in line with Kerry’s annual of our raw materials and have a focus on six strategically important supplier risk assessment and geographic expansion. Following the raw material categories. Certification standards play an important establishment of our Global Raw Material Centre of Excellence, part in demonstrating good practice, however, we also engage we have created and agreed global buying specifications with closely with suppliers across these six categories and work strategic suppliers and continue to pursue ongoing category collaboratively at farm level in a number of priority areas. transformation, reducing complexity, lowering risk and increasing efficiency and supplier trust. Dairy Like many of the sustainability challenges we face, issues around food safety and food fraud in the supply chain are not unique to Kerry. In 2018, our global Supply Quality Team worked closely Vanilla with industry organisations and peers to support and influence the strategic development of global food safety standards. We participated in the review of the British Retail Consortium Meat (BRC) Global Food Standard and were part of a joint SSAFE (Safe Supply of Affordable Food Everywhere) and Accenture review of six global food and beverage companies, resulting in Herbs & Spices an industry best practice guide to help manage food safety in mergers and acquisitions. Palm Oil
Paper Packaging
We are members of a number of important multi-stakeholder initiatives, through which we seek to work with others to advance responsible sourcing at category and industry level. These initiatives include the SAI Platform, Innovation Centre for U.S. Dairy, Sustainable Spices Initiative, Origin Green, Roundtable on Sustainable Palm Oil and the Sustainable Vanilla Initiative.
60 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 61 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry 100% 100% of Kerry’s milk suppliers are are milk suppliers 100% of Kerry’s Dairy certified under the Sustainable Scheme (SDAS) Assurance Dairy Kerry’s liquid milk suppliers usea natural, grass-based production system is that among the most carbon efficientthe in world. Still, dairy production has a significant environmental footprint and Kerry’s Agribusiness division works closely with our farmers to support them in implementing more sustainable practices in areas such as grassland management,soil health, quality water and welfare. animal 100% Kerry’s of milk suppliers certified are under the Sustainable Dairy Assurance through whicheach Scheme farm is (SDAS), independently audited against requirements. 170 Sustainability data is assessed and every farmer is provided with a carbon footprint for their farm, together with information on what changes farmto practice could help reduce to this. In 2018, through our membership the of Sustainable Agriculture Platform, (SAI) Initiative Kerry was also an active participant in piloting the Dairy Sustainability Framework (DSF), alongside other industry partners. Our expectation is the that DSF will provide a common approach assessing to sustainability farm at level can that support Kerry’s responsible sourcing targets for those dairy ingredients where a direct do we not relationship have farmers.with We also publishedWe our second palm oil progress report during 2018, outlining 96% that our of volumes sourced were in accordance with Oil Palm the Policy Group’s andhighlighting increased traceability for our volumes back both the to mill (98%) For more information seeand this progress plantation (48%). report www.kerrygroup.com. on Project Ilham Project in collaboration launched a smallholder programme Kerry In 2018, mill and the Fortuna IOI Plantation Croklaan, with Bunge Loders in the Ilham, or ‘Inspiration’ Known as Project in Sabah, Malaysia. support smallholder aims to language, the programme Malay production, increasing their yields, thereby improve to farmers the improve additional land and helping to without the need for is to Our goal with the programme families. of farm livelihoods of living while their standard increase help these to smallholders will help them to that practices good agricultural introducing standards. certification recognised by required meet the levels At Kerry, we believe we working that Kerry, withAt industry partners effect to change is the best long term solution for the palm industry. As a member the of Roundtable on Sustainable we Oil Palm (RSPO), continue pursue to the sourcing more of sustainable palm oil and achieved our 2018 target 100% of physical RSPO certification across all Kerry Foods branded products. Promoting Sustainable Agriculture: Sustainable Promoting Oil Palm Our 2020 goal is for all direct suppliers classified as high risk be to members SEDEX. of good continue make to We progress towards goalthat with 60% these of suppliers registered in 2018. Under our Supplier Code Conduct, of Kerryreserves the conduct right to independent audits suppliers of confirm to compliance and in 2018, our of 20% high risk suppliers had independent SMETA audits Audit) in place. Members(SEDEX Trade Ethical We monitor complianceWe based on risk and use independent input helpto determineour areas focus. of Kerry is a member SEDEX of the world’s leading(Supplier Data Ethical collaborative Exchange), platform for sharing responsible sourcing data, and use we this platform assess to our suppliers and help improvements drive furtherin labour standards. support To us in these efforts,we recently joined (FNET). the Food Network Trade for Ethical Established in 2016,this industry human aims improve initiative to rights in global food supply chains through a common approach managingto ethical trade. Protecting Workers in our Supply Chain in our Supply Workers Protecting Our Supplier Code Conduct of sets out our expectation that all suppliers act honestly ethically, and in accordance with all applicable laws.is It explicit stating in our respect for internationally recognised human rights and Kerry does not thetolerate use forced of operations or in any child labour, connected with the Group. Meat Vanilla In 2018, we further engaged with our supply base to understand In Madagascar, Kerry’s Tsara Kalitao Programme supports our key impact areas. With a focus on the priority issues of more sustainable vanilla production. With a focus on improving animal welfare, antibiotic use and sources of feed, we examined livelihoods, empowering women and educating children, how our suppliers are currently addressing these key areas of the programme takes a holistic and long term approach to risk. The outputs from this engagement are outlined below and sustainability in the regions where we source. confirm that we work with suppliers who employ leading farm practices and the majority have third party certification or policy At farm level, agronomists work to improve agricultural practices commitments addressing these topics. We will continue to work among farmers, helping them to progress production techniques, with them and others to look at how further improvements can be boost their yields and thereby increase their income. In 2018, made. vanilla beans produced under the programme were awarded organic certification reflecting the natural methods of cultivation. Animal Welfare and Antibiotics We also look at other ways of protecting farm incomes and with the increase in the price of vanilla, the incentive for theft of beans prior to harvest has increased, reinforcing the importance of the 87% 3rd Party Certified community watch programme initiated in participating villages. 13% Policy Statement We are also focused on ensuring that children across these villages have the opportunity to stay in school and are pleased to note the increase in the level of educational attainment by children at schools participating in this element of the programme. Animal Feed (Deforestation) For more information see our vanilla progress report on www. kerrygroup.com.
56% 3rd Party Certified 13% Policy Statement 31% Limited Action
62 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 63 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry The Origin Green programme programme The Origin Green producers, farmers, brings together with and foodservice operators retailers leader a world the goal of making Ireland food production. sustainable in more
Marketing and Communications Marketing committed are we Kerry, providingAt clear to product information, which supports consumers in making healthy choices. All advertising and brand positioning conforms national to advertising codes practice of and conscious are we the of potential impact children to and marketing of young people. provide on-pack We nutritional labelling and additional information services e.g. brand websites, help to consumers informed make choices. The Group has established best practice guidelines for nutritional labelling across our portfolio, in line with ‘Food Information Consumers’to legislation. In addition mandatory to labelling requirements, support we the voluntary addition front-of-pack of ‘Reference information aid consumer to Intake’ choice. also We employ customer enquiry lines which manned are experienced by teams who can help respond additional any to customerrequests. Commitment A National Origin Green is Ireland’s national food and drink sustainability programme led Bord by Bia (Irish Food Board). The programme foodservice and retailers producers, farmers, together brings operators with the goal making of Ireland a world leader in more production. food sustainable Origin Green enables Ireland’s food industry set to and achieve measurable sustainability targets and Kerry is proud be to a founder As member. part our of Origin Green have we charter, set commitments for improvement across specified target areas including responsible sourcing, manufacturing operations and social impact. These commitments fully are aligned withbroader the Group’s sustainability goals and continue we lead to with the delivery of our programme. Theindependent verification our of performance under Origin Green also helps provide further to assurance around our progress on these issues. Non- Certified
9 3% 7% Certified No Deforestation Forests play a critical role in supporting our ecosystem and are a source fuel of and food a billion for over people, forests yet globallyunder are threat. According the Resources World to Institute, almost 16 million hectares lost tree were cover of in is a leading Agriculture cause deforestation of 2017. and Kerry has committed ensuring to materials the that raw use we do not contribute further to forest loss 2025. by Our no deforestation commitment is across targeted supply chains represent that a high risk deforestation of and includes meat, dairy and palm oil. also recogniseWe soy that production, particularly for use in animal feed, risk category. is a key In 2018, became we a member theof UK Roundtable on Responsible As part Soy. our of efforts in this category, will the we examine impacts our of direct and indirect soy purchases in more detail through 2019. Paper Packaging Paper Paper Packaging Paper Our 2020 target procure is 90% to our of fibre based packaging from sources certified, are that verified or recycled. In 2018, exceededwe target that with 93% our of volume spend by standards certification Accepted requirements. these meeting include Forest Programme Stewardship for the Council (FSC), Endorsement Forest of Certification and the Sustainable (PEFC) Forestry Having surpassed (SFI). Initiative our 2020 target, we will continue look to how at ensure we the sustainability our of remaining volumes the future. into Herbs & Spices Within this category established have we a programme aims that sourceto only from primary processors. These supply partners chosenare fortheir consistent high quality and their reliability, proximity farming to communities and their commitment to working in close collaboration with these farmers. Kerry is also an active member the of Sustainable Spice Initiative, a platform which aims for fully sustainable spice production and trade. Sustainably certified spices not widely are available and certification programmes in their are other infancy to commodities. relative in 2018 as seek we build to However, a more sustainable sector, committed have we working to certified 10% towards sustainable sourcingour in 3 product top categories 2021 by and achieve to or certified exceed 25% sustainable sourcing in our 3 product top categories 2025. by WORKPLACE
>25,000 Kerry’s global Reduction in reported Employees workforce 8% health & safety incidents >102,000 Learning & SMETA audits across sites Courses Completed Development 100% in developing markets
As a global organisation, our ability to attract We understand the need for the appropriate policies and and retain the very best people from around procedures to promote employee wellbeing, and to protect and enhance the Group’s reputation, and we know that by engaging the world is essential for delivering on our people more fully we can realise a shared ambition for success. strategic goals. The 25,000 plus colleagues who come together within Kerry’s innovative Under the Workplace pillar, we are building an environment and entrepreneurial culture are a key source where people develop their potential and feel empowered to succeed. We do this through the way we conduct our business, of competitive advantage, and central to our reward talent, provide prospects to grow and give people the ongoing success. opportunity to make a difference.
In an increasingly competitive landscape for talent, and amidst Under the Workplace pillar, we contribute to the achievement changing employee expectations, Kerry is focused on creating of the following UN Sustainable Development Goals. a safe and inclusive workplace, where people can thrive. We recognise that delivering on our goals requires a positive working environment, where people feel valued.
64 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 65 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry Upholding Human Rights conductWe our businessmanner in a respects that the rights and dignity all people. of Kerry’s Global Human Rights Policy reflects our commitment upholding to internationally recognised human rights, as established in the Universal Declaration on Human Rights and the International Labour Organisation’s Conventions. Core HumanThe Group’s Rights Policy applies all Kerry to employees and also sets out our expectations business of and supply chain partners conduct to their business upholds that in a way the principles set out in the policy. The use child of or forced labour is strictly prohibited across all our operations and facilities. do form not any tolerate We unacceptableof treatment workers of and respect we all laws establishing a minimum age for employment. processes have We in place ensure to compliance and to support implementation and monitoring Human the of Group’s Rights All sites policy. registered are with SEDEX and complete a self-assessment, which includes questions regarding young employees, forced labour and human rights. In developing regions, where there is potential for an increased risk of infringement, our all of sites independent covered are by or equivalent,SMETA, audits. Our Supplier Code Conduct of is explicit in demanding those that who seek do business to with the Group uphold the rights of workers and expressly forbids the use or child forced of labour, or involuntary labour type. any of For more information on our engagement with suppliers in this area see our Responsible Sourcing Section on page 60. Fighting BriberyFighting & Corruption As part the of Group Code Conduct, of Kerry’s Anti-Bribery Policy describes tolerance our zero approach and provides guidelines all employeesto regarding potential situations involving bribery. togetherThis policy, with policies on fraud, money-laundering, fair competition and engaging with Government officials, all support Kerry’s effortsto ensure that corrupt practices do form not partof our business relationships. ask we questions Internally, on bribery and corruption each of business unit as part the of ongoing assessments undertaken Internal the Audit Team. Group’s by In 2018, no incidences bribery of or corruption uncovered were across the Group. As a business, also are we a member SEDEX (Supplier of Ethical and eachData our of Exchange) sites globally registered are with the platform. As part this of membership, each site completes a self-assessment focused on areas aligned with our Code of Conduct, including ethical business practice. Furthermore, of 75% our sites, including all those in developing regions, subject are to or Audit) Members (SEDEX an independent Trade Ethical SMETA equivalent audit.
Live Our Values Obey the Law Code of Code Conduct
Protect Our Assets Respect Each Other We also seekWe extend to our valueson ethical business practice thoseto whom do we business with and our requirements are reflected in our Supplier Code Conduct. of In 2018, continued we monitor to and all reported investigate issues via this ‘Express a Concern Service’. The majority the of concerns reported internal HR issues to relate (88%) although we continue see to party third engagement with this service. During Audit Committee the Group’s the year, reviewed the operation of this facility and confirmed the Board to they satisfied that were it was operating(see effectively page 105). Where employees have concerns about business conduct, the the conduct, business about concerns have employees Where Group provides clear guidance on report how to these. The appropriate the details Policy Disclosure Concerns Employee employees encourages It misconduct. alleged reporting of means speakto up if they believe something is not right and is clear we However, whistleblowers. to afforded protection the about understand there that can be a reluctance report to in person and so ensure to people that comfortable are in expressing their concerns, the Group operates an ethics hotline, through which employees and parties third can report an issue anonymously (www.kerrygroup.ethicspoint.com). The Code Conduct of is made available across the Group in multiple languages and is applied all aspects to our of business. All colleagues required are familiarise to themselves with this code on joining Kerry and mandate we ongoing training through our learning In 2018, academy. 80% all eligible of colleagues had achieved Code Conduct of certification. At Kerry, doing Kerry, businessAt with integrity is fundamental the to operate we andway the foundation for our long term success. Business results must always be achieved ethically andlegally and comprehensive the Group’s Code Conduct of clearly defines the standards and expectations set for all Kerry colleagues. The policies behind the code provide clear guidance for our daily interactions and these policies The reviewed are annually. ongoing responsibility for their implementation rests with Group management, supported functions relevant by including HR and Internal Audit. Doingthe Right Thing The Group also publishes an annual Slavery and Human Trafficking Statement which is available on the Group website Mental Health Day In 2018, we recognised World Mental Health Day globally at www.kerrygroup.com. through various executive sponsored activities. At our site
Improving Health & Safety in Shillelagh, Ireland, 90 colleagues participated in practical training and guidance on emotional wellbeing through a Ensuring the health and safety of our employees is a priority for partnership with a local charity ‘Talk to Tom’. Kerry. Led by the Global Health, Safety and Environmental (HSE) steering team, Kerry has implemented a Group-wide Health and Safety Policy and management system that defines consistent ways of working and establishes standard requirements across Engaging Employees each region. While calling out responsibilities and accountability We aim to create a workplace where our people are challenged at all levels, our Health and Safety Policy outlines the role for all in their roles and have the opportunity to make a meaningful employees to work safely and challenge any unsafe behaviour. contribution to the success of the business. Employee Employees are supported by HSE personnel across our sites, who engagement benefits both our people and the business as a work with site managers to ensure we consistently promote a whole, with outcomes shown to include higher levels of wellbeing, culture of Safety First, Quality Always. performance and retention.
We measure performance on an ongoing basis and progress In 2017, we conducted the first Group-wide employee engagement reports are presented at regular intervals to the Group’s survey, ‘ourVoice’, providing us with a better understanding of Sustainability Council. We celebrate success internally and share how our people view our organisation. The results of the survey, best practice among our sites to ensure consistent performance provided an insight into areas where Kerry is doing well and also across all locations and regions. areas where there is an opportunity to improve.
As a Group, we have targeted a 5% year-on-year improvement Following the survey, action plan committees, consisting of our in our health and safety metrics. In 2018, we delivered an people and management representatives, were formed to identify improvement of 8%, resulting in a cumulative 30% improvement key changes that could be made in the short, medium and long since the commencement of our Towards 2020 Programme in term to drive Kerry forward and make it a better place to work. 2015. While this represents significant progress, we recognise that In 2018, the work of these committees has been ongoing, and there is no acceptable level of accident or injury and so continue implementation of the action plans has been rolled out across the to strive for the safest possible working environment. Group.
Example highlights of group-led activities include, our investment in new HR technology to manage our people processes more effectively and efficiently across the organisation which resulted in the launch of the ‘mySuccess’ platform in October 2018. Also, in response to an opportunity to strengthen our people leader capabilities and create greater clarity on the role of the people Contributing to Wellbeing leader at Kerry, we have introduced a new framework and set of Given the significant time employees spend in the workplace, objectives for all people leaders, which will be reinforced through we know that as an employer we can play an important role in the performance management process in 2019. personal wellbeing beyond health and safety. At Kerry, we want to support our colleagues in leading healthier, more active lives In 2019, we will conduct a follow-up survey to assess the and in 2018, we defined four key areas of support: Nutritional, outcomes of action plans both globally and locally to continue Emotional, Physical and Financial. Within this global framework, we to enhance our approach to engaging our people and improving have begun to expand a number of locally relevant initiatives and their experience at Kerry. promote a greater awareness around the concept of wellbeing.
Our local site wellness champions work hard to ensure that we have locally appropriate activities to support each area and our wellbeing and benefits partners offer a wide range of support such as employee assistance, advice programmes, 8% talks and workshops, gyms, activity clubs, health screening Health & Safety and financial education. 8% year-on-year improvement
66 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 67 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry > 102,000 & Development Learning completed courses Rewarding Performance Rewarding Compensation and benefitsa core are part our of talent management provide competitive We and pay of rates strategy. ensure fair compensation practices across all our locations. Employees rewarded are in line with their individual and business performance and this includes achievements against key forms colleagues. Compensation relevant for metrics sustainability a core part employee the of overall benefits package, which is tailored help to meet a variety short of and long term needs. The ‘mySuccess’ platform provides a structured mechanism for our people and managers discuss to performance and career progression withongoing feedback and coaching, as well as or developmentformal year end needs reviews. Training identified as a resultthis of two-way process supported are through the Kerry which facilitates Learning Academy, the provision tailored of organisation. the across solutions learning general more and These solutions include classroom, online and interactive content providesthat instruction, stimulates discussion and encourages collaboration from structured graduate training through to leadership development programmes. 2018, In Kerry colleagues completed 102,000 over courses. One the of opportunities identified asresult a our of most recent our of enhancement the was survey engagement employee learning solutions with additional tools and resources. During 2018, engaged we with our people across the organisation, working within each our of different functions and business areas developto a series career of frameworks. These frameworks offer step-by-step guidance for our people in developing a challenging and career rewarding aligned within Kerry, their to individual capabilities and interests. (For more, see Our People, pages 16-21). Learning Academy Learning Kerry recognises talent that management to is key therefore enabling our people achieve our to business goals and we a colleagues, adopting in investment continuous undertake structured approach talent to management through our dedicated platform. ‘mySuccess’ We believe in peopleWe with big ideas and provide them to want with opportunities acquire to the skills and professional expertise canthat deliver ongoing business success and help grow to their careers. encourage We our people responsibility take to for developing their own careers through exploring new experiences and seeking opportunities will that enable them fulfil to their aspirations, whilst continuing our drive business to forward. Developing Talent Developing Other steps included have taken improved internal reporting monitorto progress diversity of and inclusion initiatives and commissioning expert research, engage to all our people in shaping further development our of wider diversity, inclusion and belonging agenda within Kerry for 2019. In addition, Kerry has up membership taken the of Irish Chapter theof 30% and Club is represented on the advisory an of group industry led Agri-food D&I Forum, led Bord by Bia and aligned with the 30% Club. As part these of partnerships, Kerry has contributed an industry to wide on review gender balance, results which of published were in an external report entitled ‘Diversity & Inclusion in the Irish Food & Drinks Sector: Women in Business’ in September 2018. This has helped our inform to continued approach diversity, inclusion to and belonging across Kerry as well as beginning set to the standards for all Irish based companies in our sector. Our Diversity, Inclusion and Belonging Policyreinforces our focus on these areas across all Group activities, supported our by global taskforce established during 2018, help to us gain a better understanding the of issues facing the organisation and the ways in which can we positive take action on this agenda. As a global organisation, understand we Diversity, that Inclusion & successful a workplace for elements essential are (DIB) Belonging and since the introduction our of Global Diversity Programme in 2016, continued have we embrace to these principles for innovation and growth through attracting the best talent our to business, growing our own people and capabilities and building more agile working practices. Promoting Diversity, Inclusion & Belonging Inclusion Diversity, Promoting COMMUNITY
RAIN Programme Addressing Project Leche Improving Niger food security Honduras nutrition Special Building more Kerry Connecting Olympics inclusive communities Volunteers people locally
With our heritage as a cooperative, Kerry has a As a leader in the food industry, the key focus of our community proud tradition of working to positively impact programmes is on nourishing the lives of those who are beyond our day-to-day reach. Our flagship programmes centre on on the lives of those around us. We play a improving health and nutrition, reducing hunger and providing critical role in the lives of local communities assistance in ways that will make a lasting difference to those through the value created by our business most in need. With these programmes we work at multiple activities, the jobs we provide, the raw levels in countries and communities at different stages of development. We seek to collaborate with partners who are materials we purchase and the products established locally and with whom we can work to help effect we produce. However, we realise that we transformational change. can have an even greater impact by working with others and harnessing the goodwill and Through our community activities we passion of our people. contribute to the achievement of the following UN Sustainable Development Goals.
68 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 69
Kerry Group Annual Report 2018 2018 Annual Report Group Kerry work of trained community volunteers were were volunteers community work of trained ater management committees were were management committees ater ollaborative agreements were put in place with put in place were agreements ollaborative ommunity level inter-generational and gender inter-generational level ommunity eventy lead farmers were trained on adoptive on adoptive trained were lead farmers eventy relevant government departments and seven and seven departments government relevant and Emergency Warning Early Community across established CommitteesResponse were regional villages with support from the targeted and village authorities. dialogues were introduced in all seven villages. in all seven introduced dialogues were and sensitisation raising Other awareness help change to conducted activities were gender social norms and redress prevailing based inequalities. C climate smart agriculture techniques and techniques smart agriculture climate short cycle with provided households were food diversify bio-fortified millet seed. To were sack gardens kitchen production, enabling among participants established fresh and consume produce households to income. extra and raise vegetables A net and awareness conduct education to supported change behaviour activities and promote raising practices. health and hygiene around W villages and in the targeted established safe promote to kits with hygiene provided consumption. to source from management water to conducted sessions were Monthly awareness practices. hygiene improve C S – – – – – Strengthen the capacity of local of capacity the Strengthen structures identify to issues and solutions community the within – long sustainability. term Across objective the key areas, progress has been made as follows: diversity and production food Increasing diet: rich nutrient of healthPromote key practices for improved maternal and child nutrition – water safe and reliable to access Improve sources and improved sanitation – Reduce inequalities experienced the extreme by poor and vulnerable, particularly women and girls – 2018 marked first the four the of year implementation period and begun already have we seeto impacts. the In keeping Concern with ethosWorldwide’s working of ‘poorest the with of households vulnerable 1,000 extremely poor’, the beenhave selected for participation across villages.seven Baseline surveys were conducted helpto monitorprogress and partnerships have been built local the with community and key ensure and ownership promote to stakeholders – oving access to reliable and safe water sources and sources and safe water reliable access to oving easing food production and diversity of nutrient-rich diet of nutrient-rich and diversity production easing food educing inequalities experienced by the extreme poor and the extreme by educing inequalities experienced romoting key health practices for improved maternal and maternal improved for health practices key romoting trengthening the capacity of local structures to identify to of local structures capacity the trengthening child nutrition sanitation particularly women and girls vulnerable, issues the community and solutions within – – – – – By addressing these broader factors contributing hunger to and malnutrition, this second phase the of RAIN Programme will make a positive, long term impact on the lives some of the of world’s people.poorest –R –S – Impr – Incr –P Through the RAIN Programme, Kerry aims build to resilience within these communities and achieve this to the programme objectives: following the on focuses The Tahoua region, where the RAINThe Tahoua Programme is located, is one the of most impoverished Here regions small-scale in Niger. farmers depend on rain-fed subsistence agriculture, but with erratic rainfall, pest invasion and inadequate responses to change,climate the poorest exist in a state families in Tahoua of chronic poverty. Building on the success and learnings from programme, that Kerry announced in 2018 it that would commit a further €1 million bringto a second phase the of RAIN West programme Niger, to Africa. Niger is a landlocked andlargely arid state on the edge theof Sahara desert and the is UN rated by as one the of world’s nations. least-developed Realigning Agriculture to Improve NutritionImprove Realigning to (RAIN) Agriculture is a multi- disciplinary approach tackling to hunger and malnutrition in some the of world’s poorest regions. In partnership withConcern has Kerry agency, development international leading a Worldwide, previouslysupported the successful implementation the of RAIN Programme in the Mumbwa district Zambia, of 2015. to from 2011 RAIN Programme World Food Programme supporting Kerry is the first Irish company to partner with the World Food Programme (WFP), the food assistance branch of the United Nations and the world’s leading humanitarian organisation fighting hunger. Together, our pioneering three-year partnership, Project Leche aims to support the work of WFP and the ‘Project Leche’, is piloting the safe and sustainable inclusion of HGSM programme through 3 key objectives, namely: dairy products within WFP’s Home Grown School Meals (HGSM) − Improve the nutritional value of school meals by Programme in Choluteca, in the dry corridor of Honduras. increasing the dairy component. Honduras is one of the poorest countries in Latin America, − Create a sustainable local milk supply with enhanced where one in four children suffer chronic malnutrition. Here quality and quantity thereby providing market access Kerry’s expertise in nutrition and sustainable dairy production for smallholder farmers. is supporting small communities to overcome food security − Increase nutritional awareness amongst children, concerns and improve nutrition. teachers and parents.
The second year of Project Leche successfully concluded in 2018, with improvements in the student’s nutrition, the livelihoods of smallholder farmers and the improvement of healthy eating practices amongst the wider community. As part of the project, Kerry Agribusiness brought a number of Honduran farmers to Ireland in April 2018, and with the support of our milk suppliers, demonstrated and shared best practice milk production. Through this peer-to-peer platform, we aimed to illustrate practical examples of where improvements can be made on Honduran farms and the potential benefits these could bring.
Impact in 2018
Nutritional Impact Sustainable Milk Production Education & Awareness
1.6% decrease in rates of stunting. Collaboration and exchange of learnings 121 mothers participating in School Feeding amongst smallholder producer Committees received training on nutrition, associations, marking a 40% increase food hygiene and preparation. in activity.
Severe and moderate wasting rates Increases in milk production in both 208 teachers have received nutrition and reduced from 8.1% to 1.5%. the summer and winter seasons with awareness training, empowering them volumes up 33% and 18% respectively, with the skills and knowledge to educate versus baseline. children on healthier eating.
8% decrease in the presence of intestinal A selection of farmers, identified as Monitor Teacher and community networks have parasites amongst participating students. Producers have seen a collective increase been established leading to greater in income of $1,200 per year. Monitor knowledge and awareness, contributing Producers act as leaders in best practices towards a cycle of healthier eating in and facilitate training amongst the wider schools and at home. farming community.
70 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 71 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry
2 Year Special Olympics to partnership 2 year support athletes
Special Olympics One community programme has that captured the imagination of ourcolleagues has been our two-year partnershipwith the Special Olympics announced in 2018 and launched in the UK, Ireland, The Poland. and Netherlands The mission Special of Olympics sports provide is year-round to training and athletic competition in a variety Olympic-type of sports for children and adults with intellectual disabilities, giving them continuing opportunities develop to physical fitness, demonstrate courage, experience and joy participate in a sharing gifts,of skills and friendship with their families, other Special Olympics athletes and the community. This aligns with our desire Kerryat support to the inclusion people of with intellectual disabilities in our local communities. Connecting People a community are we Kerry, 25,000At over of committed and passionate individuals and under our community to want we pillar, encourage our people the opportunity take to engage to with the communities around them. support this, ProgrammeTo the Kerry provides Volunteer paid forleave colleagues who engage to want in local community programmes. employees Many already have availed the of to hope we colleagues, and their alongside often opportunity, substantially the number grow and impact Kerry of volunteers over time. Our local community initiatives span a broad range activities of and include enterprise, education, arts, sport and community development. With local ownership, each our of sites has the opportunity select to and engage with activities a make that differencetheirto local communities.
The ‘Kerry Wing’ of the Noon The ‘Kerry almost has treated hospital patients 18,000 18,000 Since opening its doors in March, this new excellence centre of care hasfor eye almost treated 18,000 patients, and has allowed for increase a 20% in surgeries, including a 79% increase in cataract surgeries, provided for free those to most in need. The new ‘Kerry Wing’ houses the hospital’s ophthalmic department, which treats a variety health of issues, including glaucoma, blindness, trachoma and cataracts and is accredited the stateby Government through the District Blindness Control Society blindness. for of prevention India is home the world’s to largest population blind of people and the difficultyof losing visionexacerbated is theby factthat once blind, lose many their livelihoods forcing them, and often their families, instances in many poverty. of a life into However, blindness is preventable with timely access the right to treatment. Critically the Noon for Kerry, Hospital provides healthcare on the basis need of and rather than offers abilitythose pay, to in the surrounding region access the high to quality treatment they require. In partnership with the Noon Kerry Memorial agreed Legacy Trust, supportto the development the of hospital in 2016 and enable to the expansion the of services it provides. As part a five of year programme support, of in March 2018, Kerry was delighted to officially openfourth a wingtheat hospitalfocusing eye on care. Prior his death to in 2015, Noon Lord had founded the Noon Foundation, through which the Noon Hospital and Research Centre wasestablished. The hospital in Rajasthan, India, provides essential medical services for rural communities which would comprehensive The healthcare. quality accessto lack otherwise facility provides world-class services with state-of-the art operating theatres, an intensive care unit, neonatal ICU and eye department and boasts highly skilled staff. Our Kerry Foods division is theleading UK producer authentic, of convenientIndian cuisine and has close ties India to through the Gulam Noon, Lord late British based businessman and founder of Noon Products, which is a Kerry business. Noon Foundation We are delighted that throughout 2018 our people have fully embraced all opportunities to volunteer at Special Olympics Habitat for Humanity In 2018 our Crossville, Tennessee, site in North America events around our partner countries. At the Ireland Games in partnered with the Cumberland County Habitat for Humanity, June, and the Great Britain games in August, we supported a an organisation that provides families in need with safe, total of 120 Kerry volunteers. In addition, our Kerry volunteers affordable homes. As part of the process, future homeowners have been fundraising, mentoring athletes and developing their work alongside volunteers and other Habitat homeowners on leadership skills through joint problem-solving with the Special everything from preparing the building site to construction in Olympics Board in Great Britain. order to build ‘sweat equity’ in their new home and invest in their long term success. In recognition of the dedication and commitment shown by our people to this partnership this year, we will be offering a unique opportunity for Kerry volunteers to attend the World Games in Abu Dhabi, in March 2019. In addition, we are planning to leverage Support for the Arts our Kerry expertise in food and nutrition in partnership with the In Southwest Ireland, where the Group is headquartered, we Special Olympic country boards, to offer advice and support at are a key contributor to the local arts. We are proud to sponsor a grass roots level to athletes and their families on nutrition and the internationally acclaimed literary festival ‘Listowel Writers healthy eating. Week’, including the festival’s top prize ‘The Kerry Group Novel of the Year’. Sport We believe that sport can play an important part in a healthy We are also corporate sponsor to Ireland’s National Folk Theatre, active lifestyle, helping bring communities together and promoting Siamsa Tire, an organisation that helps keep Irish folk traditions both physical and mental wellbeing. Kerry are proud supporters of alive through production and training of young people in the many amateur sports including all Kerry county GAA teams, Rás traditional arts. Mumhan, Ireland’s premier international amateur cycling event, and local community games which encourage children in a range Education of sporting disciplines. We understand the importance of education in promoting economic opportunities and as an organisation we offer a number We also continue to support the Kerry Sports Academy at the of scholarships across our regions each year. In Malaysia, Kerry Institute of Technology Tralee, Ireland. Scheduled to open in has supported primary school children in providing back to school 2019, it will be home to the UNESCO Chair in Inclusive Physical packs, computers for schools and partnering with WWF (World Education, Sport Fitness and Recreation and CARA, the National Wildlife Fund) to organise an Eco-Schools Training Programme. Centre for Adapted Physical Activity. Our sustainable vanilla programme in Madagascar also has a key focus on education (see page 62). Community Development Enterprise plays a key role in maintaining strong and vibrant We are sponsors of the Origin Green Ambassador Programme, communities, however, the increasing trend towards urbanisation through which 10 talented individuals are selected to complete poses a serious challenge for many rural locations. In Ireland, we an MSc in Business Sustainability. The programme is designed are founder members of the Kerry SciTech initiative, which aims to help equip businesses for the sustainability challenges that to link talented individuals with exciting opportunities across a lie ahead by growing the expertise and pool of talent within our range of startups and more established companies in the south industry. Kerry is also a supporter of post-doctoral research west region. across the humanities and sciences through University College Dublin’s Newman Fellowship Programme. We also know that not-for-profit organisations play a vital part in community life and we are proud supporters of numerous charities. We understand their reliance on volunteers who undertake much of the unseen work and as well as our financial assistance, we are proud that Kerry colleagues help make such an impact.
72 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 73 3rd LINE 3rd OF DEFENCE: 2nd lines of defence Providers Assurance operation of the 1st and operation Provide assurance on the assurance Provide Kerry Group Annual Report 2018 2018 Annual Report Group Kerry framework, within it and responsibilities functions between is the relationship outlinedin the diagram. of Directors Board ultimately are of Directors The Board the management of risk for responsible risk appetite. setting the Group’s and for risk appropriate that ensures The Board systems, control management and internal mitigate manage and designed identify, to the achievement to risks material potential and business strategic of the Group’s also The Board in place. are objectives, defines that the culture, the tone sets of the behaviours and expected values of the development through organisation Code of Conduct.the Group as part of the risk During the year, the Board management programme, principal risks how the Group’s considered impact potentially could and uncertainties viability and long term the going concern of this The conclusions of the Group. assessment outlined on page 86. are 2nd LINE OF DEFENCE: Self-Assessments, Ongoing monitoring Ongoing monitoring Oversight Functions Oversight Performance Reviews, Reviews, Performance Audit Committee Audit Board of Directors Board Risk Oversight Committee/Executive Management Committee/Executive Risk Oversight 1st LINE and behaviours) OF DEFENCE: (Policies, processes, tasks tasks processes, (Policies, Internal Control Measures Measures Control Internal Operational Management Operational Kerry Group Risk Group Kerry Management Framework appropriate has implemented The Board there that ensure to structures governance and responsibility of ownership is clarity the risk management throughout for of the Group’s An overview Group. control risk management and internal Risk Management Framework Group Kerry The Group’s success depends success on its The Group’s the identify and exploit to ability the business by opportunities generated and extent the nature determine and to in pursuit take to it is willing of the risks objectives. strategic its of achieving of in terms diversity The Group’s footprint,manufacturing and geography of customers, portfolio broad as well as its helps limit the and products, suppliers have. one risk may any impact that must be monitored all risks However, the potential that ensure and managed to within the acceptable impact remains a profitable achieve to of tolerance level shareholders. for return EFFECTIVE EFFECTIVE RISK MANAGEMENT RISK REPORT As a leader in the and global taste nutrition industry, Kerry it is critical that risk has a robust management framework identify, to in place assess, and prioritise manage its effectively ensure to in order risks it can continue that profitably. grow to Audit Committee These presentations, and subsequent teams who, in conjunction with discussions, assist the Directors in management, are responsible for Under delegation from the Board, the Audit assessing the potential impact of both monitoring the operation of internal Committee is responsible for providing key existing business risks and newly controls on an ongoing basis. They are structured and systematic oversight of emerging risks to the Group’s strategy also responsible for providing support and the Group’s risk management and internal and operations as well as the effectiveness expertise to operational management with control systems. The Audit Committee of internal controls. regard to the management of specific risks reviews and monitors the effectiveness and the design of appropriate internal of the Group’s risk management and controls. Examples of tools employed internal control systems throughout the Executive Management for continuous monitoring include year through its review of reports received Executive management are responsible monthly performance reviews, functional from Internal Audit, the Group external for ensuring the effective operation of audits, internal control self-assessment auditor and management on the operation internal controls which have been questionnaires and ICT security monitoring. of material financial, operational and designed to manage the principal risks compliance controls. The Chairman and uncertainties on a day-to-day basis. of the Audit Committee reports to the The ‘three lines of defence’ model as set 3rd Line of Defence Board at each Board meeting on its out below ensures that accountability for Internal audit and external professional activities both in regard to audit matters risk management is embedded into the advisors are responsible for providing and risk management. Group’s processes and procedures. independent assurance to the Audit Committee and the Board on the adequacy A detailed description of the activities A number of management committees and effectiveness of the risk management carried out by the Committee for the have also been established to support and internal control processes operated by year under review is outlined in the Audit risk management initiatives across key the 1st and 2nd lines of defence. As part Committee Report on pages 101-105. functional areas including the Group of its annual programme of work, Internal Finance Committee, the ICT Security Audit conduct regular reviews of risk Risk Oversight Committee Steering Committee, the Sustainability management processes and give advice Council, the Global Quality, Health, Safety and recommendations on how to improve The Risk Oversight Committee (ROC) is and Environmental (QHSE) Leadership the overall control environment. chaired by the Chief Financial Officer and Team and the Brexit Steering Committee. comprises senior Group and divisional Risk Assessment Process management. The ROC supports the Three Lines of Defence Audit Committee in the risk management The Group’s risk assessment process is process through ongoing monitoring and The Group operates a ‘three lines of a co-ordinated bottom-up and top-down evaluation of the risk environment and the defence’ model to ensure that there Groupwide approach that facilitates the controls in place to manage those risks is a clear delegation of responsibility identification and evaluation of risks, in addition to consideration of emerging for the management of risk and that as well as assessing how the risks are risks which may impact the Group in the communication of the risk agenda monitored, managed and mitigated. As an future. The ROC also ensures that there is effective. enhancement to this process in 2018, a is a continuous focus on improving the consideration of key emerging risks was effectiveness of risk mitigation activities. 1st Line of Defence also completed. This process is facilitated The first line of defence is operational by Internal Audit and overseen by the Responsibility for the Group risk management who have day-to-day ROC. Both ongoing and emerging risks assessment process is owned by the ROC responsibility for implementing and were evaluated through bottom-up input who maintain the Group risk register and monitoring effective internal controls from management across all divisional and report changes in the Group’s principal within their sites or business units. functional areas who, through a programme risks and uncertainties to the Audit They are also responsible for proactively of one-on-one interviews and a survey, Committee and Board on an annual basis. ensuring compliance with Group performed a detailed review exercise to policies and procedures. Embedding update the Group risk register. A schedule of presentations to the Board risk management into standard ways of and Audit Committee on the principal working ensures that potential risks are During this process all existing strategic, risks and uncertainties is agreed at the identified at an early stage, escalated operational, financial & compliance risks are start of the year and risk is a regular as appropriate and that controls are considered along with potential new and agenda item at Board and Audit Committee established to manage these risks. emerging risks at a business and functional meetings where members of the ROC, or level throughout the Group. In assessing nominated functional leadership, present 2nd Line of Defence the potential impact and likelihood of each on these risks. The second line of defence involves risk identified, management evaluates oversight functions, including Group the risks at a residual level after existing compliance and functional leadership internal controls have been considered.
74 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 75 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry Emerging Risks Emerging Governance UK Corporate The new 2018 years for financial Code is effective which on or after 1 January 2019, commencing for includes an additional requirement as risks emerging consider to Boards risk management part of their overall with comply to In order responsibilities. risk the Group’s this new requirement, assessment in enhanced was process of key include a consideration to 2018 risks. emerging of the risk the outcome reviewed Having assessment is satisfied the Board process, no significant emerging are there that impact the achievement could that risks in the objectives strategic of the Group’s a number are there However, near term. as they which must be monitored of risks the Group impact for a potential have may in this risks emerging Key in the future. Innovation include, Technology category Change and and Disruption, Climate Scarcity. Water Principal Risks Principal Risks and Uncertainties describes the principal overleaf The table been have that and uncertainties risks the mitigating the Board, identified by on any each and an update actions for the of each risk during change in the profile these that has determined The Board year. and uncertainties risks the principal are in the impact the Group which could objectives. Additionally, its of achievement the Group’s to each risk has been linked expansion and margin growth for strategies on Report as outlined in the Strategic pages 26-28. view of the the Board’s presents This table and uncertainties principal risks Group’s list an exhaustive and does not represent impact the Group. may that of all the risks not which are additional risks are There not or which are material considered yet but which could Board the known to yet in the future. importance assume greater may risks of the current some Likewise, off the schedule as management drop or changes implemented in the actions are occur. environment operating the principal risks has reviewed The Board that,and considers has not while there been a significant change in these in risks closely to do continue they the past year, in the ongoing political situation monitor impending the UK’s to the UK with regard as it is likely 2019 the EU in March from exit for implications will have the outcome that also continues to The Board the Group. of of the growth risk in the context monitor expansion geographic through the Group in addition to and ongoing acquisitions, change. regulatory Through the risk management the risk management Through investment all strategic framework the Board. by approved decisions are documentation by supported These are along with senior and presentations, the risks that ensure input to management fully are associated with each transaction and accepted. understood Risk Appetite of Directors Board Group The Kerry broad assess and consider in three risks operational namely; strategic, categories & As a Taste and financial & compliance. business,Nutrition and Consumer Foods risks for has a low risk appetite the Board reputation impact the Group’s which may & compliance in the financial or brands, such as product areas or operational in However, and health & safety. quality objectives, growth of strategic pursuit is a there that understands the Board trade-off in reward risk and between investment strategic making certain of risk decisions and a higher level e.g. in these areas be accepted may expansion, market developing investments. or capital acquisitions The Audit Committee and Board formally formally and Board Committee The Audit and have risk register the Group approved Governance in the Corporate confirmed assessment a robust of these that Report those risks including completed was risks the business model, threaten could that or liquidity solvency performance, future the the year, Throughout of the Group. of the appropriateness considers Board address and actions to the strategies these of the Group’s in pursuit risks objectives. strategic The interaction and relationships between between and relationships The interaction and discussed. It is considered are risks and the management acknowledged by in exist do not always risks that Board of the crystallisation and that isolation the same at than one risk time could more a significant impact on the Group. have A standard risk scoring matrix provides provides matrix risk scoring A standard to on impact and likelihood guidance reporting. in consistency ensure and survey the interviews from The output identify to and ranked consolidated are and uncertainties principal risks the key management Executive the Group. for of this the results and validate review further input where providing process the Group The ROC review then necessary. the Audit it to and submit Risk Register approval. for Committee Principle Risks and Uncertainties
Link to Strategic Priorities for Growth as per the Strategic Report
Taste & Nutrition Consumer Foods Margin Strategic Growth Priorities Strategic Growth Priorities Expansion Drivers
Risk Trend/Link Description and Impact Mitigation Developments in 2018
PORTFOLIO Trend The Group operates across a diverse portfolio of markets and –– The Group’s strategy and business plans are designed –– In 2018, the Group continued to evolve its organisational MANAGEMENT channels, and demand for products is impacted by a variety to ensure that resources are prioritised towards those structure to ensure that it remains both responsive to Strategic Risk of factors including economic, demographic, technology and technologies and markets having greatest long term changing marketplace dynamics and fit for purpose to competitor actions. In addition, ever increasing consumer potential for the Group. Proposed investments are assessed deliver on its strategic plan. Link to Strategic Priorities demands are resulting in unprecedented fragmentation of the using Return on Average Capital Employed (ROACE) which –– Significant progress was made in leveraging and marketplace. is one of the Group’s key performance indicators as shown strengthening the Group’s industry-leading portfolio of on page 31. All significant investments and strategic plans are foundational technologies e.g. TasteSense, Smoke & Grill Successfully achieving growth targets is dependent upon the reviewed by the Board on a regular basis. and Clean Label preservation. Group’s ability to strategically evaluate and respond to this –– Post implementation reviews are undertaken of all major –– During the year, the Group CEO hosted a conference for dynamic marketplace, and ensure it optimises its portfolio of investment projects to ensure that expected returns are over 200 leaders from across the globe to support the markets, customers, technologies and channels. Failure to plan achieved and to inform future decisions in relation to Group’s objective of being a locally led and globally connected, and respond to these evolving marketplace dynamics could resource allocation where appropriate. customer centric organisation. The objective of the conference have an adverse impact on the future growth and profitability –– As described in ‘Our Business Model’ on pages 22-23 the included driving customer driven decision making across the of the Group. positioning of the Taste & Nutrition business as an integrated organisation to maximise the value we create for customers solutions provider underpinned by its unique business model and the Group. is a key differentiator in the marketplace. –– Investment in ‘Culinary and Insights’ enables the Group to stay ahead of ever-changing consumer preferences and provides foresight into future consumer demands and market and competitor intelligence.
BREXIT Trend The UK’s scheduled exit from the EU in March 2019 has the –– A cross functional Executive Steering Committee is in place –– The Group has been engaging with key vendors and Strategic Risk potential to significantly change the terms of trade which that meets on a regular basis to access the consequences of customers to ensure adequate inventory is in place in the currently exist between the EU and the UK. The Group continues Brexit, with all major business functions represented. event of supply chain disruption. to monitor the ongoing political situation and whilst the outcome –– The Group’s operational footprint across Europe and the UK –– The Group has invested in IT systems and processes to ensure Link to Strategic Priorities is difficult to predict, it has considered the potential impacts provides it with a well balanced and flexible platform from it is ready to deal with the potential increased documentation across a number of different scenarios. which to serve European and Global customers, regardless of and regulatory requirements. the outcome of the Brexit process. –– In order to minimise the cost implications of trade tariffs, the The Group believes that in a worst case scenario i.e. a ‘no-deal’ –– The Group has considerable expertise in managing cross- Group plans to optimise its global sourcing capabilities as Brexit, the risks are manageable in the medium-term. However, border product movements, having purchases and sales in well as localising raw material sourcing and finished goods there may be a short term impact to its operational supply chain over 140 countries. production where feasible. which may result in additional costs. –– Where on-costs due to the change in trade tariffs cannot be eliminated through other means, the Group plans to recover The implementation of World Trade Organisation (WTO) level increased costs through customer pricing. tariffs will also have a significant impact on trade, the impact of which will need to be managed through the Group’s sourcing and pricing model.
76 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 77 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry Risk has decreased ear, the Group CEO hosted a conference for for a conference CEO hosted the Group ear, oup has been engaging with key vendors and vendors oup has been engaging with key ensure to and processes in IT systems oup has invested e on-costs tariffs cannot be the change in trade due to 18, the Group continued to evolve its organisational organisational its evolve to continued the Group 18, der to minimise the cost implications of trade tariffs, the of trade implications minimise the cost der to ignificant progress was made in leveraging and in leveraging made was ignificant progress over 200 leaders from across the globe to support the the globe to across from 200 leaders over of being a locally led globally connected, and objective Group’s conference of the The objective organisation. centric customer the decision making across driven included driving customer customers for we create value maximise the to organisation and the Group. in the is in place inventory adequate ensure to customers chain disruption. of supply event documentation increased deal with the potential to it is ready requirements. and regulatory capabilities as global sourcing optimise its plans to Group and finished goods sourcing material well as localising raw feasible. where production recover plans to other means, the Group through eliminated pricing. customer through costs increased structure to ensure that it remains both responsive to to both responsive remains it that ensure to structure dynamics purpose to and fit for changing marketplace plan. strategic on its deliver of portfolio industry-leading the Group’s strengthening & Grill Smoke TasteSense, technologies e.g. foundational and Clean Label preservation. – – – – – – – Developments in 2018 Developments – The Gr – The Gr – In or – Wher – In 20 –S – During the y Risk has increased oup’s operational footprint across Europe and the UK Europe across footprint operational oup’s in managing cross- expertise oup has considerable Risk is unchanged vestment in ‘Culinary and Insights’ enables the Group to to enables and Insights’ the Group in ‘Culinary vestment s described in ‘Our Business Model’ on pages 22-23 the Business Model’s described on pages 22-23 in ‘Our ost implementation reviews are undertaken of all major of all major undertaken are reviews ost implementation provides it with a well balanced and flexible platform from from platform and flexible it with a well balanced provides of regardless and Global customers, European serve which to process. of the Brexit the outcome and sales purchases in having movements, product border 140 countries. over stay ahead of ever-changing consumer preferences and preferences consumer ahead of ever-changing stay and demands consumer future into foresight provides intelligence. and competitor market of access the consequences to basis meets on a regular that with all major businessBrexit, functions represented. investment projects to ensure that expected returns are are returns expected that ensure to projects investment to decisions in relation future inform and to achieved appropriate. allocation where resource & Nutrition business as an integrated positioning of the Taste unique business its underpinned by model solutions provider in the marketplace. differentiator is a key to ensure that resources are prioritised towards those those prioritised towards are resources that ensure to long term greatest having technologies and markets assessed are investments Proposed the Group. for potential which (ROACE) Employed Capital on Average using Return as shown indicators performance key is one of the Group’s plans are and strategic All significant investments on page 31. basis. on a regular the Board by reviewed – – – isinplace Committee Steering oss functional Executive – – – – designed andbusiness plansare strategy oup’s Mitigation Risk Trend – The Gr – The Gr – A cr – In –A –P – Gr The Description and Impact The UK’s scheduled exit from the EU in March 2019 has the 2019 the EU in March from scheduled exit The UK’s which of trade significantly change the terms to potential the EU and the UK. between continues exist The Group currently and whilst the outcome the ongoing political situation monitor to impacts the potential to predict,is difficult considered it has scenarios. a number of different across a ‘no-deal’ i.e. case scenario in a worst that believes The Group However, in the medium-term. manageable are the risks Brexit, supply chain operational its impact to be a short term may there in additional costs. result which may level (WTO) Organisation Trade of World The implementation the impact of a significant impact on trade, tariffs will also have and sourcing the Group’s be managed through which will need to pricing model. The Group operates across a diverse portfolio of markets and of markets portfolio a diverse across operates The Group a variety by is impacted products for channels, and demand economic, including demographic, and of factors technology consumer increasing actions. ever In addition, competitor of the fragmentation in unprecedented resulting demands are marketplace. is dependent upon the targets growth achieving Successfully this to and respond evaluate strategically to ability Group’s it optimises of portfolio its and ensure dynamic marketplace, plan to technologies and channels. Failure customers, markets, dynamics could marketplace these evolving to and respond and profitability growth impact on the future an adverse have of the Group. Trend Priorities Strategic Link to Trend/Link Trend Priorities Strategic Link to Risk PORTFOLIO MANAGEMENT Risk Strategic BREXIT Risk Strategic Link to Strategic Priorities for Growth as per the Strategic Report Risk Trend
Taste & Nutrition Consumer Foods Margin Risk is unchanged Risk has increased Risk has decreased Strategic Growth Priorities Strategic Growth Priorities Expansion Drivers
Risk Trend/Link Description and Impact Mitigation Developments in 2018
GEOPOLITICAL Trend As a global business operating across many jurisdictions, the –– The Group conducts rigorous due diligence when entering or –– The Group has invested in enhanced supply chain technology Strategic Risk Group is exposed to changes in the geopolitical environment. commencing business activities in new markets. solutions to support its international business in an Such changes include economic or political instability, –– The diversity of countries in which the Group operates ensures increasingly complex trading environment. increasingly complex legal and regulatory frameworks, currency that it is not overly exposed to any one particular geography. –– In 2018, the Group continued to invest in its structure to Link to Strategic Priorities volatility and varying standards of quality and security. 2018 has –– The Group’s legal, regulatory and compliance functions ensure ensure that the appropriate skills and expertise are available also seen an increase globally in the level of protectionist trade that applicable laws and regulations are complied with. In to support its growth in developing markets. This included policies, tariffs and sanctions. Such ongoing change and volatility addition, a dedicated team of experts is in place to oversee investment in the Group Country Compliance structure, may have a potential impact on the future growth and profitability compliance in the areas of customs, tariffs and duties. This operations and supply chain management and Country/End of the Group. team ensures compliance across all jurisdictions and also Use Market sales structures. monitors ongoing developments to ensure the Group is best In 2018, 27% of Taste & Nutrition’s revenue came from developing positioned to deal with changes as they arise. markets. As outlined in the Group’s ‘Strategic Priorities for Growth’ –– Group policies require businesses to hedge transactional on page 27 developing markets will remain a key pillar for growth currency exposures and long term supply or purchase in the future, thereby exposing the Group to potentially increased contracts which give rise to currency exposures. economic and political volatility.
BUSINESS Trend Acquisitions and divestitures continue to be a core element of –– Board approval is required for all transactions and regular –– A significant number of new acquisitions were successfully ACQUISITION the Group’s growth and portfolio management strategy. There is a updates are presented to the Board on potential targets, added to the Group during 2018 which included manufacturing AND DIVESTITURE risk that the anticipated benefits of such transactions may not be including strategic evaluations of any proposed significant operations in new countries such as Oman and El Salvador. Strategic Risk delivered resulting in a delay in the achievement of the expected investments. This includes an assessment of their ability to –– The Group further strengthened its resource capability in Link to Strategic Priorities return on investment and a subsequent impact on the strategic generate the required return on investment and a review of the M&A team to support its growth strategy. The internal development of the Group. their strategic fit within the Group. team is supplemented by external expert resources when –– The Group has developed significant expertise in identifying and where required. A failure to deliver on an acquisition’s anticipated benefits may and evaluating appropriate targets and conducting due occur due to an inaccurate evaluation of the target business, diligence and subsequent transaction execution. an over-estimation or failure to achieve expected synergies, –– A strong governance system is in place to oversee the poor management of the transaction, poor planning and integration process for acquisitions including the appointment implementation of the integration or the transaction not adding of a senior business owner who, supported by a team of shareholder value as expected. appropriately skilled personnel, monitor the integration project and review the performance of the acquired entities. –– Post-acquisition reviews are conducted by senior management, the results and learnings of which are presented to the Board as a regular agenda item.
78 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 79 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry er of new acquisitions were successfully successfully were er of new acquisitions Risk has decreased oup has invested in enhanced supply chain technology supply chain technology in enhanced oup has invested in capability resource its oup further strengthened 18, the Group continued to invest in its structure to to structure its in invest to continued the Group 18, added to the Group during 2018 which included manufacturing included which manufacturing during 2018 the Group added to in new countries such as Oman and El Salvador. operations solutions to support its international business support international its in an solutions to environment. trading complex increasingly available are skills and expertise appropriate the that ensure This included markets. in developing growth support its to structure, Country Compliance in the Group investment and Country/End and supply chain management operations sales structures. Use Market The internal strategy. growth support its to the M&A team when resources expert external by is supplemented team required. and where – – – – Developments in 2018 Developments – A significant numb – The Gr – Gr The – In 20 Risk has increased ersity of countries in which the Group operates ensures ensures operates the Group in which of countries ersity oup has developed significant expertise in identifying significant expertise oup has developed oup’s legal, regulatory and compliance functions ensure functions ensure and compliance legal, regulatory oup’s ong governance system is in place to oversee the oversee to is in place system ong governance Risk is unchanged oup policies require businesses hedge transactional to oup policies require ost-acquisition reviews are conducted by senior by conducted are reviews ost-acquisition and evaluating appropriate targets and conducting due and conducting targets appropriate and evaluating execution. subsequent and transaction diligence appointment including the acquisitions for process integration of a team by supported of a senior business who, owner project the integration skilled personnel, monitor appropriately entities. of the acquired the performance and review management, presented and learnings of which are the results agenda item. as a regular the Board to currency exposures and long term supply or purchase supply or purchase and long term exposures currency exposures. currency rise to which give contracts targets, on potential the Board to presented are updates significant proposed of any evaluations including strategic This includes an assessment investments. to of their ability of and a review on investment return the required generate fit within the Group. their strategic that it is not overly exposed to any one particular geography. any to exposed it is not overly that with. In complied are and regulations applicable laws that oversee to is in place of experts team addition, a dedicated tariffs and duties. of customs, This in the areas compliance all jurisdictions and also across compliance ensures team is best the Group ensure to ongoing developments monitors arise. deal with changespositioned as they to commencing businesscommencing activities in new markets. – – – – – andregular alltransactions for isrequired approval oard – – or whenentering duediligence rigorous oup conducts – Mitigation –P – The Gr – A str –B – Gr – Gr The – Gr The – div The Risk Trend Description and Impact Acquisitions and divestitures continue to be a core element of be a core to continue and divestitures Acquisitions is a There management strategy. and portfolio growth the Group’s be not may transactions benefits of such the anticipated risk that of the expected in the achievement in a delay resulting delivered and a subsequent impact the strategic on on investment return the Group. of development benefits may anticipated on an acquisition’s deliver to A failure business, of the target evaluation an inaccurate due to occur synergies, expected achieve to or failure an over-estimation poorpoor planning and of the transaction, management not adding or the transaction of the integration implementation as expected. value shareholder As a global business operating across many jurisdictions, the many As across a global business operating changes in the geopolitical to environment. is exposed Group Such changes or political instability, include economic currency frameworks, legal and regulatory complex increasingly has 2018 and security. of quality standards and varying volatility trade of protectionist globally in the level also seen an increase policies, tariffsvolatility and sanctions. Such ongoing change and and profitability growth impact on the future a potential have may of the Group. developing came from revenue & Nutrition’s 27% of Taste In 2018, Growth’ for Priorities ‘Strategic As outlined the Group’s in markets. growth pillar for a key will remain markets on page 27 developing increased potentially to the Group exposing thereby in the future, and political volatility. economic Trend Priorities Strategic Link to Trend/Link Trend Priorities Strategic Link to Risk GEOPOLITICAL Risk Strategic BUSINESS ACQUISITION AND DIVESTITURE Risk Strategic Link to Strategic Priorities for Growth as per the Strategic Report Risk Trend
Taste & Nutrition Consumer Foods Margin Risk is unchanged Risk has increased Risk has decreased Strategic Growth Priorities Strategic Growth Priorities Expansion Drivers
Risk Trend/Link Description and Impact Mitigation Developments in 2018
QUALITY, FOOD Trend Adherence to stringent food quality and safety controls is critical –– A Global Quality and Food Safety structure provides leadership –– The Group has maintained a continued focus on SAFETY & to ensure the safety and integrity of raw materials and products in key areas such as Hazard Analysis and Critical Control achieving a ‘right first time’ quality culture through people REGULATORY throughout the Group’s supply chain. Points (HACCP) and global supply quality. development and ongoing training programmes. Operational Risk –– Food safety risk is mitigated through detailed and proactive –– A strong capital investment programme in the Group’s Link to Strategic Priorities The Group must also ensure compliance with continuously risk assessments across the full product lifecycle. A Global plants supports a continual raising of the bar in terms of evolving legal and regulatory obligations in the areas of food Quality Management System (GQMS), consisting of robust quality standards. safety, quality, labelling and the environment. policies, procedures and training, supports the Group’s –– The Group continues to enhance its global quality manufacturing and supply chain functions. standards and policies to include key learnings and Breach of food quality or safety controls or other regulations –– Kerry manufacturing sites are subject to regular audits by industry/regulatory change. could expose the Group to product liability claims, product recalls, internal teams, customers and independent bodies who –– The Group has implemented industry-leading litigation, customer dissatisfaction or consumer illness, which may audit against recognised global food safety standards. environmental microbiology monitoring programmes to have a negative impact on the Group’s results and/or reputation. –– The global supply quality team, in conjunction with the proactively detect and prevent potential issues in its plants. procurement function, operate strict controls to ensure that raw materials are sourced from approved vendors and meet Kerry’s standards. –– The Group has a strong regulatory function and employs suitably qualified and experienced staff with global and regional expertise. The Group closely monitors and engages with external industry organisations on emerging issues. –– The Group has appropriate crisis management processes in place to deal with any incident that may arise. –– Adequate product liability insurance is maintained across the Group.
TALENT Trend The ability to attract, develop and retain appropriately qualified –– The Group’s employment policies and practices are kept under –– The Group continued to implement appropriate responses MANAGEMENT employees is critical if the Group is to continue to compete and regular review. to its most recent global employee engagement survey Operational Risk grow effectively. –– The Group has established a Global Community of Expertise (ourVoice) which was conducted in 2017. for Leadership, Learning and Talent to assist in mitigating –– The Group maintained ongoing focus on enhancing the Link to Strategic Priorities A failure to identify, attract and retain a strong senior talent risk and building organisational capabilities for the future. diversity of its talent pipeline and nurturing local talent in management talent pipeline may impact the Group’s ability to –– Salaries and other benefits are benchmarked regularly to developing markets. achieve its strategic growth objectives. ensure that the Group remains competitive and the Group –– A new global HR system to support the Group’s talent operates both short and long term structures to ensure that management processes was deployed. high performing employees are adequately rewarded and –– Succession plans were refreshed with a focus on critical retained. leadership roles within the Group and this will further expand –– A wide range of training programmes including a focused in 2019. graduate development programme, are in place. –– Introduction of a robust and objective approach to identifying, –– A Global Mobility Team supports the deployment and assessing and accelerating talent readiness to meet business relocation of key talent within the organisation. needs. This will be further evolved as part of our approach to –– Talent acquisition teams facilitate opportunities to develop leadership development, supported by appropriate policies internal talent globally and promote Kerry externally to support and governance in 2019. the development of future talent pipelines. –– Establishment of a Global Recognition Framework to promote the further growth and consistency of regional and local recognition programmes, reinforcing our shared values.
80 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 81 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry ystem to support the Group’s talent talent support the Group’s to ystem Risk has decreased oup continued to implement appropriate responses responses implement appropriate to oup continued on enhancing the ongoing focus oup maintained oup has maintained a continued focus on focus a continued oup has maintained global quality its enhance oup continues to industry-leading oup has implemented ong capital investment programme in the Group’s in the Group’s programme investment ong capital cession plans were refreshed with a focus on critical with a focus refreshed cession plans were oduction of a robust and objective approach to identifying, to approach and objective oduction of a robust stablishment of a Global Recognition Framework to promote promote to Framework of a Global Recognition stablishment to its most recent global employee engagement survey engagement survey global employee most recent its to in 2017. conducted which was (ourVoice) in local talent pipeline and nurturing talent of its diversity markets. developing deployed. was management processes and this will further expand within the Group roles leadership in 2019. meet business to readiness talent assessing and accelerating to as part of our approach needs. This will be further evolved policies appropriate development,leadership by supported in 2019. and governance and local of regional and consistency the further growth values. our shared reinforcing programmes, recognition achieving a ‘right first time’ quality culture through people through culture quality time’ first a ‘right achieving programmes. and ongoing training development learnings and and policies include key to standards change. industry/regulatory to programmes monitoring microbiology environmental issues potential plants. in its and prevent detect proactively plants supports a continual raising of the bar in terms of of the bar in terms raising supports a continual plants standards. quality – – – – – – – – – – Developments in 2018 Developments – The Gr – The Gr – A new global HR s – Suc – Intr –E – Gr The – A str – Gr The – The Gr Risk has increased y team, in conjunction with the in conjunction y team, y Team supports the deployment and supports the deployment y Team y and Food Safety structure provides leadership leadership provides structure Safety y and Food ange of training programmes including a focused including a focused programmes ange of training oup has established a Global Community of Expertiseoup has established a Global Community oup has appropriate crisis management processes in crisis management processes oup has appropriate oup has a strong regulatory function and employs function and employs regulatory oup has a strong Risk is unchanged dequate product liability insurance is maintained across across is maintained insurance liability product dequate erry manufacturing sites are subject to regular audits by by audits regular subject to are sites erry manufacturing alaries and other benefits are benchmarked regularly to to regularly benchmarked alaries and other benefits are alent acquisition teams facilitate opportunities to develop develop opportunities to facilitate teams alent acquisition ood safety risk is mitigated through detailed and proactive and proactive detailed through ood risk is mitigated safety graduate development programme, are in place. are programme, development graduate within the organisation. talent of key relocation support to externally Kerry and promote globally talent internal pipelines. talent of future the development ensure that the Group remains competitive and the Group and the Group competitive remains the Group that ensure that ensure to structures both and long term short operates and rewarded adequately are employees high performing retained. for Leadership, Learning and Talent to assist in mitigating to and Talent Learning Leadership, for capabilities the future. for risk and building organisational talent place to deal with any incident that may arise. may incident that deal with any to place review. regular procurement function, operate strict controls to ensure ensure to strict controls function, operate procurement vendors approved from sourced are materials raw that standards. and meet Kerry’s with global and staff qualified and experienced suitably and engages closely monitors The Group expertise. regional issues. on emerging industry organisations with external the Group. internal teams, customers and independent bodies customers who teams, internal standards. safety global food audit against recognised risk assessments across the full product lifecycle. A Global A Global lifecycle. risk assessments the full product across of robust (GQMS), consisting System Management Quality supports the Group’s and training, policies, procedures chain functions. and supply manufacturing in key areas such as Hazard Analysis and Critical Control and Critical Control Analysis such as Hazard areas in key and global supply quality. (HACCP) Points – – – – – under kept are policies andpractices employment oup’s – – – – – – – – Mitigation Risk Trend – A Global Mobilit –T – A wide r –S – The Gr – The Gr –A – The Gr – The Gr – The global supply qualit –K –F – Qualit A Global Description and Impact The ability to attract, develop and retain appropriately qualified appropriately attract, and retain to The ability develop and compete to continue is to is critical if the Group employees effectively. grow senior a strong and retain attract identify, to A failure to ability impact Group’s the pipeline may management talent objectives. growth strategic its achieve Adherence to stringent food quality and safety controls is critical controls and safety quality food stringent to Adherence and products materials of raw and integrity the safety ensure to chain. supply the Group’s throughout with continuously compliance must also ensure The Group of food in the areas obligations legal and regulatory evolving labelling and the environment. quality, safety, or other regulations controls or safety quality of food Breach recalls, claims, product liability product to the Group expose could illness, dissatisfaction or consumer customer litigation, which may reputation. and/or results impact on the Group’s a negative have Trend/Link Trend Priorities Strategic Link to Trend Priorities Strategic Link to Risk FOOD QUALITY, & SAFETY REGULATORY Risk Operational TALENT MANAGEMENT Risk Operational Link to Strategic Priorities for Growth as per the Strategic Report Risk Trend
Taste & Nutrition Consumer Foods Margin Risk is unchanged Risk has increased Risk has decreased Strategic Growth Priorities Strategic Growth Priorities Expansion Drivers
Risk Trend/Link Description and Impact Mitigation Developments in 2018
INFORMATION Trend The Group is dependent on a robust ICT infrastructure for the –– A dedicated ICT security team is in place which is supported –– In 2018, an external consultant was engaged to conduct a SECURITY & operation of its principal business processes. Issues leading to by an Executive ICT Security Steering Committee. cyber security risk assessment. This confirmed that the Group CYBERCRIME disruption of the Group’s ICT systems could impact business –– An ongoing security enhancement programme is in place has made significant progress in establishing strong cyber Operational Risk operations in a number of ways, including disruption to sales, which continuously develops and deploys additional measures security practices. The recommendations from this review Link to Strategic Priorities production and supply chain, ultimately impacting the Group’s in the areas of intrusion protection, data loss prevention have been incorporated into the ICT security team’s roadmap results and ability to serve customers. and identity management. This programme is aligned to the to further strengthen the overall cyber security maturity Centre for Internet Security Critical Control framework which posture of the Group There is a global threat of significant and increasingly is a globally recognised best practice tool in the area of ICT –– The Group has invested in cyber insurance to transfer part of sophisticated cyber-attacks including phishing, ransomware, security controls. the risk of any deliberate attack over to our insurer. malware and social engineering. These attacks may result in ICT –– As part of the Group’s crisis management processes, ICT –– An extensive programme of work was completed to ensure the systems being compromised, confidential data being accessed carries out business impact assessments on core systems and Group complies with the requirements of the new EU General or theft of Intellectual Property (IP) or financial assets. Such regularly tests and refines business recovery plans to ensure Data Protection Regulation (GDPR) legislation. issues could have a significant customer, financial, operational or efficient system recovery. Critical infrastructure is hosted in a reputational impact. cloud platform, which enables the restoration of key enterprise applications rapidly in the event of a major system failure. The Group is responsible for ensuring that appropriate policies –– The ‘Leading to Safer’ awareness programme ensures and procedures are in place to ensure that it is compliant with continued focus on raising the awareness of ICT security to all all relevant data privacy legislation. A breach of such legislation employees through mandatory online training, poster/internal could result in legal fines and damage to the Group’s reputation. intranet campaigns and simulated phishing exercises. –– The Group has established an appropriate governance structure with regards to data protection which has included the recruitment of an experienced Group Data Protection Officer.
MARGIN Trend The Group’s cost base and margin can be impacted by –– The Group maintains a strong commercial focus on –– A strategic review of the commercial pricing processes was MANAGEMENT fluctuations in commodities, freight, energy, labour and other procurement, pricing and cost improvement initiatives to completed and a number of improvement initiatives were Operational Risk input costs. These fluctuations can be influenced by global manage and mitigate this risk. In addition, all global commercial identified to enhance its ways of working. supply and demand, weather events, political decisions or teams have been trained in margin management principles. –– The Group continues to strengthen its investment in skilled Link to Strategic Priorities changes in regulations. Given the current inflationary environment –– The commercial implications of commodity price movements and experienced procurement and commercial managers and and increased competitive pressures in the marketplace, an are continuously assessed and an active risk management is also investing in ICT systems to embed standard processes inability to pass on cost increases to customers may impact approach is in place, which includes taking purchasing cover across the Group. the Group’s margins. on a back to back basis depending on the category of sales contracts. Contractual mechanisms are in place with many customers to “pass through” changes in commodity prices.
KERRYCONNECT Trend As part of the strategy to roll out a common ICT solution and –– The Kerryconnect programme is supported by an Executive –– The LATAM Kerryconnect deployment was completed in 2018 Operational Risk standard ways of working across the Group, the deployment of Steering team and a robust governance framework. without any significant interruption to the business. Kerryconnect commenced in the North America region at the –– The Kerryconnect implementation team has accumulated –– The North American deployment schedule was approved end of 2018 and is planned to complete in 2021. Project delays, or significant knowledge and experience from prior roll-outs by the Executive Steering team and key appointments were Link to Strategic Priorities go-live issues may dilute critical resources and disrupt operations in other regions (Europe, APMEA, LATAM) and takes these made to support the roll-out. Pre-implementation work has reducing the Group’s ability to serve customers. An overrun in learnings into the next stage of deployment. commenced and is operating to schedule. costs due to scope creep, delayed implementation or failure to –– As in previous deployments a phased approach to rollout will deliver projected efficiencies may have a negative financial impact be taken in North America with the first sites scheduled to go on the Group. live in Q4 2019. Critical KPIs and other issues are reviewed at regular steering meetings.
82 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 83 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry yment schedule was approved approved yment schedule was Risk has decreased TAM Kerryconnect deployment was completed in 2018 in 2018 completed was deployment Kerryconnect TAM oup continues to strengthen its investment in skilled investment its strengthen oup continues to oup has invested in cyber insurance to transfer part of transfer to in cyber insurance oup has invested 18, an external consultant was engaged to conduct a conduct engaged to was consultant an external 18, ategic review of the commercial pricing processes was was pricing processes of the commercial review ategic xtensive programme of work was completed to ensure the the ensure to completed of work was programme xtensive by the Executive Steering team and key appointments were were appointments and key team Steering the Executive by support the roll-out.made to work has Pre-implementation schedule. to and is operating commenced completed and a number of improvement initiatives were were initiatives and a number of improvement completed of working. ways its enhance identified to and managers and commercial procurement and experienced processes embed standard to systems in ICT is also investing the Group. across the business. to significant interruption without any cyber security risk assessment.cyber security the Group that This confirmed cyber in establishing strong has made significant progress review this from The recommendations practices. security roadmap team’s security the ICT into been incorporated have maturity cyber security the overall further strengthen to of the Group posture our insurer. to over attack deliberate the risk of any of the new EU General with the requirements complies Group legislation. (GDPR) Regulation Protection Data – – – – – – – Developments in 2018 Developments – A str – The Gr – The LA – The North American deplo – In 20 – The Gr – An e Risk has increased curity enhancement programme is in place is in place programme enhancement curity oup has established an appropriate governance governance oup has established an appropriate eading to Safer’eading to ensures programme awareness erryconnect implementation team has accumulated has accumulated team implementation erryconnect ommercial implications of commodity price movements movements price of commodity implications ommercial Risk is unchanged s in previous deployments a phased approach to rollout will rollout to a phased approach deployments s in previous s part of the Group’s crisis management processes, ICT ICT processes, crisis management s part of the Group’s be taken in North America with the first sites scheduled to go scheduled sites in North America with the first to be taken at reviewed Critical KPIs and other issues are in Q4 2019. live meetings. steering regular are continuously assessed continuously risk management and an active are cover includes which purchasing is in place, taking approach of sales back basis depending on the category on a back to with many in place mechanisms are Contractual contracts. prices. changes in commodity “pass through” to customers framework. governance and a robust team Steering prior roll-outs from significant knowledge and experience these takes and APMEA, (Europe, LATAM) in other regions of deployment. stage the next learnings into structure with regards to data protection which has included protection data to with regards structure Protection Data Group of an experienced the recruitment Officer. to initiatives improvement pricing and cost procurement, this risk. manage and mitigate In addition, all global commercial management principles. in margin been trained have teams continued focus on raising the awareness of ICT security to all to security of ICT the awareness on raising focus continued poster/internal online training, mandatory through employees exercises. phishing campaigns and simulated intranet carries out business impact assessments on core systems and carries out business systems impact assessments on core ensure plans to business and refines recovery tests regularly in a is hosted Critical infrastructure recovery. system efficient enterprise of key which enables the restoration cloud platform, failure. of a major system in the event rapidly applications which continuously develops and deploys additional measures additional measures and deploys develops which continuously loss data prevention of intrusion protection, in the areas the management. is aligned to and identity This programme which framework Security Critical Control Internet for Centre of ICT in the area tool best practice is a globally recognised controls. security by an Executive ICT Security Committee. Steering ICT an Executive by – – – Executive an by issupported programme erryconnect – on focus commercial astrong oup maintains – – – – – – whichissupported isinplace team security ICT dicated Mitigation Risk Trend –A – The K – The K – The c – The Gr – The Gr – The ‘L –A – A de –ongoing se An Description and Impact The Group’s cost base and margin can be impacted by by can be impacted base and margin cost The Group’s labour and other in commodities, freight,fluctuations energy, global by can be These influenced fluctuations input costs. political decisions or events, supply and demand, weather environment inflationary the current Given changes in regulations. an in the marketplace, pressures competitive and increased impact may customers to increases pass on cost to inability margins. the Group’s solution and ICT out a common roll to As part of the strategy of the deployment the Group, of working across ways standard the at in the North America region commenced Kerryconnect or delays, Project in 2021. complete and is planned to end of 2018 and disrupt operations go-live critical resources issues dilute may in overrun An customers. serve to ability the Group’s reducing to or failure implementation delayed creep, scope due to costs financial impact a negative have efficiencies may projected deliver on the Group. The Group is dependent on a robust ICT infrastructure for the for infrastructure ICT is dependent on a robust The Group principal business of its Issues processes. operation leading to impact business could systems ICT disruption of the Group’s sales, including disruption to in a number of ways, operations impacting the Group’s and supply chain, ultimately production customers. serve to and ability results of significant and increasingly is a global threat There including phishing, ransomware, cyber-attacks sophisticated in ICT result may and social engineering. These attacks malware being accessed data confidential being compromised, systems (IP) or financial assets. Such Property or theft of Intellectual or financial, operational a significant customer, issues have could impact.reputational policies appropriate ensuring that for is responsible The Group with it is compliant that ensure to in place are and procedures of such legislation A breach legislation. privacy data all relevant reputation. the Group’s fines in legal and damage to result could Trend Priorities Strategic Link to Trend/Link Trend Priorities Strategic Link to Trend Priorities Strategic Link to KERRYCONNECT Risk Operational Risk INFORMATION SECURITY & CYBERCRIME Risk Operational MARGIN MANAGEMENT Risk Operational Link to Strategic Priorities for Growth as per the Strategic Report Risk Trend
Taste & Nutrition Consumer Foods Margin Risk is unchanged Risk has increased Risk has decreased Strategic Growth Priorities Strategic Growth Priorities Expansion Drivers
Risk Trend/Link Description and Impact Mitigation Developments in 2018
INTELLECTUAL Trend Kerry develops, manufactures and delivers taste and nutrition –– The Group continues to focus on developing, enhancing and –– Kerry has made a number of patent applications and PROPERTY technology based ingredients and integrated solutions to protecting its IP portfolio. As a global leader in the taste and acquisitions during 2018 to enable the Group to safeguard MANAGEMENT customers in the food, beverage and pharmaceutical industries. nutrition market, Kerry considers its IP security, and that of its the investment made in developing new technologies. Operational Risk Any failure to protect the Group’s Intellectual Property (IP) or customers, to be paramount. In addition to Kerry’s policy on –– Throughout 2018, the Group has continued to enhance its Link to Strategic Priorities prevention of unauthorised access to sensitive data could have trade secret protection, Kerry has developed sophisticated IP training programmes to ensure all employees are aware of an adverse effect on the Group’s business and cause significant tailored IP policies and strategies to protect and defend their responsibilities in protecting the Group’s IP assets. reputational damage. against infringements or misuse by employees or third parties. –– The Group continued to develop its centre of expertise All of these policies form the foundation of Kerry’s IP regime within the IP Legal team. and represent a key area of focus for the Group. –– Protection of IP is also a key focus of the ICT Security Steering Committee. –– IP protection clauses are a standard element of both commercial and employment contracts.
TAXATION Trend Given the Group’s global network it is exposed to an increasingly –– The Group employs a team of dedicated tax experts who –– Appropriate actions were taken to address the implemented Financial and complex and evolving international tax environment. Such support the Group in ensuring compliance with all taxation statutory tax changes resulting from individual jurisdictional Compliance Risk matters as changes in tax laws, changing legal interpretations, matters globally. A programme of continuous professional tax changes. tax audits and transfer pricing judgements may impact the development ensures that the team is up to date on relevant –– The Group maintained continued focus on addressing the Link to Strategic Priorities Group’s tax liability or reporting requirements. tax law changes. OECD Base Erosion and Profit Sharing requirements. –– The Group also engages external taxation advisors for Failure to accumulate and appropriately consider relevant tax additional tax advice and research and guidance on matters information may result in non-compliance with tax regulations of compliance where appropriate. or adverse tax consequences. –– A strong emphasis is placed on constructively engaging with tax authorities across the jurisdictions in which the Group operates.
TREASURY Trend The international nature of the Group’s operations means that –– A Group Finance Committee is in place which monitors –– The Group continually evaluates the nature of its Financial and it has transactions and activities across many jurisdictions treasury risk on an ongoing basis. foreign exchange exposures to ensure its hedging Compliance Risk which expose it to liquidity, foreign exchange, interest rate and –– The Group maintains significant cash and debt resources strategy is appropriate. counterparty risks. with relatively long term maturities to ensure the Group’s –– Continuous monitoring of exposure to individual banks, Link to Strategic Priorities liquidity requirements are met. tightening counter-party limits where appropriate. –– The Group’s Treasury function actively manages all treasury –– During the year, the Group facilitated liquidity extension risks through cash-flow forecasts, foreign currency exposure into a number of additional jurisdictions. netting and hedging, monitoring and meeting funding requirements across its jurisdictions and management of interest rate and counterparty risk.
84 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 85 Kerry Group Annual Report 2018 2018 Annual Report Group Kerry Risk has decreased ear, the Group facilitated liquidity extension extension liquidity facilitated the Group ear, oup continually evaluates the nature of its of its the nature evaluates oup continually oup continued to develop its centre of expertise of expertise centre its develop to oup continued the on addressing focus continued oup maintained opriate actions were taken to address the implemented the implemented address to taken actions were opriate oughout 2018, the Group has continued to enhance its its enhance to has continued the Group oughout 2018, ontinuous monitoring of exposure to individual banks, banks, individual to of exposure ontinuous monitoring erry has made a number of patent applications and applications erry has made a number of patent tightening counter-party limits where appropriate. where limits counter-party tightening foreign exchange exposures to ensure its hedging its ensure to exposures exchange foreign is appropriate. strategy a number of additional jurisdictions. into acquisitions during 2018 to enable the Group to safeguard safeguard to the Group enable to during 2018 acquisitions new technologies. made in developing the investment of aware are all employees ensure to programmes IP training IP assets. the Group’s in protecting their responsibilities team. within the IP Legal individual jurisdictional from changes tax resulting statutory changes.tax Sharing requirements. and Profit OECD Base Erosion – – – – – – – – Developments in 2018 Developments – Appr – The Gr – The Gr –C – During the y –K – Thr – Gr The Risk has increased oup’s Treasury function actively manages all treasury manages function all treasury actively Treasury oup’s oup maintains significant cash and debt resources significant cash and debt resources oup maintains oup also engages external taxation advisors for for advisors taxation oup also engages external ong emphasis is placed on constructively engaging on constructively ong emphasis is placed otection clauses are a standard element of both a standard clausesotection are Risk is unchanged rotection of IP is also a key focus of the ICT Security ICT of the focus of IP is also a key rotection risks through cash-flow forecasts, foreign currency exposure exposure currency foreign cash-flow forecasts, through risks and meeting funding netting and hedging, monitoring jurisdictionsand management its across requirements risk. and counterparty rate of interest with relatively long term maturities to ensure the Group’s the Group’s ensure to maturities long term with relatively met. are requirements liquidity additional tax advice and research and guidance on matters on matters and guidance and research advice additional tax appropriate. where of compliance jurisdictions the in which the authoritieswith tax across operates. Group an ongoing basis. risk on treasury commercial and employment contracts. and employment commercial with all taxation in ensuring compliance support the Group professional of continuous A programme globally. matters on relevant date is up to the team that ensures development law changes.tax Steering Committee. Steering protecting its IP portfolio. As a global leader in the taste and As a global leader in the taste IP portfolio. its protecting of its and that IP security, its considers nutrition market, Kerry policy on be paramount. to Kerry’s customers, to In addition sophisticated has developed Kerry protection, secret trade and defend protect to IP policies and strategies tailored parties. or third employees or misuse by against infringements IP regime All of these of Kerry’s policies the foundation form the Group. for of focus area a key and represent – – – whichmonitors isinplace Committee oup Finance – – – – who experts tax ofdedicated ateam oup employs – – enhancingand ondeveloping, focus oup continuesto Mitigation Risk Trend – The Gr – A Gr – The Gr – A str – The Gr – The Gr – IP pr –P – Gr The Description and Impact Given the Group’s global network it is exposed to an increasingly an increasingly to it is exposed global network the Group’s Given environment. tax Such international and evolving complex as changes changing legal interpretations, laws, in tax matters impact the may pricing judgements and transfer audits tax requirements. or reporting liability tax Group’s tax relevant consider and appropriately accumulate to Failure in non-compliance result regulations with tax may information consequences. tax or adverse means that operations of the Group’s nature The international jurisdictions many and activitiesit has transactions across and rate interest exchange, foreign liquidity, it to which expose risks. counterparty Kerry develops, manufactures and delivers taste and nutrition and nutrition taste and delivers manufactures develops, Kerry solutions to and integrated based ingredients technology industries. pharmaceutical and beverage food, in the customers (IP) or Property Intellectual the Group’s protect to failure Any have could data sensitive of unauthorised access to prevention business significant and cause on the Group’s effect an adverse damage. reputational Trend Priorities Strategic Link to Trend Priorities Strategic Link to Trend/Link Trend Priorities Strategic Link to Risk INTELLECTUAL PROPERTY MANAGEMENT Risk Operational TAXATION Financial and Compliance Risk TREASURY Financial and Compliance Risk GOING CONCERN AND VIABILITY ASSESSMENT The Board, having reviewed the Group’s principal risks and uncertainties, assessed the going concern and long term viability of the Group in line with the requirements of the 2016 UK Corporate Governance Code and the Irish Annex. Its’ conclusions on these assessments are outlined below.
Going Concern Viability Assessment These scenarios were stress tested both individually and in combination to assess The consolidated financial statements Assessment of Prospects their impact on the Group’s solvency, have been prepared on the going concern In line with Provision C.2.2 of the 2016 UK liquidity and cash flow. This analysis basis of accounting. Corporate Governance Code, the Directors indicated that significant headroom have carried out a rigorous review of existed in all scenarios tested. In addition, The Directors have considered the Group’s the prospects of the Group over the the Board considers that the diverse business activities and how it generates medium term. In assessing the prospects nature of the Group’s geographies, value, together with the main trends and of the Group and its ability to meet its markets, customer base, and product factors likely to affect future development, liabilities as they fall due, the Board have portfolio provide significant mitigation business performance and position of taken account of the Group’s strategic against the impact of a serious business the Group as described in the Business planning cycle, capital investment plans, interruption. Reviews on pages 42-48. The Group’s the business model, its diverse portfolio 2019 budget was reviewed and approved and the innovation pipeline. The Directors Viability Statement at the December Board meeting. The have also considered the Group’s strong Directors have also examined the financial cash generation and debt maturity profile Based on their assessment of prospects position of the Group, including cash flows, in addition to the principal risks and and viability, the Directors have concluded liquidity position, borrowing facilities, uncertainties detailed on pages 75-85. that they have a reasonable expectation financial instruments and financial risk The financial position of the Group, its that the Group will be able to continue in management, as described on pages 32-38 cash flows, liquidity position and borrowing operation and meet its liabilities as they and additionally as described in note 24 to facilities are outlined in the financial review fall due over the three year period of the financial statements. on pages 32-38. the assessment.
As a result of this review, the Directors Assessment of Viability report that they have satisfied themselves Although the Group’s Strategic Plan covers and consider it appropriate that the Group a period of five years, the Board considers and the Company is a going concern, that three years is the most appropriate having adequate resources to continue in period to assess the long term viability of operational existence for the foreseeable the Group as current capital expenditure future and have not identified any material plans, commercial arrangements and uncertainties that cast a significant doubt financial projections are considered to be on the Group’s and the Company’s ability more reliable and robust over this period. to continue as a going concern over a period of at least 12 months. The Board has considered how the occurrence of one or more of the Group’s principal risks and uncertainties could materially impact the Group’s business model, future performance, solvency or liquidity by assessing the impact of these risks in severe but plausible scenarios. While each of the principal risks and uncertainties could have an impact on the Group’s performance, a significant food quality failure, an acquisition not delivering expected returns or a failure to achieve targeted revenue or margins were considered most likely to threaten the Group’s long term viability.
86 Kerry Group Annual Report 2018 We are regulatory experts, serving as trusted partners helping customers navigate the dynamic regulatory landscape to comply and grow locally and globally.
Pictured: Zeynep Ilkbahar, Dr. Yvonne Traynor and Sarah Hogan, INFORMKerry Regulatory and Scientific Affairs.
Kerry Group Annual Report 2018 87 BOARD OF DIRECTORS
CHAIRMAN & EXECUTIVE DIRECTORS
Mr. Philip Toomey (65) Mr. Edmond Scanlon (45) Ms. Marguerite Larkin (47) Mr. Gerry Behan (54) Chairman of the Board Executive Director Executive Director Executive Director Chief Executive Chief Financial Officer President and CEO Philip was formerly Global Chief Operating Officer for the financial Edmond joined Kerry’s graduate Marguerite was formerly a senior Kerry Taste & Nutrition services industry practice at development programme in Ireland partner with Deloitte and held a Gerry joined Kerry’s graduate Accenture and has a wide range in 1996. He was appointed Vice number of leadership roles within recruitment programme in 1986 of international consulting President Finance, Supply Chain Deloitte Ireland including Audit and has held a number of senior experience. He was also a and Operations of Kerry’s Global Assurance and Risk Advisory Leader, financial and management roles member of the Accenture Flavours Division in 2004. In 2007, Head of Consumer Business Industry primarily in the Americas region. He Global Leadership Council. he was appointed Vice President Practice, Client & Industries Partner was appointed President and Chief Mergers & Acquisitions, Kerry and was a member of the Executive Executive Officer of Kerry’s Global He is a Fellow of Chartered Americas Region, before being Committee. She has over 25 years Taste & Nutrition business in 2011. Accountants Ireland. appointed Global President Kerry global experience and has served as Functional Ingredients & Actives lead client partner for a number of Gerry has served as an Executive Philip was appointed Chairman of in late 2008. multinationals operating in a broad Director on the Board for 11 years. the Board on 3 May 2018 and has range of industries including food & served as a Director for seven years. Appointed: 13 May 2008 In 2012, he was appointed beverage, pharma and technology. He is Chairman of the Nomination President of Kerry China, prior Committee having previously served to his appointment as President Marguerite is a Fellow of Chartered as Senior Independent Director and & CEO Kerry Asia-Pacific region Accountants Ireland and holds a Chairman of the Audit Committee. in November 2013. Edmond was Bachelor of Commerce degree and Appointed: 20 February 2012 appointed Executive Director and Masters in Accountancy. and as Chairman 3 May 2018 Group CEO in October 2017. Marguerite was appointed Executive N Appointed: 1 October 2017 Director and Group Chief Financial Officer on 30 September 2018. Appointed: 30 September 2018
Changes to the composition of the Board and its Committees for the year ended 31 December 2018 Committee Membership Key Mr. Michael Dowling Mr. Christopher Rogers Mr. Brian Mehigan Audit Committee Retired as Chairman and from Appointed to the Board and Transitioned from Group CFO A the Board on 3 May 2018. as Audit Committee Chairman to Chief Strategy Officer on 30 N Nomination Committee on 8 May 2018. September 2018 and resigned from Mr. Philip Toomey the Board on 28 December 2018. R Remuneration Committee Appointed Chairman of the Ms. Joan Garahy Board on 3 May 2018. Appointed Senior Independent Ms. Marguerite Larkin Indicates Committee Chair Director on 3 May 2018. Appointed Executive Director and Group CFO on 30 September 2018. 88 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 89 A Kerry Group Annual Report 2018 2018 Annual Report Group Kerry R Ms. Joan Garahy (56) Ms. Joan Garahy Senior Independent Director Non-Executive of Joan is Managing Director & Pensions ClearView Investments experience She has 30 years’ Limited. advising on and managing investment Managing Director funds. She is a former and & Pensions of HBCL Investments HC Financial at of investments Director Services. In the past, with Joan worked Management Treasury the National as head of research (Ireland) Agency Fund Reserve Pension the National at also head of research and was (Ireland) Managers. with Hibernian Investment on Director Joan is a non-Executive of ICON plc and Irish the Boards REIT plc as Properties Residential of a number well as being a director companies. of private 2012, appointed Joan was In February of the Remuneration Chairperson and joined the Audit Committee She on the sameCommittee date. Senior appointed was Independent 2018. on 3 May Director 11 JanuaryAppointed: 2012 and Independentas Senior Director 2018 3 May A Mr. Christopher Rogers (58) Rogers Christopher Mr. Director Independent Non-Executive an Executive formerly was Christopher 11 years plc for of Whitbread Director Director serving as Finance 2005, from and then as Global Managing 7 years for Coffee. of Costa Director positions non-Executive His current at include Senior Independent Director plc and non-Executive Perkins Travis Walker plc and Director Energy Vivo at appointed he was plc (where Greenbank Chairman in Executive as Interim until a new Chief Executive October 2018 He is Chairman of theis appointed). Vivo at and Risk Committee Audit plc and a member of the Audit Energy plc. Perkins Travis at Committee Accountants of Chartered He is a Fellow He is also a visiting England and Wales. (UK). Durham University at Fellow as a non-Executive appointed He was and Chairman of the Audit Director 2018. 8 May from with effect Committee 2018 8 May Appointed:
N R Dr. Karin Dorrepaal (57) Dorrepaal Karin Dr. r Directo Independent Non-Executive on Director an Executive was Karin in Berlin of Scheringthe Board AG 2004 until 2006 when it was from Karin In this role AG. Bayer by acquired the Diagnostic for responsible was Imaging business as worldwide as well and procurement. manufacturing Between a was 1990 and 2004, Karin a consultancy Boozpartner at & Co., she specialised in the firm where industry advising pharmaceutical strategy, on issuesclients regarding and supply chain. sales, marketing the from her Ph.D. received Karin The of Amsterdam, University Free Netherlands and also holds an MBA Rotterdam University the Erasmus from School of Management. is a non-Executive Karin Currently, of Gerresheimer on the Boards Director Chairperson) and (vice AG Paion AG, S.A.Almirall is also a director Karin companies. of a number of private joined the Remuneration Karin 2015 in January Committee in Committee and Nomination December 2015. 1 JanuaryAppointed: 2015 Mr. Con Murphy (54) Con Murphy Mr. Director Independent Non-Executive his own business in the Con operates agribusiness and is Chairman sector Cattle of the Irish Montbeliarde Con is a member of the Society. company. of a small private Board 1 June 2017 Appointed:
R A (44) (44) Culligan Gerard Mr. Director Independent Non-Executive his own business operates Gerard in the agribusiness sector. co-owner and is a Director Gerard in the companies private of two marine industry. marine industry. 1 June 2017 Appointed: Mr. Tom Moran (63) Moran Tom Mr. Director Independent Non-Executive has had a long and distinguished Tom Sector within the Irish Public career Secretary was and most recently General of the Irish Department of and the Marine from Food Agriculture, also held a number Tom 2014. 2005 to policy and international of international Tom roles. leadership negotiation trade Agriculture as Ireland’s served formerly the OECD. and to France to Attaché member of a Board is currently Tom and Board, Bia, the Irish Food An Bord He is Dairy its chairs Subsidiary Board. Public Chairman of the Irish Government Appointments Service on a and also sits Committees. number of Government in Committee joined the Audit Tom and the Remuneration December 2015 2016. in February Committee 29Appointed: 2015 September
N N R A Independent Non-Executive Director Independent Non-Executive James Executive formerly was US based of Kenny President Vice Construction Inc. and President Management Services Inc. of Kenny as US Ambassador served He previously 2006. June July 2003 to from Ireland to on Director James is a non-Executive a multimodal of Hub Group, the Board on listed company, transportation the NASDAQ. James joined both the Remuneration Committees in and Nomination 2012. February 1 June 2011 Appointed: Mr. James C. Kenny (65) Kenny C. James Mr. the Board of ICON plc.the Board national In addition, Hugh has held many roles leadership and international including Chairman of the Irish Health and Chairman of the Board Research of global 21 Network Universitas Independent Non-Executive Director Independent Non-Executive Chancellor and Vice Hugh is President in the UK, of Bristol of the University a He was 2015. position he has held since College of University President previously 2013. 2004 to from Dublin (UCD) career this, Hugh had a successful to Prior and biomedical research as a physician on he served scientist in the US where Medical School for of Harvard the faculty his to returning almost a decade prior to of Medicine and as Professor alma mater in UCD. Therapeutics on Director Hugh is a non-Executive Dr. Hugh Brady (59) Hugh Brady Dr. universities. research and Hugh joined both the Audit Committees in 2015. Nomination February 2014 24 Appointed: NON-EXECUTIVE DIRECTORS NON-EXECUTIVE DIRECTORS’ REPORT REPORT OF THE DIRECTORS
Directors and Other Information
Directors Philip Toomey, Chairman Edmond Scanlon, Chief Executive* Marguerite Larkin, Chief Financial Officer* Gerry Behan, President & CEO Taste & Nutrition* Hugh Brady Gerard Culligan Karin Dorrepaal Joan Garahy James C. Kenny Tom Moran Con Murphy Christopher Rogers *Executive Director
Secretary and Registered Office Ronan Deasy Kerry Group plc Prince’s Street Tralee Co. Kerry Ireland
Registrar and Share Transfer Office Ronan Deasy Registrar’s Department Kerry Group plc Prince’s Street Tralee Co. Kerry Ireland
Website www.kerrygroup.com
90 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 91 Kerry Group Annual Report 2018 Annual Report Group Kerry Sustainability objectives sustainability on its good progress delivered The Group Sustainability Group of the Kerry and in the implementation in 2018 the to committed remains The Group 2020’. ‘Towards Strategy fulfilling to of business and ethical behaviour, highest standards the and to the communities it serves to responsibilities its on a socially and all stakeholders for value of long term creation basis. sustainable environmentally policies performance, sustainability the Group’s Details regarding of the environment, in respect marketplace, and programmes outlined in the Sustainability are and the community workplace on pages 49-72. Review Events After the Balance the Sheet Date After Events of the acquisition has completed end, the Group year Since the business and assets and Mills, a coatings of Southeastern businessseasonings based in the USA. announced the previously complete to expects also The Group taste clean label savoury Inc., USA a natural of Ariake acquisition of 2019. solutions business, quarter in the second and Uncertainties Principal Risks of the Companies 2014, with Section Act 327(1)(b) In accordance 2004/109/EC) (Directive of the Transparency 5(4)(c)(ii) Regulation Bank of the Central Rules and the Transparency 2007 Regulations a description and uncertainties principal risks of the of Ireland, outlined on pages 75-85. are the Group facing and Development Research innovation ongoing technological to is fully committed The Group customer integrated business, of its in all sectors providing our global technology leveraging by development product focused has invested this, the Group facilitate To capabilities and expertise. centres and application development research, in highly focused & Global Technology located with a strategically of excellence by which is supported based in Naas, Ireland Centre, Innovation on Expenditure Centres. & Application Development Regional (2017: in 2018 €274.6m to amounted and development research €268.7m).
8.6% The payment date for the final dividend is 10 May 2019 to to 2019 the final dividend is 10 May for date The payment 12 April 2019. date on the record registered shareholders On 18 February 2019, the Directors recommended a final dividend recommended the Directors 2019, On 18 February ended 31 of the year in respect cent per share 49.2 totalling This the financial statements). 10 to note (see December 2018 the final 2017 over of 12.1% is an increase final dividend per share is in addition This dividend 2018. paid on 18 May dividend per share 2018, on 16 November shareholders dividend paid to the interim to . cent per share 21.0 to which amounted Dividends The Directors are pleased to report another strong performance performance another strong report pleased to are The Directors earnings adjusted currency in constant with an increase 2018 for asset intangible related brand (EPS), which is before per share of tax), (net of related items amortisation and non-trading Results and Review of the Business and Review Results the Review, Statement, the Chief Executive’s The Chairman’s included in which are and the Financial Review, Business Reviews on pages 10-48, Report of on the performance the Strategic report business, and disposals, including acquisitions during the Group’s developments. and on future the year 305.9 Basic cent). EPS305.9 of 325.4 353.4 to cent (2017: 2017 over a one-off primarily due to 8.3% by tax credit cent reduced deferred the year for margin Trading in 2017. reform US tax the arising from 12.2%). 12.2% at maintained was a free (2017: achieved The Group of the results details Further €501m). (2017: cash flow of €447m and Statement Income set out in the Consolidated are the year for Financial part of the Consolidated forming notes in the related are indicators performance financial key The Group’s Statements. discussed on pages 30-31. Listed on the Euronext Dublin and London Stock Exchanges, Kerry Kerry Exchanges, Stock Dublin and London on the Euronext Listed facilities manufacturing with 147 presence has an international the world. across Kerry Group is a world leader in the global food industry. industry. in the global food is a world leader Group Kerry & nutrition of taste portfolio industry-leading The Group’s unique, deliver systems technologies and integrated foundational and beverage the food, across customers solutions to innovative Consumer the Group’s Foods, industries. Kerry pharmaceutical business,Foods of added-value suppliers is one of the leading in the Irish products chilled food branded and customer branded and UK markets. Principal Activities The Directors submit their Annual Report together with the with together Report their Annual submit The Directors ended 31 the year for financial statements consolidated audited December 2018. Share Capital The Company may purchase its own shares in accordance with the Companies Act 2014 and the Company’s Articles of Association. Details of the share capital are shown in note 27 of the financial At the 2018 AGM, shareholders passed a resolution authorising the statements. The authorised share capital of the Company is Company to purchase up to 5% of its own issued share capital, but €35,000,000 divided into 280,000,000 A ordinary shares of the authority was not exercised. This authority is due to expire on 3 12.5 cent each, of which 176,298,416 shares were in issue at 31 August 2019 and it is intended to seek shareholder approval for its December 2018. renewal at the 2019 AGM. The A ordinary shares rank equally in all respects. There are no limitations on the holding of securities in the Company. Substantial Interests The Directors have been notified of the following shareholdings of There are no restrictions on the transfer of fully paid shares in 3% or more in the issued share capital of the Company: the Company, but the Directors have the power to refuse the transfer of shares that are not fully paid. There are no deadlines Shareholder Number Held % for exercising voting rights other than proxy votes, which must be Kerry Co-operative Creameries 24,048,456 13.6% received by the Company at least 48 hours before the time of the Limited (KCC) meeting at which a vote will take place. There are no restrictions on voting rights except: Blackrock Investment Management 8,526,222 4.8%
– where the holder or holders of shares have failed to pay any Apart from the aforementioned, the Company has not been notified call or instalment in the manner and at the time appointed for of any interest of 3% or more in the issued share capital of the payment; or Company. – the failure of any shareholder to comply with the terms of Article 13 of the Company’s Articles of Association (disclosure of Directors beneficial interest). The Board, at the date of this report, consists of a Chairman, three The Company is not aware of any agreements between Executive and eight independent Non-Executive Directors. The shareholders which may result in restrictions on the transfer of names and biographical details of the Directors are set out on securities or on voting rights. pages 88-89.
The Directors have the authority to issue new shares in the Following the individual performance evaluation of all Directors, Company up to a maximum of 20 million new A ordinary shares. as outlined in the Corporate Governance Report on page 99, the This authority will expire on 3 August 2019 and it is intended to Board recommends the election and re-election of all Directors seek shareholder approval to renew the authority at the Annual seeking election and re-election. General Meeting (AGM) to be held on 2 May 2019. The Directors’ and Company Secretary’s interests in shares and Shareholders approved the authority for the Directors to allot debentures are included in the Remuneration Report on page 129. shares for cash on a non-pro rata basis up to a maximum of 8,809,384 shares at the AGM held on the 3 May 2018, Board and Committee Changes representing 5% of the A Ordinary Shares in issue on 2 March Michael Dowling retired as Chairman and from the Board following 2018. Shareholders also approved an authority to allot a further the conclusion of the AGM on 3 May 2018. 8,809,384 A Ordinary Shares (5%) for cash on a non-pro rata basis provided the additional authority will only be used for Philip Toomey was appointed Chairman of the Board on 3 May the purpose of an acquisition or specified capital investment 2018. He stepped down from the Audit Committee and as Senior announced contemporaneously with the issue or which has taken Independent Director on the same date. place in the preceding six month period and is disclosed with the announcement of the issue. Neither authorities have been Joan Garahy was appointed as Senior Independent Director on exercised and will expire on the 3 August 2019. It is intended to 3 May 2018. seek shareholder approval for their renewal at the 2019 AGM. During 2018, 116,011 shares were allotted pursuant to the Christopher Rogers was appointed to the Board on 8 May 2018 and Company’s Short and Long Term Incentive Plans as a result of was appointed Chairman of the Audit Committee on the same date. shares which vested and options which were exercised. Further details are shown in note 28 to the financial statements. Brian Mehigan transitioned from Group CFO to Chief Strategy Officer on 30 September 2018 and retired from the Board on 28 December 2018.
92 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 93 Kerry Group Annual Report 2018 Annual Report Group Kerry ss Reviews on pages include a 32-48 ss Reviews eport and financial statements, taken as a whole, taken eport and financial statements, the c the C the Financial and Busine the Risk R the Annual R December 2018 have been prepared in accordance with IFRSs in accordance been prepared have December 2018 a true Union and give the European and IFRSs by as adopted of the assets, view liabilities,and fair and financial position of the taken included in the consolidation, and the undertakings Group then ended; the year for profit and its date that as a whole, as at Union and as the European IFRSs and IFRSs by as adopted a true give with the Companies 2014, Act applied in accordance view of the assets, liabilitiesand fair and financial position of the December 2018; 31 as at Company of the business and performance of the development review fair and the position of the December 2018 ended 31 the year for end; the year at and the Group Company of the performance impact the future which may uncertainties end; and the year at and the Group Company assess to necessary the information shareholders for provides business position and performance, and Group’s the Company’s and understandable. balanced and is fair, model and strategy – ended 31 theyear for statements financial onsolidated – with accordance in prepared financialstatements, ompany – – – adescription and oftheprincipalrisks eport provides The Directors are responsible for ensuring that the company company the that ensuring for responsible are The Directors and explain which correctly records accounting adequate keeps time any enabling at of the company, the transactions record or lossthe assets, the of liabilities, financial position and profit and ensuring accuracy with reasonable be determined to company with accordance in prepared are the financial statements that with comply Union, the European IFRSs and IFRSs by as adopted financial the Group to and as regards the Companies 2014 Act and enable the financial Regulation IAS Article 4 of the statements, be audited. to statements the assets safeguarding for also responsible are The Directors the for steps reasonable taking for and hence of the Company The and other irregularities. of fraud and detection prevention of and integrity the maintenance for responsible are Directors included on the Group’s and financial information the corporate the governing Irish legislation (www.kerrygroup.com). website differ may and dissemination of financial statements preparation in other jurisdictions. legislation from 2004/109/EC) (Directive with the Transparency In accordance Bank of the Central Rules and the Transparency 2007 Regulations include a management to required are the Directors of Ireland, of the business and a description review a fair containing report The the Group. facing and uncertainties of the principal risks applicable law and the Listing Rules by also required are Directors prepare to Dublin and the UK Listing Authority Euronext issued by remuneration Directors’ to relating and reports Report a Directors’ governance. and corporate on listed whose names and functions are of the Directors, Each that, confirm the best of their knowledge to and belief: page 90, mak st pr sele prudent; Union; and the European by as adopted will continue the Group that presume to unless it is inappropriate in business. consistently; – with IFRS andIFRSs comply thefinancialstatements that ate – basis onthegoingconcern thefinancialstatements epare – – policies andthenapplythem accounting ct suitable and reasonable andestimates are e judgements that Irish company law requires the Directors to prepare financial prepare to the Directors law requires Irish company view of a true and fair give which financial year, each for statements the assets, liabilities and the position and financial of the Company period. that Under for or loss of the Group and of the profit Group, financial group prepare to elected have law the Directors that Financial Reporting with International in accordance statements Union (‘IFRSs’) the European and IFRSs by as adopted Standards also chosen to and have Regulation and Article 4 of the IAS under IFRSs and financial statements company the parent prepare the financial Union. In preparing the European IFRSs by as adopted to: required are the Directors statements, Directors’ Responsibility Statement Responsibility Directors’ and the Annual Report preparing for responsible are The Directors and with applicable laws in accordance the financial statements regulations. The going concern and long term viability statements in the statements viability and long term The going concern the basis for out the Company’s on page 86 sets Risk Report the in preparing basis of accounting adoption of the going concern the Directors’ and the basis for Financial Statements Consolidated the Group that expectation a reasonable have they that conclusion liabilities and meet its as they in operation continue will be able to years. three the next due over fall Going Concern and Long Term Viability Viability Going Term Concern and Long Statements Corporate Governance Corporate on pages 96-100 Report Governance out the sets The Corporate with the of the principles, application and compliance Company’s Code and Irish Governance UK Corporate of the 2016 provisions Code). (the Annex The Articlesof Association appoint to empower the Board and submit retire to such Directors but also require Directors, re-election their for following themselves AGM the next at Communitiesappointment. the purposes of the European For 2004/25/EC)) Bids (Directive 2006 specific Regulations (Takeover the appointment and re-election are rulesregarding of Directors Report. Committee Nomination in the to referred There were no other changes to the composition of the Board and of the Board composition the changes no other to were There Committees during 2018. its Marguerite Larkin was appointed Group CFO on 30 September on 30 CFO Group appointed Larkin was Marguerite on the same date. the Board to appointed and was 2018 Directors’ Compliance Policy Statement Memorandum and Articles of Association It is the policy of the Company to comply with its relevant The Company’s Memorandum and Articles of Association set obligations (as defined in the Companies Act 2014). The out the objects and powers of the Company. The Articles of Directors have drawn up a compliance policy statement (as Association of the Company may only be amended by way of defined in section 225(3)(a) of the Companies Act 2014) special resolution approved by shareholders in a general meeting. and arrangements and structures are in place that are, in the They were last amended, effective as of 3 May 2018, by way of a Directors’ opinion, designed to secure material compliance with special resolution passed at the Annual General Meeting held on the Company’s relevant obligations. The Directors confirm that the same date. these arrangements and structures were reviewed during the financial year. As required by Section 225(2) of the Companies Act A copy of the Articles of Association can be obtained from the 2014, the Directors acknowledge that they are responsible for the Company’s website (www.kerrygroup.com). Company’s compliance with the relevant obligations. In discharging their responsibilities under Section 225, the Directors relied on the Change of Control Provisions advice both of persons employed by the Company and of third The Company’s financing arrangements include ‘Change of Control’ parties who the Directors believe have the requisite knowledge and provisions which give its lending institutions the right to withdraw experience to advise the Company on compliance with its relevant their facilities in the event of a change of control occurring unless obligations. they agree otherwise in writing. Other than change of control provisions in those arrangements, the Company is not a party to Accounting Records any other significant agreements which contain such a provision. To ensure that proper accounting records are kept for the Company in accordance with section 281 to 285 of the Companies Political Donations Act 2014, the Directors employ appropriately qualified accounting During the year the Company made no political contributions personnel and maintain appropriate accounting policies and which require disclosure under the Electoral Act, 1997. systems. Group Entities The accounting records of the Company are maintained at the Company’s registered office. The principal subsidiaries and associated undertakings are listed in note 36 to the financial statements. Accountability and External Audit Retirement Benefits A statement relating to the Directors’ responsibilities in respect of the preparation of the financial statements is set out on page Information in relation to the Group’s retirement benefit schemes is 93 with the responsibilities of the Company’s external Auditors given in note 26 to the financial statements. outlined on page 137. Taxation The financial statements on pages 138-202 have been audited by So far as the Directors are aware, the Company is not a close PricewaterhouseCoopers (PwC), Chartered Accountants. company within the definition of the Taxes Consolidation Act, 1997. There has been no change in this respect since 31 December 2018. In accordance with Section 383(2) of the Companies Act 2014 the Company’s external auditors, PwC, will continue in office. Financial Instruments A resolution authorising the Directors to determine their The financial risk management objectives and policies, along with remuneration will be proposed at the Annual General Meeting. a description of the use of financial instruments are set out in note 24 to the financial statements. Disclosure of Information to the External Auditors Each of the Directors, who were members of the Board at the date of approval of this Report of the Directors, confirms that: – so far as they are aware there is no relevant audit information of which the Company’s external auditors are unaware; and – they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company’s external auditors are aware of that information.
94 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 95 Kerry Group Annual Report 2018 Annual Report Group Kerry ecutive ecutive ebruary 2019 dmond Scanlon Supplementary Supplementary information Not applicable Statement of Statement policies accounting Remuneration Remuneration Report Committee Location Note 33 the financial Note to statements E Chief Ex 18 F
Details of small related Details of small related Publication of unaudited of unaudited Publication financial information Section – 14 of Listing 5 6.8.1 Rule Interest capitalised Interest Details of long term Details of long term schemes incentive Topic party transactions party
(3) (2) (5) – (14) (1) (4) Section Chairman 2019 18 February Philip Toomey Signed on behalf of the Board: Cross References Cross part of the forms in this report referenced cross All information the Directors. of Report For the purposes of Listing Rule 6.8.1, the information required to to required the information 6.8.1, the purposes Rule of Listing For locations: in the following be disclosed can be found Information Required to be Disclosed by Listing be Disclosed to by Required Information Authority Listing of Ireland Republic 6.8.1, Rule GOVERNANCE CORPORATE REPORT GOVERNANCE REPORT
Dear Shareholder, Diversity at Board level has been a focus for the Nomination Committee for a number of I am pleased to present the Kerry Group years and continues to be a key factor when Corporate Governance Report for the year considering Board refreshment. Improving ended 31 December 2018. and monitoring diversity beyond gender and below Board level will be a key area of focus The Corporate Governance Report describes for the Board and the executive team in 2019. how we apply the main principles of good governance as set out in the 2016 UK In order to operate effectively companies Corporate Governance Code and the Irish must understand those resources and Annex (the Code). On behalf of the Board, I relationships that matter most to their can confirm that for the year under review the success. The Group’s stakeholders include Group has fully complied with the provisions shareholders, employees, customers, of the Code. As Chairman, I will ensure, with suppliers and the community in which it Board support, that the provisions of the new operates. In line with the requirements of UK Corporate Governance Code (effective the new revised Code, the Board will ensure from 1 January 2019) will be implemented effective engagement with all stakeholders. maintaining the Group’s commitment to achieving high standards of governance. Each year the Board undertakes a formal evaluation of its effectiveness and that of The Board sets the tone and shared values its Committees. In 2018, this was an internal for the way in which the Group operates. self-assessment which was conducted by Philip Toomey Chairman of the Board This culture is underpinned by a robust the Chairman of the Board and the Senior risk management framework consisting of Independent Director. The evaluation policies, procedures and tasks, including a concluded that the Board and its Committees Code of Conduct which defines business are performing well. Details of the process conduct standards for anyone working for, or and resulting actions arising from this review on behalf of, the Group. Given the importance can be found on page 99. of culture to the success of the Business Model, the Board will continue to assess and Details of the Group’s activities and the monitor the Group’s culture to ensure that operations of the Board, contained in the it is aligned with the Group’s strategy and following report, outline the manner in which values and is adequately embedded across the Group has achieved compliance with the the Group. Code through the activities and operations of the Board and its Committees during the year. The Board, in conjunction with the Nomination Committee, ensures that there are robust plans in place to facilitate Board, Executive and senior management succession. During 2018, the Board appointed Philip Toomey a new Chairman and Senior Independent Chairman of the Board Director, oversaw the CFO transition process and undertook a formal process to recruit a new non-Executive Director and Chairman of the Audit Committee. Details of the Executive and non-Executive Director and Committee changes that occurred during the year, are set out in the Nomination Committee Report on page 109.
96 Kerry Group 2018Annual Annual Report Report 2018 & Accounts Leadership The Directors are responsible for strategic oversight of the Company and may exercise all the powers of the Company subject to the Board Composition and Membership provisions of relevant statutes, to any directions given by shareholders in General Meetings and to the Company’s Memorandum and Articles The Board is responsible for ensuring the long term sustainable of Association. The fundamental responsibility of the Directors is to Strategic Report success of the Company through experienced leadership and exercise their business judgement on matters of critical and long term establishing effective control and oversight of the Group’s activities. significance to the Group.
There are 12 members of the Board, which comprises of a non- The Chairman ensures that all Directors have full and timely access Executive Chairman, Chief Executive, Chief Financial Officer, to such information as they require to discharge their responsibilities one other Executive Director, and eight non-Executive Directors. fully and effectively. Board papers are issued to each Director at least one week in advance of Board meetings and include the Mr. Philip Toomey was appointed as Chairman of the Board on meeting agenda, minutes of the previous Board meeting and all 3 May 2018, succeeding Mr. Michael Dowling who retired as a papers relevant to the agenda. The Chairman, in conjunction with the non-Executive Director and Chairman on the same date. On his Company Secretary, has primary responsibility for setting the agenda appointment Mr. Toomey met the independence requirements as for each meeting. All Directors continually receive comprehensive set out in the Code. reports and documentation on all matters for which they have
responsibility to allow them to fully complete their duties as a Director. Directors’ Report The Directors are of the opinion that the composition of the All Directors participate in discussing strategy, trading updates, Board provides the extensive relevant business experience financial performance, significant risks and operational activities. needed to oversee the effective operation of the Group’s activities Board meetings are of sufficient duration to ensure that all agenda and that the individual Directors bring a diverse range of skills, items and any other material non-agenda items that may arise are knowledge and experience, including financial as well as industry adequately addressed. and international experience, necessary to provide effective governance and oversight of the Group. Each Director has access to the advice and services of the Company Secretary, whose responsibilities include ensuring that Board Board Role and Operations procedures are followed, assisting the Chairman in relation to The Board’s role is to promote the long-term sustainable corporate governance matters and ensuring the Company complies success of the Company generating value for all its stakeholders, with its legal and regulatory obligations. In accordance with an including shareholders, employees, customers, suppliers and agreed procedure, in the furtherance of their duties, each Director the communities in which it operates, while exercising business has the authority to engage independent professional advice at the Financial Statements judgement on developing strategy, delivering objectives and Company’s expense. There is a Directors and Officers liability policy managing the risks that face the organisation. It is also responsible in place for all Directors and Officers of the Company against claims for instilling the appropriate culture, values and behaviours from third parties relating to the execution of their duties as Directors throughout the organisation. The Board has a formal schedule of and Officers of the Company and any of its subsidiaries. matters specifically reserved to it for decision as noted below and has delegated other responsibilities to management for day-to- Strategy day operations within the context of the Kerry Group Governance 2018 was the first year of the Group’s new strategic plan which Framework as outlined on page 98. was communicated to the market at a Capital Markets Day held in October 2017. During the year the Board received presentations from Schedule of Matters Reserved for the Board Group and divisional management on progress to date implementing – Appointments to the Board; the strategies for growth, margin expansion and return on investment – Ensuring compliance with corporate governance, legal, that underpin the plan and its associated financial targets. During the statutory and regulatory requirements; presentations the Board provided input and strategic guidance as – Approval of the overall Group strategic and operating plans; required. The Board is happy with the progress achieved in 2018 and – Monitoring and review of risk management and internal control remains confident that the Business Model and strategies will deliver systems; sustained value for all stakeholders in the years to come. – Approval of acquisitions and divestitures; – Approval of significant capital expenditure; Meetings and Attendance – Treasury policy including approval of changes to the Group’s The Board meets sufficiently regularly to ensure that all its duties capital structure; are discharged effectively. All Directors are expected to prepare – Approval of dividend policy and dividends; for and attend meetings of the Board and the AGM. Should any – Approval of annual budgets; Director be unable to attend a Board meeting in person, conferencing – Approval of preliminary results, interim management arrangements are available to facilitate participation. In the event that statements and interim financial statements; a Board member cannot attend or participate in the meeting, the – Assessment of the long term viability of the Group and the Director may discuss and share opinions on agenda items with the going concern assumption; and Chairman, Chief Executive, Senior Independent Director or Company Secretary in advance of the meeting. – The preparation of, and confirmation that, the annual report and financial statements present a fair, balanced and understandable During 2018, the Board met seven times and there was full attendance assessment of the Company’s position, performance by all members at meetings held during their time in office. and prospects.
Kerry Group Annual Report 2018 97 Chairman and Chief Executive Board Effectiveness The roles of the Chairman and Chief Executive are separate and the division of duties between them is formally established, set out Board Induction and Development in writing and agreed by the Board. The Chairman is responsible On appointment to the Board, each new non-Executive Director for leadership of the Board and ensuring its effectiveness in all undergoes a full formal induction programme. This induction respects. The Executive Directors, led by the Chief Executive, are includes an overview of their duties and responsibilities as a responsible for the management of the Group’s business and the Director, presentations on the Group’s operations and results, implementation of Group strategy and policy. meetings with key executive management and an outline of the Senior Independent Director principal risks and uncertainties of the Group. Ms. Joan Garahy is the Group’s Senior Independent Director (SID). Throughout the year, the Board as a whole engages in The principal role of the SID is to provide a sounding board for development through a series of consultations with subject the Chairman and to act as an intermediary for other Directors as matter experts on a range of topics including risk management, required. The SID is responsible for the appraisal of the Chairman’s corporate governance and strategy. Presentations are also made performance throughout the year. She is also available to meet by Executive Directors and senior management on various topics shareholders upon request, in particular if they have concerns that throughout the year in relation to their areas of responsibility. cannot be resolved through the Chairman or the Chief Executive. On an annual basis, a Board meeting is combined with a Independence comprehensive schedule of visits, over a week-long period, to the The Board, as a whole, has assessed the non-Executive Directors Group’s operating facilities to allow Directors further develop their independence and confirmed that, in its opinion, all non-Executive understanding of the Group’s activities and meet with local senior Directors are independent in accordance with the Code. management. The June 2018 Board meeting was held in Kerry’s Regional Application Centre, in Durban, South Africa. The visit Board Committees focused on Kerry’s Taste & Nutrition Strategy for Sub Saharan Africa (SSA) and Middle East, North Africa and Turkey (MENAT) sub- The Board has three Committees, the Audit Committee, the regions. It also afforded Board members the opportunity to meet and Nomination Committee and the Remuneration Committee, which engage with key leaders and emerging talent from many countries support the operation of the Board through their focus on specific in the sub-regions. Whilst in South Africa the Board visited the site areas of governance. Each Committee is governed by its terms of for the Group’s new manufacturing facility in Durban and undertook reference, available from the Group’s website (www.kerrygroup. a market immersion tour during which the Board saw firsthand the com) or upon request, which sets out how it should operate different markets for the Group’s products in South Africa as well as including its role, membership, authority and duties. Reports on the having the opportunity to meet with major customers. activities of the individual Committees are presented to the Board by the respective Committee Chairpersons. As part of their personal development plans, individual non-Executive Directors were also afforded the opportunity to visit a number of the Further details on the duties, operation and activities of all Board Group’s international facilities and operations during 2018. Committees can be found in their respective reports on pages 101-131 and these reports form part of the Governance Report. Individual Board members training requirements are reviewed with the Chairman and Company Secretary and training is provided to address these needs. Kerry Group Governance Framework Kerry Group has a clear Governance Framework with defined responsibilities and accountabilities as outlined in the diagram below. This Governance Framework is designed to safeguard long term shareholder value.
Audit Shareholders Committee (page 101)
Nomination Board of Directors Committee (page 106)
Remuneration Executive Management Committee (page 110)
Finance Committee Risk Oversight Committee Sustainability Council (page 38) (page74) (page 54)
98 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 99 Kerry Group Annual Report 2018 Annual Report Group Kerry the s the maint disposition; and produced. of the financial information Overall, the Board concluded that no area of significant weakness of significant no area that concluded Board the Overall, operated had been committees it and its identified and that A number of points review. the period under throughout effectively identified and action established plans to were improvement for them. address evaluation the previous from against recommendations Progress is satisfied improvements and the Board that also considered was and the operation enhanced been have that made have its Committees. and effectiveness of both the Board that will ensure Secretary, the Company The Chairman, along with for and areas self-evaluation report the 2018 suggestionsfrom identified, where appraisal, the Directors’ from arising consideration the Code, the by As required during 2019. will be addressed Committees its and Directors of the Board, evaluation performance facilitated as the last externally in 2019, facilitated will be externally in 2016. completed was evaluation – – ofassets againstunauthorised useor afeguarding andthereliability records accounting ofproper enance Accountability Controls Risk Management and Internal encompasses the Group in Kerry framework control The internal facilitate which together and behaviours, policies, tasks processes, to by enabling it and efficient operation effective the Group’s significant business, financial, to operational, appropriately respond business its The objectives. achieve to and other risks compliance but not reasonable, provide Group in Kerry which operate systems on: assurance absolute, The Board has delegated certain duties to the Audit Committee in in Committee the Audit duties to certain has delegated The Board of risk management and review the ongoing monitoring to relation the Audit by The work performed systems. control and internal on pages 101-105. is describedCommittee report in its described in the are of the risk management systems details Full on pages 73-75. Risk Report including the Group, facing and uncertainties The principal risks performance, the business model, future threaten could those that described on pages 75-86. The Directors are or liquidity solvency assessment carried out a robust of these have they that confirm them. mitigate to in place are and the actions that risks the also reviewed have they that confirm The Directors of risk management and internal systems effectiveness of the these by during the period covered which operated control of this report. the date Based and up to financial statements on the ended the year for that concluded the Directors performed, review of risk management and systems the Group’s December 2018, 31 comply adopted The procedures effective. were control internal on Risk Management, in Guidance contained with the guidance Financial and Business Reporting and Related Control Internal Council in the UK. the Financial Reporting as published by (2014) Topics Covered During Board Performance Evaluation Included Evaluation Performance During Board Covered Topics and Responsibilities Remit – Board Skills and Dynamics– Board Meetings – Board Risk and Performance – Strategy, – Decision Making Process Communications – Board the Board – Support for At the December Board meeting, the Board considered the outcome considered meeting, the Board the December Board At Committees). (including the Board report evaluation of the Board To conclude on the appraisal of the non-Executive Directors, Directors, of the non-Executive on the appraisal conclude To collated, were results Directors, the Chairman and the Executive process The appraisal the Board. to summarised and presented to well and is committed is performing each Director that concluded meetings. at of dedication of time and attendance in terms their role During the year, the non-Executive Directors met without the Directors the non-Executive During the year, the Chairman, and, led by Directors Executive of the presence of the individual of the performance review a formal undertook Directors. Executive In addition, the Senior Independent Director formally appraised the appraised formally In addition, the Senior Independent Director the non- similar to was of the Chairman. This appraisal performance from which included feedback process evaluation Director Executive during the year. performance on the Chairman’s all Directors The Chairman appraised the performance of each of the non- performance the The Chairman appraised The key individually. meeting each Director by Directors Executive at and attendance contribution independence, were reviewed areas the Company Directors, with Executive meetings, interaction Board and senior management, issuesSecretary communicate to ability their knowledge and effectiveness and concern, of importance their role to time and commitment meetingsat and the overall the the Chairman considered During his appraisal on the Board. Executive as Interim Rogers Christopher appointment of Mr. recent plc. Greenbank The Chairman and the Board Walker Chairman at and it has not satisfied this appointment that is temporary are he where Kerry to time commitment Rogers’ on Mr. impacted to Prior the Board. to contribution a valuable make continues to of the discussed the nature Rogers the appointment Mr. accepting with the Chairman. involved commitment and the time role In accordance with provisions of the Code, a performance evaluation of the Code, a performance with provisions In accordance every externally is carried and facilitated out annually of the Board self-evaluation an internal performed Board the 2018, In year. third Committees, the Chairman Board of the Board, of the performance pre-defined against a set of The criteria. Directors and individual key and the Senior Chairman of the Board the by conducted was review Secretary. the Company by facilitated and was Independent Director Independent Audit Board, using Thinking undertaken was The review self-assessment Independent Audit process. governance Limited’s based in the UK,Limited, as a leading firm of board is recognised the Group. to and has no other connections reviewers, Board Performance Evaluation Performance Board Features of Internal Control in Relation to the share details of its Strategic Plan, long term targets and trading Financial Reporting Process performance. The main features of the internal control and risk management The Group annual and interim reports together with its Interim systems of the Group in relation to the financial reporting process Management Statements are the principal mediums through which include: the Company communicates with its shareholders. – The Board review and approve a detailed annual budget and monitor performance through periodic Board reporting; Where necessary, the Board and Committee Chairpersons – Prior to submission to the Board with a recommendation to engage with shareholders on specific topics and, where relevant, approve, the Audit Committee review the Interim Management provide feedback to other Directors. The Chairman and Senior Statements, the Interim and Annual Consolidated Financial Independent Director are also available throughout the year to Statements and all formal announcements relating to these meet shareholders on request. statements; – Adherence to the Group Code of Conduct and Group policies During the year, the Chief Executive, the Chief Financial Officer, published on the Group’s intranet ensures the key controls in the other members of Kerry’s Leadership team, the Sustainability Officer internal control system are complied with; and the Investor Relations team engaged with investors through a – Monthly reporting and financial review meetings are held to variety of formats including hosting Kerry Investor events and visits review performance at business level ensuring that significant to Kerry Technology & Innovation Centres in Ireland and Singapore variances between the budget and detailed management as well as facilitating both foodservice and supermarket investor accounts are investigated and that remedial action is taken as tours. In October, Kerry hosted its first Investor Day in Asia at the necessary; Technology & Innovation Centre in Singapore. Focused on South – The Group has a Financial Compliance function to establish East Asia, the local team provided a deep dive into the business to compliance polices and monitor compliance across the countries showcase the proven track record in the region, growth potential and in which the Group operates; Kerry’s winning business model. Group Chairman Mr. Philip Toomey, – The Group operates a control self-assessment system covering attended the investor day on behalf of the Board. the key controls for a number of key Financial and Operational functions within the Group; Overall the Investor Relations team engaged with over 700 – A well-resourced and appropriately skilled Finance function is in investors through participation in roadshows, meetings and place throughout the Group; attendance at conferences in 19 cities. – Completion of key account reconciliations at reporting unit and Group level; Executive management supported by the Investor Relations team – Centralised Taxation and Treasury functions and regional Shared maintains constant engagement with the investment community Service Centres established to facilitate appropriate segregation in relation to many topics including Group strategy, financial of duties; performance, capital allocation and investment decision making, – The Group Finance Committee has responsibility for raising sustainability, Board composition and succession planning. In finance, reviewing foreign currency risk, making decisions on addition, a significant amount of published material including foreign currency and interest rate hedging and managing the results releases, presentations, share price information and news Group’s relationship with its finance providers; releases are accessible to all shareholders on the Group’s website – The Board, through the Audit Committee, completes an annual (www.kerrygroup.com) and through the Kerry Group Investor assessment of risks and controls; Relations online application, which is available on iPad, iPhone – Appropriate ICT security environment; and and Android. Through the investors section of the website, – The Internal Audit function continually reviews the internal shareholders and others can subscribe to receive automated email controls and systems and makes recommendations for alerts when new information is posted to the site. improvement which are reported to the Audit Committee. Annual General Meeting Fair, Balanced and Understandable The AGM provides an opportunity for the Directors to deliver The Directors have concluded that the Annual Report and financial presentations on the business and for shareholders, both statements, taken as a whole, provides the information necessary institutional and private, to question the Directors directly. for shareholders to assess the Company’s and Group’s position and performance, business model and strategy and is fair, balanced All Directors attend the AGM and are available to meet with and understandable. This assessment was completed by the shareholders and answer questions as required. Notice of the AGM, Audit Committee and the activities undertaken in reaching this proxy statement and the Annual Report and financial statements conclusion are discussed on page 103. 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 Relations with Shareholders and the financial statements. Details of the proxy votes for and against each resolution, together with details of votes withheld are Shareholder Communications announced after the result of the votes by hand. These details are The Board ensures that an effective channel of communication published on the Group’s website following the conclusion of the with existing and potential shareholders exists. The Group is AGM. At the AGM held on 3 May 2018, there were no material votes committed to interacting with Kerry’s investment community to cast against any resolutions.
100 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 101 Kerry Group Annual Report 2018 Annual Report Group Kerry The work completed in this regard is set out in this regard The work completed on page 103 the CommitteeAs outlined on page 105, of the the requirements has considered the to in relation Companies 2014 Act is and Statement Compliance Directors’ been have steps satisfied appropriate that that ensure to Company the by undertaken relevant with its compliant it is materially obligations. Audit Internal Our engagement with the Group on is detailed auditors function and external page 104-105. useful in will find this report I trust you activities and of the operation understanding I will be available the year. over the Committee to AGM forthcoming the at shareholders to of the role to questions relating any answer the Committee. Rogers Christopher Committee Chairman of the Audit AUDIT AUDIT COMMITTEE REPORT Dear Shareholder, it is my Committee On behalf of the Audit the year for report our present to pleasure Audit first This is my December 2018. ended 31 been appointed having report Committee Chairman following Committee as Audit as Philip Toomey the appointment of Mr. I would 2018. on 3 May Chairman of the Board his acknowledge and thank Philip for to like and also process support during the transition of the Committee leadership his valued for to also like I would years. the last five over their for thank the members of the Committee and support during the year. diligence Committee how the Audit details The report during the yearfulfilled responsibilities its Governance UK Corporate under the 2016 and Code) (the Code Annex and the Irish Council (FRC) Financial Reporting the 2016 Committees. Duringon Audit Guidance our focus to continued we have the year, of areas core the on Committee’s efforts across integrity of maintaining responsibility control, internal reporting, all aspects of Group The risk management and audit quality. outlineschart on page 102 of the allocation these various across time the Committee’s activities. assisting for is responsible The Committee the assessment to of the in regard the Board including the Group, facing principal risks management risk the Group’s reviewing The work systems. control and internal this regard in the Committee by performed and the ongoing monitoring encompassing page 103. on of effectiveness is detailed review for is also responsible The Committee of the Group’s the integrity monitoring formal and any financial statements financial the Group’s to relating announcement In addition, the Committeeperformance. the that in determining assisted the Board and Financial Statements, Annual Report and balanced as a whole, is fair, when taken the information and provides understandable assess to necessary shareholders for position, and the Company’s the Group’s businessperformance, model and strategy.
Christopher Rogers Christopher Chairman of the Audit Committee Chairman of the Audit GOVERNANCE GOVERNANCE REPORT Roles and Responsibilities Committee Meetings The main roles and responsibilities of the Committee, which reflect The Committee met six times during the year and there was full the Code and the Guidance on Audit Committees, are set out in attendance by Committee members, who were eligible to attend, at written terms of reference which are available from the Group’s all meetings. website (www.kerrygroup.com) or upon request. Typically, the Chief Executive, the Chief Financial Officer, the The key responsibilities outlined in the terms of reference are Group Financial Controller and the Head of Internal Audit as well included in the table below: as representatives of the external auditor are invited to attend meetings of the Committee. In addition, the Chairman of the Board Primary Responsibilities of the Audit Committee attends meetings at the invitation of the Committee. When required, other key executives and senior management are invited to attend – Ensuring the interests of shareholders are properly protected in meetings to provide a deeper insight on agenda items related to the relation to financial reporting and internal control; Group’s principal risks. – A ssisting the Board in executing its duties in relation to risk management and oversight and monitoring of internal controls; The Committee meet with the external auditor and the Head of – Monitoring the work of the Internal Audit function; Internal Audit, without other executive management being present, – Making recommendations to the Board in relation to the on an annual basis in order to discuss any issues which may have appointment, reappointment and removal of the Group’s arisen in the year under review. external auditor as well as monitoring their effectiveness and independence; After each Committee meeting, the Chairman of the Committee – R eviewing the Interim Management Statements, the Interim and reports to the Board on the key issues which have been discussed. Annual Consolidated Financial Statements and considering the appropriateness of accounting policies and practices; The allocation of the Audit Committee’s time across each of its key – Advising the Board on whether it believes there are any material activities is detailed below. uncertainties that may impact the Group’s ability to continue as a going concern or impact the Group’s long term viability; Allocation of Time – A dvising the Board on whether the Annual Report and Financial Statements, when taken as a whole are fair, balanced and Financial Reporting understandable; Internal Control and – A dvising the Board on the effectiveness of the Group’s Risk Management whistleblowing arrangements; and External Audit Internal Audit – A dvising the Board in relation to compliance with stock Other exchange and other legal or regulatory requirements.
During the year, the Audit Committee Chairman provided a letter to the Board outlining how the Committee discharged its duties in 2018.
Committee Membership During 2018, the Audit Committee comprised four independent non-Executive Directors; Dr. Hugh Brady, Ms. Joan Garahy, Mr. Tom Moran and was chaired by Mr. Christopher Rogers from 8 May 2018 having succeeded Mr. Philip Toomey who stepped down from the Committee on 3 May 2018. Committee Evaluation The internal evaluation of Board effectiveness described on page As required by the Code, the Board is satisfied that both Mr. 99 included a review by the Committee of its own effectiveness. Christopher Rogers and Ms. Joan Garahy meet the requirements for The Audit Committee was deemed to be operating effectively and recent and relevant financial experience. Mr. Rogers has joined the efficiently. The Committee is satisfied that formal and transparent Committee bringing a wide range of international experience both arrangements exist for considering corporate reporting, risk as a business leader and as a non-Executive Director. He previously management, internal control principles and for maintaining an served as an Executive Director of a global food and drinks FTSE appropriate relationship with the Company’s external auditor. 100 listed company for several years and currently holds a number of non-Executive Directorships, including Chairman of the Audit and Risk Committee of a leading FTSE 250 listed energy group. The Board is satisfied that together, the members of the Committee, as set out in their biographical details on page 89, bring a broad range of relevant experience and expertise, from a wide variety of industries and backgrounds, and as a whole have competence relevant to the sectors in which the Group operates.
The Company Secretary is the Secretary of the Committee.
102 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 103
Kerry Group Annual Report 2018 Annual Report Group Kerry r c the dr r the s a det on internal audits completed outlining non-compliances completed audits on internal with them; address action and managements’ plans to controls Group which occurred failures significant control or other investigations and remediate address plans to and approved during the year the issues identified; to the Audit Committee in sufficient time for review in advance in advance review for in sufficient time Committee the Audit to discussion at adequate facilitate meeting to of the Committee the meeting. of the Group’s impact the achievement could that uncertainties as described objectives on pages 76-85;strategic senior management with a focus on consistency and balance; on consistency senior management with a focus through outlining the process Committee the Audit to presented and financial sections of the assessedwhich they the narrative balanced of fair, the criteria that ensure to Annual Report 2018 and has been achieved; and understandable r discussed with senior management the material internal controls controls internal discussed with senior management the material risk appetite; within the Group’s levels these to mitigate to exist that – based Audit theHeadofInternal from reports quarterly eviewed – onfraud Audit theHeadofInternal from reports onsidered – available were aft Statements andFinancial AnnualReport Risk Management and Control Internal review duties in its to supports the Board Committee The Audit on an ongoing basis, the effectiveness of the Group’s and monitor, overview A detailed systems. control risk management and internal is set out in the Risk risk management framework of the Group’s on pagesReport 73-75. the Committee: the year, Throughout – theassessment and risks oftheprincipal andapproved eviewed – and onaselection ofprincipalrisks presentations eceived – – andsign-offby review carried out to approach ystematic managementwas seniorfinance from ailed report Having considered the above, in conjunction with the consistency consistency with the in conjunction the above, considered Having and reporting the narrative of the reports, elements of the various that the Board to confirmed the language used, the Committee as a whole, is taken and Financial Statements, the Annual Report the information provides and and understandable balanced fair, and the assess to necessary the Group’s shareholders for business position, performance, model and strategy. Company’s The Committee reviewed the methodology and assumptions applied in determining these provisionally estimated fair estimated the methodology these and assumptions provisionally applied in determining reviewed The Committee discussion following with senior management the methodology be appropriate and assumptions and found to values The Group acquired ten businesses during the financial year which were accounted for as business for combinations. accounted businesses ten which were year during the financial acquired The Group and the external auditor. and the external the largest represents the financial statements, 12Goodwill to assets, intangible as disclosed in note life and indefinite the annual complete to the process considered Committee The sheet €4.1bn. at balance number on the Group assets intangible and specifically the assumptions life used goodwill for and indefinite of the Group’s impairment review the methodologythat used found The Committee rates. growth and values terminal rates, discount cash flows, the future discussions following senior management and with appropriate are and annual impairment review valuation the above for auditor. the external and liability. charge tax the Group’s when arriving at of estimation is required judgement and a high degree Significant to and discussed in relation the judgments basis for the reviewed professionals, with tax in conjunction The Committee, the external of the outcome positions and challenged management on their assertions tax and also considered uncertain positions As tax a result, the impact uncertain of believes the Committee and liability. charge of the tax review auditors’ and liability. charge tax in the reflected has been appropriately eas in which judgement had been applied in the oncern assumption;oncern the timet Annual Report and Financial Statements, including key including key and Financial Statements, Annual Report Committee the December at Audit milestones as presented meeting; the going c c significant ar the appr practices; and and the clarity requirements governance corporate and of disclosures; completeness with the in accordance of the financial statements preparation policies. accounting Significant Financial Reporting Judgements Financial Significant Business Combinations Impairment of Goodwill and Indefinite Intangible Life Assets Taxation – theco-ordination ofthe able for andpreparation In satisfying this responsibility, the Committee considered the considered the Committee In satisfying this responsibility, following: Fair, Balanced and Understandable Fair, the reviewed Committee the Audit of the Board, the request At balanced it is fair, that ensure to of the Annual Report content necessaryinformation the for and provides and understandable, position, and the Company’s assess to the Group’s shareholders businessperformance, model and strategy. – – – standards, financialreporting withapplicable ompliance – policies and ofaccounting opriateness andconsistency Key Activities Key Financial Judgements Financial Reporting and Significant Management Statements, the Interim reviewed Committee The Audit and Financial Statements and Annual Consolidated the Interim before these statements to relating announcements all formal to with a recommendation of Directors the Board submitting them to to: not limited on, but were focused These reviews approve. A key responsibility of the Committee is to consider the significant consider is to of the Committee responsibility A key and estimation management judgement that of complexity, areas of the financial statements. been applied in the preparation have auditor, has, with the support of PwCThe Committee as external policies which have of the accounting the suitability reviewed made appropriate and whether management have been adopted out the significant sets above The table disclosures. and judgements the financial to in relation the Committee by considered matters December 2018. ended 31 the year for statements
Internal Control and Control Internal Risk Management Audit External Audit Internal Other Financial Reporting – received updates from the Group Financial Controller on any In addition, the assessment contained a number of control weaknesses identified through monthly financial review recommendations to be considered to further evolve and meetings; strengthen the Internal Audit function’s effectiveness. The – considered the results of the Kerry Control Reporting System recommendations are being implemented and the Committee will (the internal control self-assessment review of material finance, continue to monitor this. operational and compliance controls) and concluded that the controls are operating effectively; On the basis of the above the Committee concluded that for 2018 – assessed the Group’s risk management and internal control the Internal Audit function was performing well and is satisfied that framework in line with the FRC Guidance on Risk Management, the quality, experience and expertise of the function is appropriate Internal Control and Related Financial and Business Reporting; for the Group. and – reviewed the report from the external auditor in respect of External Auditor significant financial accounting and reporting issues, together On behalf of the Board, the Audit Committee has primary with significant internal control weakness observations. responsibility for overseeing the relationship with, and performance of, the external auditor. This includes making recommendations to The Audit Committee, having assessed the above information, is the Board on the appointment, reappointment and removal of the satisfied that the internal control and risk management framework external auditor, assessing their independence and effectiveness is operating effectively and has reported this opinion to the Board. and approving the audit fee.
Internal Audit During the year, the Committee met with the external auditor The Audit Committee is responsible for monitoring and reviewing without management present to discuss any issues that may the operation and effectiveness of the Internal Audit function have arisen during the audit of the Group’s Consolidated Financial including its focus, plans, activities and resources. To fulfil these Statements. duties the Committee: Independence and Provision of Non-Audit Services – reviewed and approved the Group Internal Audit function’s The Committee is responsible for ensuring that the external auditor strategy and annual plan to ensure alignment with the Group’s is independent and for implementing appropriate safeguards where principal risks; the external auditor also provides non-audit services to the Group. – considered and were satisfied that the competencies, experience and level of resources within the internal audit team were PwC confirmed to the Audit Committee that they are independent adequate to achieve the proposed plan; from the Group under the requirements of the Irish Auditing and – considered the role and effectiveness of internal audit in the Accounting Supervisory Authority’s Ethical Standards for Auditors. overall context of the Group’s risk management framework and The lead engagement partner on the Group’s audit is John was satisfied that the function has appropriate standing within McDonnell who was appointed in 2016 and it is planned that he the Group; will rotate at the end of the audit of the results for financial year – received quarterly updates from the Head of Internal Audit on 2020 in order to ensure continued independence and objectivity. progress against the agreed plan including the results of internal In accordance with the Group’s policy on the hiring of former audit reports and management’s actions to remediate issues employees of the current external auditor, the Committee reviews identified; and approves any appointment of an individual, within three – received updates on the nature and extent of non-audit activity years of having previously been employed by the current external performed by internal audit; auditor, to a senior managerial position in the Group. – held a meeting with the Head of Internal Audit without the presence of management; A formal policy governing the provision of non-audit services by – ensured that the Head of Internal Audit had regular meetings the external auditor is in place and this policy is reviewed and with the Chairman of the Audit Committee and had access to approved by the Audit Committee on an annual basis. This policy the Chairman of the Board if required; and is designed to safeguard the objectivity and independence of the – ensured co-ordination between Group Internal Audit and external auditor and to prevent the provision of services which the external auditor to maximise the benefits from clear could result in a potential conflict of interest. The policy outlines communication and co-ordinated activities. the services that can be provided by the external auditor, the relevant approval process for these services, and those services In order to comply with the Chartered Institute of Internal Auditors which the external auditor is prohibited from providing (as outlined (CIIA) requirements, an External Quality Assessment (EQA) by in Article 5 of EU Regulation 537/2014). Prohibited services include an independent body is conducted at least every five years to activities such as certain tax services, book-keeping and work confirm conformance with the International Professional Practice relating to the preparation of accounting records and financial Framework of the CIIA. The most recent EQA was completed in statements that will ultimately be subject to external audit, financial 2017, and found that the Internal Audit function was effective in information system design and implementation, internal auditing providing independent assurance to the Group and conforms with and any work where a mutuality of interest is created that could the vast majority of the CIIA standards. compromise the independence of the external auditors.
104 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 105 Kerry Group Annual Report 2018 Annual Report Group Kerry Directors Compliance Statement Directors the reviewed Committee the Audit year, During the Statement Policy Compliance Directors of the appropriateness on the review senior management from a report and also received structures of the compliance year during the financial undertaken material Company’s the ensure to in place and arrangements On the basis of this review, obligations. relevant with its compliance opinion the in its that the Board to confirmed the Committee obligations. relevant with its compliance is in material Company Arrangements Fraud and Whistleblowing arrangements the Group’s considered the Committee During 2018, about possible in confidence concerns raise to employees its for which other matters, any and doings in financial reporting wrong This Service’. a Concern ‘Express of the Group’s includeda review is multi- provider, independent an external which is run by service, hours parties 24 third and all employees to lingual and is accessible email. phone or by either by a day fraud for procedures the Group’s also considered The Committee these that arrangements ensure to and detection prevention of such and independent investigation the proportionate allow for review, this up action. Following follow and appropriate matters satisfied it was that the Board to confirmed Committee the Audit procedures prevention whistleblowing and fraud the Group’s that adequate. were the qualit the t demonstr and key risks. risks. and key – business oftheGroup’s ofaclearunderstanding ation – – and theGroup; to relevant echnical provided insights Committee; andAudit theBoard to y ofpresentations In assessing the effectiveness of the external auditor the Audit the auditor In assessingexternal the effectivenessof the the following: also considered Committee Prior to the finalisation of the 2018 Financial Statements, the Audit the Audit Financial Statements, the finalisation of the 2018 to Prior from and final report presentation a detailed received Committee the lead from feedback also considered The Committee PwC. PwC that in concluding effectively partner and senior executives audit plan. against the objectives of the agreed delivered At the November Audit Committee meeting, PwC Committee outlined to Audit the November At plan. The Committee audit the external in detail the Committee matters, audit discussed key and the significant audit risks The Audit other matters. amongst and materiality audit scope which any at the materiality the plan and that agreed Committee was PwC the Committee by to should be reported misstatements appropriate. Effectiveness audit, review PwC, with of the 2017 in conjunction completion Post all management across senior finance held with meetings were both parties no issues that by confirmed and it was had regions process. arisen during the audit In 2018, all non-audit services and fees were approved by the by approved and fees services all non-audit were In 2018, is satisfied The Committee in line with policy. Committee Audit compromise minimal, did not PwC the feesthat paid to which were of the fees paid details Full or objectivity. their independence 3 outlined in note are the year during auditors the external to all of the above, considered Having statements. the financial to is auditor external the Group’s that concluded the Committee independent. The Audit Committee approved the remuneration of the external of the external the remuneration approved Committee The Audit the financial 3 to set out in note of which are details auditor, statements. Appointment annually the appointment of the reviews Committee The Audit the auditor’s account effectiveness into taking auditor, external to recommended basis, the Committee On that and independence. to the as the auditor PwC that in office the Board should continue December 2019. ending 31 of the year in respect Group On the basis of the above the Committee is satisfied the Committee with the On the basis of the above auditors. external effectiveness the of GOVERNANCE NOMINATION REPORT COMMITTEE REPORT
Dear Shareholder, An internal review of the effectiveness of the Board and its’ Committees was conducted On behalf of the Nomination Committee, during 2018 and the outcome of this review I am pleased to present our report for the year is that the Board and its’ Committee are ended 31 December 2018. This report sets out performing well. Further details are set out on the Committee’s key activities in 2018 as well page 99. as the Committee’s priorities for 2019. The Committee’s priority for the coming year The Nomination Committee is responsible will continue to be on Board refreshment for evaluating the structure, size, composition taking account of skill sets required, diversity and successional needs of the Board and and planned retirements over the coming making recommendations on same, with due years. The Committee will also focus on regard for Board diversity. Additionally, the senior management development and Committee is responsible for the review of succession planning whilst having regard the results of the annual Board evaluation to diversity below Board level and taking process as it relates to the Board and account of business growth and geographic Committee performance and composition. expansion.
On 3 May 2018, I was appointed Chairman of The Committee has considered the changes the Board succeeding Mr. Michael Dowling resulting from the Financial Reporting who retired from the Board on the same date. Council’s review of the UK Corporate Philip Toomey On 30 September 2018, Mr. Brian Mehigan Governance Code particularly in relation to Chairman of the retired as Chief Financial Officer and stepped Board diversity and director independence Nomination Committee down from the Board on 28 December 2018. and will take these into account in its work Ms. Marguerite Larkin was appointed Chief programme for 2019. Financial Officer on 30 September 2018 and to the Board on the same date.
During the year under review, the Committee continued to lead the Board refreshment Philip Toomey process ensuring that the composition of the Chairman of the Nomination Committee Board and its Committees has the correct balance of skills, knowledge, experience, diversity and independence. We engaged independent external agencies to conduct a search for new independent non-Executive Directors. Potential non-Executive Directors were considered by the Committee and a shortlist was interviewed after assessing their qualifications against the above criteria and their time commitments. This culminated in the appointment of Mr. Christopher Rogers to the Board and as Audit Committee Chairman on 8 May 2018. Mr. Rogers is a highly experienced international board director and business leader. Non-Executive Director succession remains a priority as we continue to identify a pipeline of appropriate talent.
106 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 107 Kerry Group Annual Report 2018 Annual Report Group Kerry tion Committee conducts Board Board conducts tion Committee B The Nomina C If a r C S S Int R recommended by the Committee and approve and approve the Committee by recommended the candidate(s) Evaluation of the Board and diversity job description a detailed outlining prepares required the particular skills and experience or other stakeholders Directors agency, the Committee by selected Committee them to and recommend select candidates approval for the Board In ac all newly appointed Directors are subject to are Directors all newly appointed appointment their following election the AGM at – thecandidate(s) consider ofDirectors oard – withtheArticles ofAssociation,cordance – – theskillset,onsiders balance experience, – isidentified, theCommittee equirement – search party third through search onducts – based onjobdescription identified earch – as party third carried outby creening – the led by erview andselection process – who theCommittee by reviewed esults are Committee Meetings full was there and times the year during met five The Committee at attend, eligible to who were members, Committee by attendance all meetings. Process Nomination determining procedure and transparent rigorous is a formal, There the Board. to appointment of new Directors for the nomination on merit against objective identified and selected are Candidates on the the benefits of diversity to and with due regard criteria consultants engages The Committee specialist recruitment Board. The Committee assist and selection in the identification process. to appointments concerning the Board to recommendations makes the considered having Directors, or non-Executive of Executive deemed and diversity independence blend of skills, experience, of the Group. the global nature and reflecting appropriate to recommendations also makes Committee The Nomination non-Executive of any the reappointment concerning the Board and the re- their specified of term the conclusion at Director The the subject of annual rotation. who are election all Directors of Directors of appointment of non-Executive and conditions terms for of appointment, letters set out in formal available are which are during normal office office registered inspection the Company’s at of the Company. the AGM and at hours outlined in the are process stages in the nomination The key diagram: following 1. Assessment 2. Requirement Search 3. 4. Screening Interview 5. Approval 6.
ocesses are in place for succession for in place ocesses are opriate nomination process is in place for for is in place process nomination opriate ormal induction plan is in place for each new for ormal induction plan is in place Ensuring plans and pr O R Making r Making r Ensuring an appr Ensuring a f R E planning for Directors, including the Chairman, Senior Directors, planning for and senior Directors non-Executive Independent Director, management positions; and Committees. and its and re-appointment of both Executive and non-Executive and non-Executive and re-appointment of both Executive Directors; with the Committees in consultation membership of Board of the Committees;Chairs Board appointments; Board on appointment; Director knowledge and diversity of the Board to ensure optimum size optimum size ensure to of the Board knowledge and diversity and composition; on appointment, a candidate has sufficient time to undertake on appointment,to undertake has sufficient time a candidate the role; – oftheBoard oftheannualevaluation theconduct verseeing – – concerning theBoard to ecommendations – ontheappointment theBoard to ecommendations – Policy; Diversity theBoard eviewing – – that ensure to othercommitments acandidate’s eviewing – Primary Responsibilities of the Nomination Committee Primary Responsibilities of the Nomination – independence, ofskills,experience, thebalance valuating During 2018, the Committee engaged Korn Ferry and Spencer and Spencer Ferry engaged Korn the Committee During 2018, assistStuart, with firms to specialist recruitment both international have Stuart nor Spencer Ferry refreshment.Neither Korn Board the Group. to other connection any The Board ensures that the membership of the Nomination the membership that ensures The Board Corporate with the Group’s in accordance is refreshed Committee and meetings is two Committee The quorum for Policy. Governance The Nomination attend. entitled to members are only Committee attend other persons to to an invitation extend may Committee as required. particular agenda items for be present meetings or to of the Committee. as Secretary acts Secretary The Company Committee Membership three comprised Committee the Nomination During 2018, Karin Dr. Hugh Brady, Dr. Directors; independent non-Executive Philip Toomey Mr. by chaired and was James Kenny Mr. Dorrepaal, on Michael Dowling retired when Mr. role the to appointed who was 2018. 3 May The key responsibilities outlined in the terms of reference are are of reference outlined terms in the responsibilities The key table: includedin the following The main roles and responsibilities of the Committee, which were were which of the Committee, responsibilities and The main roles of reference terms set out in written are 2018, during reviewed (www.kerrygroup.com) website the Group’s from available which are or upon request. Role and Responsibilities Role The Chairman of the Board or an independent non-Executive or an independent non-Executive The Chairman of the Board acts as the Chairman of the Committee. of the Company Director doesit when The Chairman of the Board not chair the Committee the Chairmanship. to of succession is dealing with the matter Board Refreshment Policy The Group’s Diversity and Inclusion policy is an integral part of On an ongoing basis, the Nomination Committee reviews and the Group Code of Conduct ensuring that diversity and inclusion assesses the structure, size, composition and overall balance of the are embedded in Kerry Group’s core values. Within this, the Group Board and makes recommendations to the Board with regard to seeks to recruit, hire and retain the best talent from a diverse mix refreshment and succession planning. of backgrounds, with the skills and experiences to drive new ideas, products and services providing a sustained competitive advantage. Appointments to the Board are for a three year period, subject to shareholder approval and annual re-election, after consideration of The Board believes in the benefits of having a diverse Board and the annual performanceBoard Tenure evaluation and statutory provisions relating to benefits that it can bring to its effective operation. In accordance with the removal of a Director. The Board may appoint such Directors the Board Diversity Policy, differences in background, gender, skills, for a further term not exceeding three years and may consider an experiences, nationality, ethnicity and other attributes are considered additional term if deemed appropriate. in determining the optimum composition of the Board with the aim to balance it appropriately. All Board appointments are made on During the year, the Chairman conducted a rigorous review of all merit, with due regard to diversity. The Board currently has a 25% non-Executive Directors as part of the Board evaluation process, female representation, an increase from the 17% representation in taking into account the need for progressive refreshment of 2017. In line with its diversity policy, and recommended best practice, the Board. The Board explains to shareholders, in the papers the Board’s ambition is to increase this number further. In reviewing accompanying the resolutions to elect and re-elect the non- Board composition and agreeing a job specification for new non- Executive Directors, why it believes the individual should be re- Executive Director appointments, the Committee considers the elected based on the results of the formal performance evaluation. benefits of all aspects of diversity including, but not limited to, those described above, in order to complement the range and balance Diversity Policy of skills, knowledge and experience on the Board. As part of the identification process external consultants are required to present Diversity is fully embraced at Kerry and the Group is committed to a list of potential candidates, who meet the stated specification and having a work environment that is respectful of everyone. In order requirements comprising candidates of diverse backgrounds, for to achieve a positive and productive workplace, all employees must consideration by the Committee. work together and realise each individual has something unique to contribute to the overall success of Kerry. 01020304050 A summary of the Group’s current position relating to Board01 and 020304050 100 senior management diversity is provided below: Executive / Non-Executive Directors Board Tenure (Years) 80 Board Age Profile Non-Executive Executive/Non-Executive Directors 60 Executive 75% 11-15 8% 25% 40 6-10 25%
20 3-5 25% 0
0-2 17% 25%
0% 10% 20% 30% 40% 50% Diversity Executive Directors Non-Executive Directors
Diversity Board Age Profile 100 FEMALE FEMALE FEMALE FEMALE 25% 17% 26% 24% 80 61-65 25%
60 56-60 33% MALE MALE MALE MALE 40 75% 83% 74% 76%
20 40-55 42%
0 Board Board Senior Senior 0% 10% 20% 30% 40%50% 2018 2017 Management Management 2018 2017
108 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 109
Kerry Group Annual Report 2018 Annual Report Group Kerry
Committee Activity identifyrecommend to and process The formal 2018. 3 May on the Board from Dowling Michael retired Mr. a candidate to succeed Mr. Dowling was lead by a separate sub-committee comprising Dr. Hugh Brady, Hugh Brady, sub-committee a separate Dowling lead by was Dr. comprising Mr. succeed to a candidate of this the conclusion Folllowing James Kenny. Mr. by chaired and was Moran Tom Mr. Dorrepaal, Karin Dr. down as a member and stepped 2018 on 3 May the Board Chairman of appointed was Philip Toomey Mr. process on the same date. and as Senior Committee Independent Director and Chairman of the Audit resigned and on 30 2018 Officer September Chief Strategy CFO to Group from Brian Mehigan transitioned Mr. identify to and appoint a new process of a formal the conclusion Following on 28 December 2018. the Board from Larkin, Ms. Marguerite candidate, the successful that the Board to recommended Committee the Nomination CFO, was The recommendation on 30 September CFO 2018. of Group on assuming the role the Board to be appointed 2018. on 19 February the Board by approved Senior appointed was Independent Director Ms. Joan Garahy the Committee, by overseen a process Following 2018. on 3 May a following 2018 on 8 May the Board to appointed was Rogers Christopher Mr. Director, A new non-Executive agreed and the Board The Committee advisors. with external in conjunction the Committee, by conducted process set. the requirements matched that of skills, knowledge and experience had a balance Rogers Mr. that Chairman of the also appointed was Toomey Mr. On his appointment of the Board, as Chairman Committee. Nomination Chairman, the Nomination Committee identify to and appoint a new Audit of a process the conclusion Following financial and relevant his recent given Rogers, Christopher Mr. that the Board to recommended Committee Committee as Audit be appointed industry, and beverage with his knowledge of the food together experience 2018. on 8 May Chairman effective Committees during the year. of the Board the composition no other changes to were There December 31 At Board. of the and composition the size remit, as part of its considered the Committee In 2018, Michael Dowling and the appointments of Mr. the retirement 12 Following members. comprised the Board 2018, to 13 members and reduced to increased size the Board Rogers, Christoper Larkin and Mr. of Ms. Marguerite will The Committee on 28 December 2018. the Board Mehigan from Brian of Mr. the retirement 12 following during 2019. and composition size both Board consider to continue each completed Moran Tom Mr. and James Kenny Mr. Dorrepaal, Karin Dr. Philip Toomey, Mr. During the year terms as non-Executive Directors. After detailed consideration, including a review of their performance of their performance including a review consideration, detailed After Directors. as non-Executive terms should serve they that agreed of the Committee, upon the recommendation the Board, and independence, additional terms. and seeking re-election, subject to re-election for all Directors, that be put forward recommended The Committee AGM. 2019 the Group’s at approved was Secretary appointment as Company Deasy’s Ronan Mr. of the Committee, On the recommendation 2018. on 1 March and he assumed the Board the role by in line in 2018 place Committees and its took of the Board evaluation an internal As on page 99, outlined in detail Code and the Irish Annex. Governance UK Corporate of the 2016 with the provisions the Nomination to relevant and identified areas the of this evaluation the outcome considered The Committee potential for areas address assessed was to an action developed and plan was recommendation Each Committee. in 2019. the Committee by and considered will be reviewed Theseimprovement. recommendations Chairman Succession Subject Group CFO CFO Group Succession Senior Independent Director Board Refreshment Committee Refreshment and Size Board Composition Re-appointment of non-Executive Directors Re-election of Directors Company Secretary and Board Committees Effectiveness Evaluation The key activities of the Committee throughout the year are detailed below: detailed are the year activities throughout of the Committee The key Key Activities Key Drivers of Shareholder Return
Volume GOVERNANCE REMUNERATION Growth Growth Share EPS Total REPORT COMMITTEE Margin Price Expansion Shareholder Return Return REPORT ROACE Dividend Cash Conversion
Dear Shareholder, Cash Conversion is an important indicator of the cash the Group generates for On behalf of the Remuneration Committee, reinvestment or for return to shareholders. I am pleased to present the Directors’ Remuneration Report for the year ended These are the main Group metrics which 31 December 2018. drive the Executive Director’s Short Term Incentive Plan (STIP) and Long Term Remuneration Policy Incentive Plan (LTIP). Together these The Group’s Remuneration Policy is outlined metrics deliver Total Shareholder Return in Section C on pages 115-118. This policy which aligns the interest of the Executive was put to a separate advisory (non-binding) Directors with that of the shareholders. shareholder vote for the first time at the Our remuneration philosophy also supports AGM on 3 May 2018, in addition to a further our long term approach by deferring a advisory shareholder vote on the Directors’ significant part of annual and long term Remuneration Report, both of which received variable remuneration into share awards, strong support from Shareholders. The which provides clear alignment with the long Remuneration Policy provides the framework term interests of shareholders, together with for remuneration decisions made by the requiring executives to acquire and maintain Committee for the three year period 2018 significant shareholdings in the Group. - 2020. As no changes to the policy are proposed this year, the policy will not be In line with best market practice, Malus and Joan Garahy subject to a further vote at the 2019 AGM. Clawback provisions apply to the Executive Chairperson of the Director’s STIP and LTIP awards. Remuneration Committee The Committee is confident that the Group’s Remuneration Policy operates to the Remuneration Policy Section A: highest standards in achieving its strategic Implementation 2019 objectives, is properly governed and is in line During 2018 the Committee reviewed the Chairperson’s with best market practice. Executive Director remuneration policy to Annual ensure it is aligned with shareholder interests, Pay for Performance promotes long term sustainable success Statement The Committee ensures alignment with and can be clearly linked to the successful Shareholder long term interests by aligning delivery of the Group’s long term strategy. remuneration metrics with the Group’s Following this review, the Committee business model and strategic objectives determined this to be the case. and by ensuring sufficient stretch in the performance targets. Basic Salary On appointment, Edmond Scanlon’s initial Drivers of Shareholder Return base salary was set at €1,050,000 effective from 1 October 2017. As Edmond was an As outlined in the Strategic Report on page internal appointment, the Remuneration 30, Volume Growth and Margin Expansion Committee exercised its discretion and are the main drivers of Adjusted Earnings Per purposefully set his initial base salary Share (EPS) which is the key performance 20% lower than his predecessor’s and our metric for measuring growth. Return on market references as it was expected that Average Capital Employed (ROACE) is a it would increase over time in line with key measure of how efficiently the Group his performance and development in the employs its available capital. role. This approach was signaled in my Chairperson’s statement last year and is consistent with our Remuneration Policy for new Executive Directors.
110 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 111 2018 Results 10.1% 68.4th 68.4th percentile 12.6% Kerry Group Annual Report 2018 Annual Report Group Kerry Target 10% Median to 75th percentile 12% 2017 2016 2016-18 LTIP Performance (3 years) Performance 2016-18 LTIP Adjusted EPS growth in EPS growth Adjusted currency constant Total Shareholder Return Shareholder Total ROACE 2015 MSCI Europe Food Producers E300 Food & Beverage Results 3.5% 0 bps 71.5% 2014 Target 3.5% 0 bps 75% Kerry 2013 300 250 200 150 100 2018 STIP Performance 2018 STIP Group volume growth volume Group Group margin expansion margin Group Group cash conversion Group €150 €100 €250 €200 Remuneration Policy Outturn 2018 Outturn Policy Remuneration by driven of 8.6% growth earnings per share adjusted currency with constant a good financial performance delivered the Group In 2018 below shows table The performance line with expectations. in expansion and underlying margin well ahead of our markets growth volume plans. and LTIP metrics STIP in our the key for target versus the performance Non-Executive Director Remuneration Policy for 2019 for Policy Remuneration Director Non-Executive 1 January from made effective were and increases in 2017 undertaken was levels Remuneration Director of non-Executive The last review 2019. fees fees for / Committee Directors or other non-Executive either the Chairman’s changes to no proposed are There 2018. We are confident that our Remuneration Policy will ensure executives continue to deliver significant value to our shareholders as history as history our shareholders to significant value deliver to continue executives will ensure Policy our Remuneration that confident are We plan. the strategic and aligned to stretching relevant, remain measures our performance and that have, they has clearly demonstrated Updates to 2019 Short and Long Term Incentive Plans Incentive Term 2019 Short and Long to Updates the Group’s in line with develop they that ensure to in 2018 reviewed schemes were incentive and LTIP of both the STIP The structure the following concluded, plan. The Committee the strategic to and linked appropriate are the metrics goals and that targets and strategic 2019. for required no further changes and that are as intended operating are last year the changes that introduced review, For 2019, the basic salaries of the CFO and the CEO of Taste & Nutrition will be increased by 2.5% wage by will be & Nutrition increased with the standard and 3% in line the basic salaries of the CFO and the CEO of Taste 2019, For and the US respectively. in Ireland workforce the general to available inflation Having considered the above factors, the Committee believes that a base salary that is justified, adjustment aligned with policy and will believes the Committee factors, the above considered Having in line more In addition it will bring his remuneration in the role. and growth his individual performance for Edmond reward appropriately feedback, positive has decided the Committee who provided shareholders, with our major institutional consulted peers. Having with market workforce the general to of 2.5% increase inflation as provided with a standard together 8% by base salary 2019 for Edmond’s increase to team. and executive Since his appointment as CEO, Edmond has performed exceptionally well. Under his leadership the Group has embarked on a new on a new has embarked the Group his leadership well. Under exceptionally has performed Edmond appointment his as CEO, Since seventeen or completed and has announced growth revenue organic market above achieve to plan, continues strategic and ambitious Watson Willis Towers by and benchmarked salary reviewed was request, Edmond’s the Committee’s of €1 billion. At a cost at acquisitions at peer groups reference the market lower than median significantly for was compensation direct total his that found The review in 2018. opportunity. target €300 5 Year Total Shareholder Return Shareholder Total 5 Year on 31/12/2013) of €100 Invested (Value As can be seen in the Total Shareholder Return graph, since 2013, Kerry has generated a 77% return for shareholders (including a 77% shareholders for has generated return Kerry 2013, since graph, Return Shareholder As can be seen in the Total but the decline less was 7% than the mean and did decline by price in 2018 The share the last 5 years. over of dividends) reinvestment during markets by global equity peer decline set, suffered TSR the general and reflected Kerry’s by decline experienced price median share and Brexit. global trade to including those in relation uncertainties, market arising from of the year the last quarter 100 100
90 90
80 80
70 70 TSR Growth & Annual Incentive Payout 60 60
50 50
40 40
30 30
20 20 75% 46% 57% 63% 2018 Short68% Term Incentive Plan Outturn Brian Mehigan10 transitioned from Group CFO to Chief Strategy 10 The accompanying chart which shows the very good group Officer on 30 September 2018 and retired from the Board on 28 performance over the last 5 years, also illustrates the challenging December0 2018. He received no additional payment in association 0 and stretching nature of targets set by the Committee for with his retirement from the Board. performance metrics used for annual incentive purposes. 100 2018 UK Corporate Governance Code TSR Growth, Enterprise Value Growth & and other Best Practice Changes 90 Annual Incentive Payout The Committee has considered the remuneration related 80 TSR Growth EV €’billion implications of the new UK Corporate Governance Code which 100 20 includes a broader remit for the Committee effective from 1 70 January 2019. The Committee intends to implement the changes 90 to the Code associated with the remit of the Committee in 2019 60 and will give careful consideration to the other recommended 80 structural changes to remuneration during its next policy review to 50 15 be conducted in 2020. 70 40
60 Committee Performance 30 An internal review of the Remuneration Committee’s performance 50 10 was undertaken by the Committee during 2018 and found that the 20 Committee was operating effectively. 40 10
30 Conclusion 0 5 The Committee continues to review the Group’s remuneration 20 policy to ensure that it remains aligned to long term shareholders’ interests, is correctly reported in line with relevant legislation and 10 provides the right framework to attract, retain and motivate the 46% 57% 63% 75% 59% 0 0 Executive Directors in line with the pay for performance principle. 2014 2015 2016 2017 2018 TSR Growth (%) As in previous years, the Remuneration Report is being put Annual Incentive Achieved to shareholders for an advisory vote. Last year 96.9% of our as a % of Maximum Opportunity shareholders who voted, voted in favour of the Report. I believe Enterprise value (€ billions) that we have appropriate policies and practices in place to justify a similar outcome in 2019 and I would recommend a vote in favour of For 2018, STIP payouts to Executive Directors were on average the 2018 Remuneration Report at the 2019 AGM. 59% of the maximum available opportunity. The Committee considers this outcome to be reflective of the Group’s, and the Finally, I would like to take this opportunity to thank the members individual Executive Directors’, performance during the year as well of the Remuneration Committee for their continued commitment as the challenging and stretching nature of the targets set. and support during the year.
Long Term Incentive Plan 2016-2018 Outturn The final outturn of the 2016-18 LTIP award was 63.7% of maximum opportunity. The Committee considers that this vesting outcome is reflective of the Group’s underling performance during the three Joan Garahy year performance period. Chairperson of the Remuneration Committee Other Matters Board Changes Marguerite Larkin was appointed Group CFO, and to the Board, on 30 September 2018. On joining Kerry, Marguerite’s base salary was set at €700,000. When setting this salary, the Committee considered several factors including; securing the right candidate, Marguerite’s exceptional calibre and experience, the previous incumbent’s salary, appropriate internal benchmarking and external market expectations. Marguerite was eligible to participate in both the 2018 short term and long term incentive plans pro-rated for time of service.
112 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 113 Kerry Group Annual Report 2018 Annual Report Group Kerry T T T T T T T T T T T T remuneration aligns with the wider company pay policy; pay aligns with the wider company remuneration with the Group’s rewards and the alignment of incentives when setting the policy account these into and take culture, and executives; for alignment and fairness. remuneration of, the CEO and Executive Directors; the CEO and Executive of, remuneration Directors; Executive Committee of Executive remuneration salaries and overall Secretary; members and the Company the shareholders; and reasonable; deemed fair policy and outlining the Group’s Report Remuneration on remuneration; disclosures and the effectiveness of share levels remuneration overall schemes; incentive term and long based incentives effectively; operating it is ensure to reference – howexecutive explain to theworkforce o engagewith – policies and related and remuneration workforce o review – of intheinterest whenappropriate, discretion o exercise Primary Responsibilities of the Remuneration Committee Primary Responsibilities of the Remuneration – andsetthe policy for, theremuneration determine o – non- of theChairmanand theremuneration review o – the theCEOandapprove from recommendations o receive – andtargets; structures plan incentive andapprove o review – by approval for plans incentive thedesign ofallshare o agree – are Directors ofExecutive terms thecontractual o ensure – aDirectors’ eachAGM, at shareholders before o place – benchmarking of external appropriate, where o arrange – of andterms ownperformance annuallyits o review Remuneration Committee Activity Remuneration with relevant compliance ensure to during 2018 completed was reporting remuneration of best practice A review and of a report, while also ensuring the delivery which is transparent requirements reporting and legislation and guidance updates the recent considered the Committee As part of this review, all shareholders. for understandable Irish Companies Act with the 2014 agencies, together bodies and proxy representative main shareholder the issued by is complying is satisfied The Committee the Group that Directive. Rights EU Shareholders’ introduced and the recently UK of the new 2018 the implications also considered The Committee reporting. best practice fully with relevant 1 January 2019. and is applicable from of the Committee Code which widens the remit Governance Corporate in line with Directors of basic salaries of the CEO and Executive the level monitor to continued The Committee with the new CFO. contract a service also agreed The Committee practice. market of the review. See Section outcome on the details Implementation on page 119 for strategy aligned with Group metrics are the newly introduced that ensure to during 2018 reviewed were awards STIP stretching. appropriately are targets the associated and that reflected outcomes STIP as the 2018 discretion exercise to no requirement was there that concluded The Committee of the business.the underlying performance of the review. See Section outcome on the details Implementation on page 119 for Subject Remuneration Report Basic Salary Short Term Plan Incentive (STIP) The key activities undertaken by the Committee in discharging its duties during 2018 are set out below: are duties its during 2018 in discharging the Committee by activities undertaken The key The Committee met five times during the year and there was full attendance by Committee members at the meetings. members at Committee by full attendance was and there times during the year met five The Committee Remuneration Committee Meetings and Activities 2018 Committee Meetings and Activities Remuneration The main responsibilities of the Committee, which have been which have of the Committee, The main responsibilities the impact of the new UK Corporate reflect to recently updated and of reference terms written set out in its Code, are Governance and (www.kerrygroup.com) website the Group’s from available are upon request. The Remuneration Committee also completes an assessment also completes Committee The Remuneration any on an annual basis and reports own performance of its the Board. to recommendations On behalf of the Board, the Remuneration Committee is Committee the Remuneration On behalf of the Board, the CEO policy for the remuneration determining for responsible on an annual basis. The CEO Directors and the other Executive meetings does but Committee Remuneration attend to is invited is meetingsown remuneration when his Committee not attend and external internal discussed. access to also has The Committee an annual follows The Committee as required. advice professional scheduled and planned well in and tri-annual calendar with matters with terms, reference made within agreed Decisions are advance. the agenda, In considering additional meetings held as required. the business strategy, overall to due regard gives the Committee of the Group. the performance and of shareholders interests Role and Responsibilities Role During 2018, the Remuneration Committee comprised four four comprised Committee the Remuneration During 2018, Dr. Kenny, James C. Mr. Directors; independent non-Executive Ms. Joan by chaired and was Moran Tom Mr. Dorrepaal, Karin are of the Directors Details of the skills and experience Garahy. on pages biographies 88-89. Directors’ in the contained Committee Membership Section B: Remuneration Committee Section B: Remuneration Activities & Key Subject Remuneration Committee Activity Long Term The Committee considered the overall effectiveness of the LTIP in 2018 to ensure that it is structured appropriately Incentive Plan to incentivise Executive Directors and senior managers across the Group. (LTIP) The Committee concluded that there was no requirement to exercise discretion as the 2016-18 LTIP outcome reflected the underlying business performance during the three year performance period. See Implementation Section on page 120 for details on the outcome of the review. Chairman & In line with the normal 3 year cycle a detailed benchmark review of the Chairman and non-Executive Directors Non-Executive fees was undertaken in 2017 with the assistance of Willis Towers Watson. In the intervening years, the Committee Directors’ Fees continues to monitor the level of the Chairman and non-Executive Directors fees and report to the Board. See Implementation Section on page 121 for details on the outcome of the review. Senior Within its terms of reference applicable in 2018, there is a requirement for the Committee to have oversight of the Management salaries and overall remuneration of senior management. During 2018 routine benchmarking was undertaken in Review relation to senior management together with a review of gender pay. Recommendations and proposed changes following this review were presented to the Committee for information purposes. Workforce During the year the Committee was provided with information on pay policies and procedures in the wider workforce Remuneration to ensure it is fair, aligned with Group strategy and to enable its decision making in relation to Executive Director and Related remuneration. This included the approach for the annual pay reviews in all the countries in which the Group operates Policies as well as the structure and annual cost of the STIP and LTIP awards below Board level. Shareholder The Committee reviewed the results of the advisory votes by shareholders on the ‘Say on Pay’ resolutions at its Consultation first meeting following the 2018 AGM which included for the first time a separate advisory vote on the Group’s Remuneration Policy for the three year period 2018 - 2020. The result of the shareholder vote was 97.7% in support of the Remuneration Policy and 96.9% in support of the Remuneration Report. This, together with any additional feedback received from the shareholder proxy groups was considered as part of the Group’s remuneration review in 2018. In relation to the CEO’s remuneration for 2019 the Committee consulted with a number of the Company’s major Institutional shareholders and with shareholder proxy groups in early 2019. They welcomed the engagement and there was strong support for the proposal put forward. Committee During the year the Committee reviewed and updated its’ Terms of Reference. A copy of these terms is available on Evaluation the group website (www.kerrygroup.com).
Remuneration Committee Advisors The Remuneration Committee is authorised by the Board to appoint external advisors and Willis Towers Watson is the advisor to the Remuneration Committee. Willis Towers Watson has also provided management remuneration information and pension advisory services to the Group during the period under review. The Committee ensures that the nature and extent of these other services does not affect the advisor’s independence. The fees incurred with Willis Towers Watson for advising the Committee in 2018 were€81,000 (2017: €247,000).
114 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 115 Basic Salary Pension LTIP STIP Basic Salary Pension LTIP STIP Basic Salary Pension LTIP STIP 4% 4% 5% Kerry Group Annual Report 2018 Annual Report Group Kerry 7% 6% 6% 32% 82% 23% 22% 21% 34% 85% 31% 85% 32% 28% 30% 31% 15% 15% 18% 33% 43% 43% 45% 30% 32% 28% 30% Gerry Behan Marguerite Larkin Marguerite Illustration of Remuneration Policy of Remuneration Illustration and maximum target the minimum, shows diagram The following remuneration and variable the fixed between balance composition The for 2019. effective Director Executive each for components for scenario potential the minimum represents circle inner most and the target representing the middle circle with remuneration, maximum potential. representing circle outer ScanlonEdmond
In setting remuneration levels, the Committee has regard to to has regard the Committee levels, In setting remuneration companies (including Irish, UK,comparable and European USA The Group’s Executive Director remuneration philosophy is to is to philosophy remuneration Director Executive The Group’s the long term promotes remuneration executive that ensure the duties and reflects and properly of the company success attract,to retain and is sufficient of the executives, responsibilities individuals of the highest on an international quality and motivate elements related includes performance basis. Remuneration with those of shareholders interests designed align Directors’ to in line with the the highest at levels performance encourage and to strategy. Group’s not be subject to a shareholder vote at the 2019 AGM and AGM the 2019 at vote a shareholder not be subject to personnel changes) reflect to below (updated is reproduced ease of reference. for comparable which are peer group), in the LTIP all the companies The Company is operating its remuneration arrangements in line arrangements remuneration its is operating The Company in effect which came into Policy, Remuneration with the approved being Aschanges no years. are three up to and will apply for 2018 it will shareholders by approved it was this policy since made to vote at the 2018 Annual General Meeting. the 2018 at vote and complexity spread geographical of size, in terms the Group to and other sectors. & Beverage in the Food of business, and operate in elsewhere conditions and employment pay It also considered Necessary expenses incurred undertaking company business, are business, are company undertaking Necessary incurred expenses no are Directors Executive that so met directly and/or reimbursed duties. company for fulfilling tax basis a net of off on worse A high proportion of Executive Directors’ potential remuneration is remuneration potential Directors’ of Executive A high proportion incentive related performance and long term based on short term these the Remuneration elements, By incorporating programmes. of the and risk appetite the interest that believes Committee of the aligned with the interests is properly Directors Executive and other stakeholders. shareholders As an Irish incorporated company Kerry Group plc is not Group Kerry company As incorporated an Irish of the balance in terms of pay the level considers The Committee Fixed of remuneration. elements and variable the fixed between pension defined as basic salary, are of remuneration elements being performance elements and other benefits with the variable components. with both short and long term incentives related Section C: Remuneration Policy Section C: Remuneration which requires UK legislation with the comply to required policies a to submit their remuneration to UK companies of the in recognition However, vote. binding shareholder policies, practices remuneration Kerry’s that committment we practices governance best corporate reflect and reporting a non-binding advisory to Policy our Remuneration submitted the Group. Service Contracts The Committee will ensure that any arrangements agreed will be in the best interests of the Company and shareholders. The Executive Directors and the CEO have service contracts in place which can be terminated by either party giving 12 months’ notice. In addition, all service contracts include pay in lieu of notice, Payments for Loss of Office non-compete and non-solicitation provisions of up to 12 months’ In the event of a director’s departure, the Group’s policy on post departure, in order to protect the Group’s customer base, termination is as follows: employees and intellectual property. – The Group will pay any amounts it is required to make in No ex-gratia severance payments are provided for in respect of the accordance with or in settlement of a director’s statutory CEO or Executive Directors. employment rights and in line with their employment agreement; – The Group will seek to ensure that no more is paid than is Remuneration Policy for Recruitment of warranted in each individual case; New Executive Directors – 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 The Remuneration Committee will determine the contractual awards prorated to normal vesting date, subject to performance terms for new Executive Directors, subject to appropriate and a 2 year holding requirement; professional advice to ensure that these reflect best practice and – Other payments, such as legal or other professional fees, are subject to the limits specified in the Group’s approved policy repatriation or relocation costs and/or outplacement fees, as set out in this report. may be paid if it is considered appropriate and at the discretion of the Committee. Salary levels for new Executive Directors will take into account the experience and calibre of the individual and his/her remuneration A Director’s service contract may be terminated without notice and expectations. Where it is appropriate to offer a lower salary initially, without any further payment or compensation, except for sums a series of increases to the desired salary positioning may be made accrued up to the date of termination, on the occurrence of certain over subsequent years, subject to individual performance and events such as gross misconduct. development in the role.
Benefits and pension will be provided in line with the Change of Control approved policy, with relocation, travel or other expenses Outstanding STIP and LTIP awards/options would normally vest provided if necessary. and become exercisable on a change of control, subject to plan rules, including the satisfaction of any performance conditions and The structure of the variable pay element will be in accordance pro-rating. The Committee may exercise its discretion to vary the with and subject to the limits set out in the Group’s approved policy level of vesting having regard to the circumstances and reasons for detailed below. Different performance measures may be set initially the events giving rise to the change of control. for STIP in the year an Executive Director joins the Group taking into account the responsibilities of the individual and the point in the financial year that he or she joins the Board. Subject to the rules of the scheme, an LTIP award may be granted after joining the Group.
If it is necessary to buy-out incentive pay or benefit arrangements (which would be forfeited on leaving the previous employer) in the case of an external appointment, this would be provided for taking into account the form (cash or shares), timing and expected value (i.e. likelihood of meeting any existing performance criteria) of the remuneration being forfeited. The general policy is that payment should be no more than the Committee considers is required to provide reasonable compensation for remuneration being forfeited and any payment made will be restricted to a maximum of one year’s target remuneration.
The Group’s policy is that the period of notice for new Executive Directors should not exceed 12 months and should include pay in lieu of notice, non-compete and non-solicitation provisions to protect the Group.
116 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 117
80% - 200% of P A T R Strategic Objectives Strategic Share Per Return Employed Capital basic salary Performance Metrics Performance – – and ersonal – Earnings djusted – Shareholder otal – onAverage eturn – Not applicable – Volume Growth – Volume Expansion – Margin – Cash Conversion – Not applicable Kerry Group Annual Report 2018 Annual Report Group Kerry Maximum T Maximum T S F opportunity is opportunity 125% - 150% of basic salary of maximum is 70% on- for opportunity performance target is opportunity 180% - 200% of basic salary is 50% of maximum on- for opportunity performance target attract, retain and attract, retain Executive motivate Directors undertaken review years three every Opportunity – Not applicable – Not applicable – – opportunity arget – – opportunity arget – to alevel et at – ull benchmark – Reviewed annually – Reviewed
ovisions are in place for for in place are ovisions ovisions are in place for for in place are ovisions d award delivered at at delivered d award issued following d award 50% of the earne 50% of the earne Malus & clawback pr Ex 2 Malus & clawback pr The aw C The A P R D S P awards under LTIP (see page 118) (see under LTIP awards a minimum level to in the Company hold shares a five of 180% - 200% of their basic salary over period year issued two years after vesting following a following after vesting issued years two period deferral page 118) (see under the STIP awards a metrics being met over performance separate period performance year three in the Group considered when determining any basic salary basic any when determining considered adjustments car or a car allowance company Committee the Remuneration set by targets targets strategic and benefits of each Executive Director each Executive of and benefits the Executive number including elements of of and level experience performance, Directors’ responsibility data market internal/external vesting date vesting a two year deferral period (i.e. giving a period (i.e. deferral year a two period and deferral performance combined period of 5 years) Operation – – – – buildandto to expected are Directors ecutive – be to ofshares/options way by awarded 5% – – depending onanumber of vest ards – options orshare shares over onditional awards – theuseofa to se benefitsprimarilyrelate – performance ofpredetermined chievement – published aligned to targets erformance – thebasicsalary sets Committee emuneration – a account into after taking etermined – and responsibility job to alary isreferenced – also are the Group across conditions ay – 75% of the award payable in cash payable of the award – 75% – Paid monthly in Ireland and bi-weeklyin the US monthly in Ireland – Paid Competitive salaries are set to to set salariesCompetitive are success term the long promote and attract,of the company Executive and motivate retain strong deliver to Directors in the Group for performance strategic line with the Group’s objectives Basic Salary of the value Reflects the individual, their skills and experience Purpose and Link to Strategy to and Link Purpose A 50% deferral provides a provides A 50% deferral element and aligns retention interests Directors’ Executive interests with shareholders’ Share based to provide provide based to Share alignment with shareholders’ interests Long Term Performance Related Incentives (LTIP)** Incentives Related Performance Term Long personnel and of key Retention of sustained incentivisation Group against key performance a longer metrics over strategic period of time Requirement Shareholding alignment of the Maintain of the shareholders interests Directors and the Executive the over and commitment long term A 25% deferral in shares/ A 25% deferral a 2 year options provides element and aligns retention interests Directors Executive interests with shareholders’ Short Term Performance Related Incentives (STIP)* Incentives Related Performance Short Term the achievement, incentivise To on an annual basis, of key metrics and short performance the goals beneficial to term of the and the delivery Group strategy Group’s Benefits a competitive provide To aligned with benefit package of and responsibilities the role Directors Executive The following table details the remuneration policy for the Group’s Executive Directors: Executive the Group’s policy for the remuneration details table The following Remuneration Policy Table Policy Remuneration Purpose and Link to Strategy Operation Opportunity Performance Metrics Pension To provide competitive – Pension arrangements may vary based on the – Pension values may – Not applicable retirement benefits to attract executives’ location vary based on local and retain Executive Directors – Irish resident Executive Directors participate practice in the general employee defined contribution pension scheme or receive a cash contribution to an after tax savings scheme, or equivalent (where the lifetime earnings cap has been reached) – The existing Executive Director in the US participates in the Group’s defined benefit and defined contribution pension schemes
* The Committee may, at its discretion amend or vary the performance metrics of the STIP related Incentives and the calculation methodology for those performance metrics when appropriate, in the interest of alignment and fairness. ** In line with plan rules the Committee may, at its discretion and after consulting with the Irish Association of Investment Managers, amend or vary the performance metrics of the LTIP related Incentives, the calculation methodology for those performance metrics and the composition of the TSR peer group when appropriate, in the interest of alignment and fairness.
Pensions The Group CEO participates in the general employee Irish defined contribution scheme and the CFO participates in an after tax savings scheme, in lieu of pension benefits. The existing US resident Executive Director participates in a US defined contribution scheme and a US defined benefit pension scheme.
Malus / Clawback The Committee has the discretion to reduce or impose further conditions on the STIP and LTIP awards prior to vesting (malus). The Committee further has the discretion to recover incentives paid within a period of two years from vesting (clawback), where the Audit Committee determines that:
– a material misstatement of the Company’s audited financial results or a serious wrongdoing has occurred; and – as a result of that misstatement or serious wrongdoing, there will need to be a restatement of the accounts and that the incentive awarded was in excess of the amount that would have been awarded, had there not been such a misstatement.
Any recalculation shall be effected in such manner and subject to such procedures as the Group determines to be measured and appropriate, including repayment of any excess incentive or set off against any amounts due or potentially due to the participant under any vested or unvested incentive awards.
The company retains the right to apply malus and clawback provision to former directors STIP and LTIP awards. Other elements of remuneration are not subject to malus or clawback provisions.
Consideration of Employment Conditions Elsewhere in the Group When setting the remuneration policy for Executive Directors, the Remuneration Committee takes into account the pay and employment conditions of the other employees in the Group. Senior management are invited to participate in both the STIP and LTIP to incentivise performance through the achievement of short term and long term objectives and through the holding of shares in the Group. While the Committee currently does not consult directly with employees when setting remuneration for Executive Directors, it does take into account information provided by our external advisors, Willis Towers Watson, in conjunction with feedback provided by the Human Resource function.
Non-Executive Directors’ Remuneration Policy Non-Executive Directors’ fees, which are determined by the Board as a whole, fairly reflect the responsibilities and time spent by the non- Executive Directors on the Group’s affairs. In determining the fees, which are set within the limits approved by shareholders, consideration is given to both the complexity of the Group and the level of fees paid to non-Executive Directors in comparable companies. On a three year cycle, the Committee completes a detailed benchmarking exercise in relation to non-Executive Directors’ fees and present any recommendations to the full Board for approval. The last benchmarking exercise was undertaken in 2017. Non-Executive Directors do not participate in the Group’s incentive plans, pension arrangements or other elements of remuneration provided to the Executive Directors. Non-Executive Directors are reimbursed for travel and accommodation expenses (and any personal tax that may be due on those expenses). Non-Executive Directors are encouraged to build up a shareholding in Kerry.
118 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 119 10% 20% 30% 40% Max 100% 7% 21% 14% 28% 70% % of award Target Kerry Group Annual Report 2018 Annual Report Group Kerry CEO Taste & Nutrition CEO Taste 10% 20% 30% 40% Max 100% CFO % of award 7% 21% 14% 28% 70% Target 10% 20% 30% 40% Max 100% CEO % of award 7% 21% 14% 28% 70% Target Cash conversion Margin expansion* Margin Group Metrics Group growth* Volume and strategic Personal Total
2019 STIP – Performance Metrics and Weightings – Performance 2019 STIP * 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 Taste the CEO of for & Nutrition level the CEO and CFO for a Taste and at level a Group at metrics measured are * The above Short Term Performance Related Incentive Award (STIP) Award Incentive Related Performance Short Term of the STIP goals. A review strategic in line with the Group’s it develops that ensure to regularly of the scheme is reviewed The structure Following calibrated. and appropriately strategy to linked appropriate, metrics are the performance that ensure to in 2018 completed was support our metrics and weightings as they the performance to required no changes that concluded were the Committee the review, and profit increasing shareholders, for on a return a focus through value of shareholder and the ongoing enhancement business strategy cash generation. Benefits relate primarily to the use of a company car/car allowance. Any travel arrangements or travel costs required for business for purposes required costs or travel arrangements travel Any allowance. car/car the use of a company to primarily Benefits relate basis. on a net of tax the Group, will also be met by In relation to both Marguerite Larkin and Gerry Behan the Committee decided that for 2019, their basic salaries will be increased by 2.5% by their basic salaries will be increased Larkin and Gerry Behan 2019, decided both for Marguerite that the Committee to In relation and the US. in Ireland workforce the general to available inflation wage in line with the standard and 3% respectively The Committee is conscious of the need to apply constraint in executive remuneration and to consider any pay rises in the context of the rises in the context pay any consider and to remuneration in executive apply constraint of the need to is conscious The Committee a base salary that believes the Committee factors, the above considered Having of the Group. performance and the overall workforce general as well as the role in and growth his individual performance for Edmond reward adjustment is justified, aligned with policy and will appropriately peers. in line with market more his predecessor’s bridging the deficit versus base salary and bringing his remuneration towards making progress feedback, Edmond’s positive increase has decided to the Committee who provided shareholders, with our major institutional consulted Having The team. and executive workforce the general of 2.5% to increase inflation as provided with a standard together 8% by base salary 2019 for with and will consult in the role progress as he continues to under review compensation base salary and total Edmond’s will keep Committee in the future. appropriate further changes are any that determines if the Committee shareholders At the Committee’s request, Edmond’s salary was reviewed and benchmarked by Willis Towers Watson in 2018. The review found that when that found The review in 2018. Watson Willis Towers by and benchmarked salary reviewed was request, Edmond’s the Committee’s At the significantly lower than median for was compensation direct his total companies UK, with similar sized US and European compared opportunity. target at peer groups reference market Since his appointment as CEO, Edmond has performed exceptionally well, has grown significantly in his role and is successfully leading the leading and is successfully significantly in his role well, has grown exceptionally has performed Edmond his appointment as CEO, Since plan seen new strategic of an ambitious the development, and implementation communication we have his leadership, to Thanks Group. achieve continues to of working and how it is managed. The Group ways structure, organisation the Group’s for implications with all its of a cost at acquisitions appointment, seventeen or completed has announced Edmond’s and, since growth revenue organic market above c1,300. numbers by employee average increased and have of operation scale and countries complexity, the Group’s €1 which expand billion business, including of the Group’s on the performance report and the Financial Review Business the Reviews Review, The Chief Executives during the year. M&A activity, Basic Salary and Benefits was an internal Edmond As 1 2017. October from effective initial base salary €1,050,000 set at was On appointment, Scanlon’s Edmond and purposefully set his initial base salary lower than his 20% discretion its appointment, exercised Committee the Remuneration base salary on an Edmond’s As signaled in last year’s review report, to undertook the Committee references. predecessor’s and our market is This approach in the role. and development time in line with his performance over it would increase that expected annual basis as it was and is also consistent in 2018, shareholders by approved was which Directors, new Executive for Policy with our Remuneration consistent new roles. into promoted when individuals are population the wider employee for followed commonly with the practice PART I: REMUNERATION POLICY IMPLEMENTATION 2019 IMPLEMENTATION POLICY I: REMUNERATION PART as described in 2019. on pages 115-118 will operate Policy out how the Remuneration sets the report This part of Section D: Remuneration Policy Implementation Policy Section D: Remuneration The Committee is of the view that the targets for the STIP are appropriately stretching, but due to their commercial sensitivity, it would be detrimental to the Company to disclose them in advance of or during the relevant performance period. The Committee will disclose those targets at the end of the relevant performance period in that year’s Annual Report, if those targets are no longer considered commercially sensitive.
Finally, the malus and clawback provisions of the STIP, which include a two year clawback provision (outlined on page 118), were reviewed and were deemed to be appropriate and effective and continue to apply to former Directors.
Alignment to Strategy The above are considered key metrics as they align with the Group’s strategic objectives while also ensuring the long term operational and financial stability of the Group. Volume Growth and Margin Expansion are key performance metrics as they are the main drivers of Adjusted EPS Growth. Cash Conversion is key to ensuring there are sufficient funds available for reinvestment or for return to shareholders. Personal and Strategic objectives, that are relevant to each Executive’s specific area of responsibility, are key in ensuring strategic and functional goals are capable of being rewarded.
25% of the overall annual incentive payment is delivered through shares/share options, with the remaining 75% being delivered in cash. A two year deferral period is in place for share/share option awards made under the scheme.
Long Term Performance Related Incentive Plan (LTIP) LTIP Award Year 2019 2018 Performance Metrics Threshold Target Maximum Threshold Target Maximum EPS (50% weighting)* Kerry’s EPS growth per annum 6% 10% 12% 6% 10% 12% % of award which vests 25% 50% 100% 25% 50% 100% ROACE (20% weighting) ROACE return achieved 10% 12% 14% 10% 12% 14% % of award which vests 25% 50% 100% 25% 50% 100% Relative TSR (30% weighting) Position of Kerry in Median Median to Greater than Median Median to Greater than peer group 75th% 75th% 75th% 75th% % of award which vests 30% 30% - 100% 100% 30% 30% - 100% 100% * Adjusted EPS growth is measured on a constant currency basis
The Committee reviewed the overall effectiveness of the LTIP in 2018 to ensure it is structured appropriately to incentivise Executive Directors and senior management across the Group. The level of opportunity under this scheme available to the CEO and Executive Director’s (currently 200%/180%) is to remain unchanged following the review. Similarly, the LTIP performance metrics, targets and weightings were also reviewed in 2018 and are to remain unchanged.
The Committee believes that the Rewards programme, while challenging and stretching also needs to be realistically capable of rewarding the commitment and performance of the Executive Directors and senior management team over the rolling three year cycles.
We believe this approach taken in the context of our overall competitive and stretching programme is appropriate and in the best interests of our shareholders.
How Remuneration Links with Strategy Performance Measure Strategic Priority Incentive Scheme Volume growth Key driver of revenue growth STIP Margin expansion Key driver of profit growth STIP Cash conversion Cash generation for reinvestment or return to shareholders STIP Personal and strategic objectives Reward the development and execution of Group strategies for STIP sustainable growth Adjusted EPS growth Delivery of the Group’s long term growth strategy LTIP TSR Delivery of shareholder value LTIP ROACE Balance growth and return LTIP See Group Key Performance Indicators (KPIs) on pages 30 and 31 for more information on the link between the performance metrics used for incentive purposes and the Group’s Strategic Plan.
120 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 121
Kerry Group Annual Report 2018 Annual Report Group Kerry Non-Executive Directors may be reimbursed for travel and accommodation expenses (and any personal tax that may be on those due may that tax personal any (and expenses and accommodation travel for be reimbursed may Directors Non-Executive to encouraged are Directors non-Executive or options, however shares Kerry in not remunerated are Directors Non-Executive expenses). build up a personal shareholding. and increases were made effective from 1 January 2018. There are no proposed changes to the Chairman and non-Executive Director Director Chairman and non-Executive to the changes no proposed are There 2018. 1 January from made effective were and increases 2019. fees for Shareholder Engagement Shareholder provided and the feedback shareholders the major institutional the guidelines the bodies issued considers The Committee representing by policies Remuneration Executive of the Group’s annual and tri-annual review its when completing and shareholders, groups such proxy by to agencies 2019 during early and proxy shareholders engaged with a number of our major institutional The Committee and practices. their feedback. continued to on board the CEO base salary with them on the changes and took to consult is committed The Committee policy. remuneration its regarding with shareholders consultation In line with the three year review cycle the Chairman and non-Executive Directors fees were reviewed and benchmarked during 2017 2017 during and benchmarked reviewed fees were Directors and non-Executive the Chairman cycle review year the three In line with Non-Executive Director Remuneration Review Remuneration Director Non-Executive PART II: REMUNERATION POLICY OUTTURN 2018 Disclosures regarding Directors’ remuneration have been drawn up on an individual Director basis in accordance with the requirements of the 2014 Irish Companies Act, the UK Corporate Governance Code, the Irish Annex, the Euronext Dublin Stock Exchange and the UK Listing Authority.
The information in the tables 1, 4, 5, 6, 7, 8 and 9 below including relevant footnotes (identified as audited) forms an integral part of the audited financial statements as described in the basis of preparation on page 146. All other information in the remuneration report is additional disclosure and does not form an integral part of the audited financial statements.
Executive Directors’ Remuneration Table 1: Individual Remuneration for the year ended 31 December 2018 (Audited) Basic Salaries Benefits Pensions1 STIP2 LTIP3 Total 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 Edmond Scanlon 1,050 263 34 168 200 51 948 295 345 31 2,577 808 Stan McCarthy6 – 1,315 – 102 – 317 – 1,479 – 2,072 – 5,285 Brian Mehigan 703 687 37 39 210 204 530 644 805 789 2,285 2,363 Marguerite Larkin 4 177 – 8 – 34 – 133 – – – 352 – Gerry Behan 760 776 63 248 170 170 540 739 1,105 1,300 2,638 3,233 Flor Healy6 – 351 – 13 – 91 – – – – – 455 2,690 3,392 142 570 614 833 2,151 3,157 2,255 4,192 7,852 12,144
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Stan McCarthy5 - 1,486 - 115 - 359 - 1,671 - 2,341 - 5,972 Gerry Behan5 901 877 74 280 201 192 640 835 1,310 1,469 3,126 3,653 901 2,363 74 395 201 551 640 2,506 1,310 3,810 3,126 9,625
Note 1: The pension figure for Edmond Scanlon relates to Irish defined contribution pension benefits. Brian Mehigan, Marguerite Larkin and Flor Healy received a taxable cash payment in lieu of pension benefits and the figures included above reflect this including life cover. The pension figures for Stan McCarthy and Gerry Behan include both defined benefit and defined contribution retirement benefits. Note 2: This STIP amount represents 75% delivered in cash with 25% delivered by way of shares/share options which are deferred for two years. Note 3: The share price used to calculate the value of the LTIP is the average share price for the three months up to the end of the year being reported. Note 4: Marguerite Larkin was appointed as CFO and to the Board on 30 September 2018. Her remuneration reflected in the table above relates to remuneration for the period 30 September to 31 December 2018. Note 5: The table shows the Executive Directors’ pay in the currency of payment to ensure clarity in reflecting the year on year payment comparisons. Note 6: Stan McCarthy and Flor Healy retired as Directors in 2017.
Basic Salary Increases As outlined in last year’s report, Edmond Scanlon’s initial base salary on appointment as Group CEO was set at €1,050,000 effective from 1 October 2017 and was not increased in 2018.
Marguerite Larkin’s CFO base salary was set at €700,000 when she joined the Group. When setting this salary, the Committee considered several factors including; securing the right candidate, Marguerite’s exceptional calibre and experience, the previous incumbent’s salary, appropriate internal benchmarking and external market expectations. On joining Kerry, and prior to her appointment to the Board, Marguerite received a taxable cash payment of €500,000 to compensate her for profit share foregone from her previous role. The Committee is satisfied that the payment was the minimum necessary to compensate Marguerite for the entitlements she forfeited. Marguerite elected to invest over 50% of the amount received in Kerry shares.
For 2018, the basic salaries of the other Executive Directors were adjusted by 2.5% - 3% in line with the standard wage inflation available to the general workforce in Ireland and the US.
122 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 123 75% 70% 80% 4.2% 71.5% Group (20% weighting) 3. Cash Conversion Cash Conversion 3. to ensuring there are are ensuring there to return to shareholders to return for reinvestment or for or for reinvestment for Cash Conversion is key is key Cash Conversion sufficient funds available available sufficient funds Kerry Group Annual Report 2018 Annual Report Group Kerry 7 0 10 10 10% T&N CEO T&N 14.0% 0 bps +20 bps +20 +30 bps +30 +60 bps Taste & Nutrition Taste (30% weighting) 2. Margin Expansion* 2. Expansion* Margin Margin Expansion is a key Expansion is a key Margin metrics as it performance of is another main driver EPS Growth Adjusted 21.0% 0 bps 0 bps Group -30 bps +30 bps +30 4. Personal and Strategic (All – 10% weighting) and Strategic 4. Personal 4.1% 6.0% 4.0% 0.0% 28.6% 7 7 0 10 7%
Taste & Nutrition Taste CEO & CFO (40% weighting) (40% 1. Volume Growth* 1. Volume 3.5% 3.5% 5.5% 0.0% 28.0% Group Volume Growth is a key is a key Growth Volume as it is metric performance of one of the main drivers EPS Growth Adjusted Specific to the Executive’s responsibility linked to strategic plan implementation and talent management. and talent plan implementation strategic to linked responsibility the Executive’s Specific to
Target Max Threshold Threshold Target Max
Targets Targets Link to strategy Link to Bonus outcome Actual performance Actual Link to strategy Link to Actual performance Actual Bonus outcome Metric Metric Personal and Strategic Objectives – 10% weighting Objectives and Strategic Personal * The above metrics are measured at Group level for the CEO and CFO (current and former) and at Taste & Nutrition level for the CEO of Taste & Nutrition. the CEO of Taste for level & Nutrition Taste and at and former) the CEO and CFO (current for level Group at measured metrics are * The above on the Group focus plan with a key our strategic and aligned to be appropriate to the metrics shown above, considers The Committee and ensuring growth sustainable in driving vital These are Expansion and Cash Conversion. Margin Growth, financial metrics of Volume and weightings metrics,targets The same performance to shareholders. return for or reinvestment for available sufficient funds are there time apportioned based on their time in office. and were CFO and former the current apply to Table 2: Annual Bonus Achievement Against Targets Against 2: Annual Bonus Achievement Table CEO– 90% weighting) & T&N CFO, (CEO, Financial Metrics Annual Incentive Outcomes (STIP) Outcomes Annual Incentive Details of Personal and Strategic Objectives and Strategic of Personal Details of the on the implementation focus which this year objectives, and Strategic against Personal also measured are Directors The Executive agreed targets key to reference by the Committee by against these is determined objectives Performance the Group. plan for new strategic of the year. the start at with the Executives Directors Achievements Bonus Outcome CEO – Effective engagement with shareholders in relation to the Group’s strategy and the achievement of 7% long term sustainable growth. – Leadership team in place and organisation structure evolved at Group and divisional levels to deliver the strategic priorities for growth and margin expansion in line with the Group’s culture. – Incentive programmes amended to align with the new strategic plan metrics and targets. – Seamless CFO transition achieved. New CFO – Successfully transitioned to CFO and quickly assumed full responsibility for core finance responsibilities. 7% – Established relationships with key stakeholders, including major shareholders and key providers of finance. Former – Good engagement with shareholders in relation to the Group’s strategic direction, sustainability 7% CFO objectives and regular performance updates. – Continued efficient deployment of Kerryconnect and progressed the shared services strategy. – Supported the successful CFO transition. CEO T&N – Deployed an enhanced Taste & Nutrition operating model, including a Go to Market structure based 10% on End Use Markets to enable the delivery of the strategic priorities for growth. – Excellent progress on building leadership capability and a strong talent pipeline to support the division’s growth ambitions. – Successful execution and integration of acquisition transactions in line with the Group’s strategic growth priorities.
The Committee reviewed progress against specific metrics and milestones supporting these objectives and concluded that good progress was made by the Executive Directors against the objectives outlined above, which resulted in an on target award for the CEO and CFOs and a maximum award for the CEO of Taste & Nutrition.
The targets for the Executive Directors, which were set by the Remuneration Committee, were challenging and stretching in the current environment and as a result an average weighted pay-out of 59% of max opportunity (85% of target opportunity) was achieved.
Long Term Incentive Plan (LTIP) 2013 LTIP The terms and conditions of the plan were approved by shareholders at the 2013 AGM. The Remuneration Committee approves the terms, conditions and allocation of conditional awards under the Group’s LTIP to Executive Directors and senior management. Under this plan, Executive Directors and senior management are invited to participate in conditional awards over shares or share options in the Company.
Subject to performance metrics being met, the LTIP award will vest over a three year performance period. 50% of the award is delivered at the vesting date with the remaining 50% of the award being delivered following a two year deferral period. This provides for a combined performance period and deferral period of 5 years.
The first conditional awards under this scheme were made to Executive Directors in 2013. Awards made under the plan potentially vest or partially vest three years after the award date if the predetermined performance targets are achieved. The maximum award that can be made to an individual Executive Director under the LTIP over a 12-month period is equivalent to 180% - 200% of basic salary for that period.
An award may lapse if a participant ceases to be employed within the Group before the vesting date. The market price of the shares on the date of each award outlined above is disclosed in note 28 to the financial statements.
The proportion of each conditional award which vests will depend on the adjusted EPS growth, TSR and ROACE performance of the Group during the relevant three year performance period.
EPS Performance Test Up to 50% of the award vests according to the Group’s average adjusted EPS growth over the performance period. This measurement is determined by reference to the growth in the Group’s adjusted EPS calculated on a constant currency basis in each of the three financial years in the performance period in accordance with the vesting schedule outlined in the following table:
Adjusted EPS Growth Per Annum Percentage of the Award Which Vests Threshold 8% 25% Target 10% 50% Maximum 12% 100%
124 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements
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0 50 0 Below median Median Between median and 75th percentile than 75th percentile Greater Position of Kerry in the Peer Group in the Peer of Kerry Position Chr. Hansen Chr. Barry Callebaut Corbion Aryzta General Mills 1 0 100 200 100 The outcome of the EPS performance test, calculated on a constant currency basis, is an annual average adjusted EPS growth of 10.1% of 10.1% EPS growth adjusted is an annual average basis, test, of the EPS performance currency The outcome on a constant calculated out of a possible of 50%. maximum of 26.3% outcome in an award which results Test Performance TSR of a peer group performance against the TSR the period measured over performance TSR the Group’s to according vests 30% of the award companies: and the following of Kerry consists period. The peer group performance year the same three companies over of listed Below 8% none of the award vests. Between 8% and 10%, 25% - 50% vesting occurs on a straight line basis. Between line basis. 12%, 10% and a straight on occurs 25% and 10%, 50% - - 50% vesting Between vests. 8% the award none of Below 8% line basis. on a straight occurs 100% vesting The outcome of the measurement of the TSR condition in relation to the 2016 awards is in the second quartile, resulting in award outcome outcome in award quartile, resulting is in the second awards the 2016 to in relation condition of the TSR of the measurement The outcome out of a possible maximum of 30%. of 24.4% 3 Year TSR: Kerry and Comparator 1 Jan 2016 - 31 Dec 1 Jan 2018 and Comparator Kerry TSR: 3 Year 2018 2008 to from performance TSR the Group’s which illustrates See chart on page 130, The performance graph below shows Kerry’s TSR compared to the peer companies over the three year performance period from period from performance year the three the peer companies over to compared TSR below Kerry’s shows graph The performance before on or date vesting a have These awards which issued in 2016. awards the LTIP for December 2018 31 to 1 January 2016 30 April 2019. When assessing whether the performance hurdle has been met, this measurement is determined by reference to the ranking of Kerry’s of Kerry’s the ranking to been has reference met,When assessing by is determined hurdle whether the performance this measurement The awards of the companies in the peer group. performance with the TSR period, in comparison performance year the three over TSR table: in line with the following vest
-50 100 150 200 -100 ROACE Performance Test 20% of the award vests according to the Group’s ROACE over the performance period. ROACE represents a good perspective on the Group’s internal rate of return and financial added value for shareholders. ROACE supports the strategic focus on growth and margins through ensuring cash is reinvested to generate appropriate returns.
This measurement will be determined by reference to the ROACE in each of the three financial years included in the performance period:
Return on Capital Employed Percentage of the Award Which Vests Threshold 10% 25% Target 12% 50% Maximum 14% 100%
Below 10% none of the award vests. Between 10% and 12%, 25% - 50% vesting occurs on a straight line basis. Between 12% and 14%, 50% - 100% vesting occurs on a straight line basis.
The outcome of the measurement of the ROACE condition in relation to the 2016 awards is a ROACE of 12.6% which resulted in a reward outcome of 13% out of a possible maximum of 20%.
Table 3: Overall Outcome of the 2016 LTIP Award Vesting in 2019 TSR EPS Actual ROACE Actual Vesting Long Term Performance Actual Vesting Performance Vesting of Performance of ROACE Total % Incentive Plan (30% of Award) of TSR Award (50% of Award) EPS Award (20% of Award) Award Vested 2013 LTIP Plan 2nd Quartile* 24.4% 10.1% growth* 26.3% 12.6% 13% 63.7%
* See TSR, EPS and ROACE tables above for details of performance metrics.
The following table shows the Executive Directors’ and Company Secretary’s interests under the LTIP. Conditional awards at 1 January 2018 relate to awards made in 2015, 2016 and 2017 which have a three year performance period. The 2015 awards vested in 2018. The 2016 awards will potentially vest in 2019 and 2017 awards will potentially vest in 2020. The market price of the shares on the date of each award is disclosed in note 28 to the financial statements.
Executive Directors’ and Company Secretary’s Interests in Long Term Incentive Plan
Table 4: Individual Interest in LTIP (Audited) Share Price Share at Date of Conditional Awards Share Option Share Awards Conditional Conditional Conditional Awards at Vested Awards Lapsed Awards Made Awards at 31 Award Made LTIP 1 January During Vested During During the During the December During the Scheme 2018 the Year the Year Year Year 2018 Year Directors Edmond Scanlon 2013 40,295 – (4,256) (2,575) 25,625 59,089 €81.95 Brian Mehigan 2013 44,991 – (9,024) (5,460) 15,474 45,981 €81.95 Marguerite Larkin1 2013 – – – – 7,031 7,031 €89.60 Gerry Behan 2013 65,105 (14,864) – (8,995) 17,909 59,155 €81.95 Company Secretary Ronan Deasy2 2013 13,417 – (2,159) (1,307) 3,295 13,246 €81.95
Note 1: Marguerite Larkin’s LTIP conditional awards during the year were pro-rated based on her time of service. Note 2: The Company Secretary Ronan Deasy was appointed to the position on 1 March 2018 and his opening LTIP conditional awards are reflected as at that date.
126 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 127
– 223 223 2,291 €’000
€0.125 €0.125 €0.125
Per Share Per Exercise Price Exercise
– Kerry Group Annual Report 2018 Annual Report Group Kerry 9,537 3,390 62,849 Transfer Value of Increase in of Increase Value Transfer Accumulated Accrued Benefits Accrued Accumulated Share Options Share Outstanding at at Outstanding 31 December 2018
3 – 2,159 445 445 5,370 10,971 1,804 €’000 the Year Share Options Share Vested During Vested at End of Year End of at Accumulated Total Total Accumulated – 0 0 (13,573) the Year Share Options Share 37 37 167 Exercised During Exercised €’000
– 1,231 4,167 65,451 Accrued Benefits on Leaving Service End of Year at on Leaving Benefits Accrued (Excluding Inflation) Inflation) (Excluding Share Options Share 1 January 2018 1 January Outstanding at at Outstanding Increase During the Year During the Year Increase 1 2 Shar Mar Contributions were made to an Irish defined contribution plan in respect of Edmond Scanlon. Brian Mehigan and Marguerite Larkin received a taxable cash payment in lieu of cash payment a taxable Larkin received Scanlon. Brian Mehigan and Marguerite of Edmond plan in respect an Irish defined contribution made to Contributions were 1) on page 122. (table table in the single figure reflected pension are These benefits. contributions The new Company Secretary Ronan Deasy was appointed to the position on 1 March 2018 and his opening share option balance is reflected as at that date. date. that as at is reflected option balance and his opening share 2018 the position on 1 March to appointed was Deasy Ronan Secretary The new Company 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. deferral year a two subject to options are in share delivered which are payments period and 25% of the STIP deferral year a two subject to are undertheLTIP optionsvested 50%ofshare 2018). (paidinMarch STIP and25% ofthe2017 awards LTIP 2015 to related 2018 inMarch e Optionswhichvested date. that asat isreflected optionbalance andheropening share on30September 2018 theBoard to appointed Larkinwas guerite Marguerite Larkin Marguerite 2017 Company Secretary Company Deasy Ronan 2018 Brian Mehigan Gerry Behan Directors Scanlon Edmond Table 6: Defined Benefit – Pensions Individual Summary (Audited) 6: Defined Benefit – Pensions Table following table. following Note: The pension benefits under defined benefit pension plans of each of the Executive Directors during the year are outlined in the are during the year Directors The pension under defined benefits benefit pension of the Executive plans of each Executive Directors’ Pensions Directors’ Executive 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 the two options subject to share lapse. For they before years seven up to for can be exercised options under the LTIP share vested, Once seven lapse i.e. they period, before deferral year the end of the two following years five to up for can be exercised period, they deferral year date. the vest following years Note 1: Note 2:Note Table 5: Share Options Held Under the STIP and LTIP (Audited) and LTIP Options Held Under the STIP 5: Share Table and LTIP: The following table shows the share options which are held by the Executive Directors and the Company Secretary under the STIP under the STIP Secretary and the Company Directors the Executive held by options which are the share shows table The following Conditional LTIP awards made in 2018 have a three year performance period and will potentially vest in 2021. 50% of the shares/ 50% in 2021. vest periodwill potentially and performance year a three have 2018 made in awards Conditional LTIP is issued to 50% of the award The remaining upon issued vesting. immediately are the LTIP, under vest options which potentially share period. deferral year a two following participants Note 3: Note Non- Executive Directors’ Remuneration Paid in 2018 Table 7: Remuneration Paid to Non-Executive Directors in 2018 (Audited) Fees 2018 Fees 2017 € € Hugh Brady 98,000 78,000 Paddy Casey* – 14,333 Gerard Culligan 78,000 33,833 Karin Dorrepaal 98,000 78,000 Michael Dowling* 148,958 230,000 Joan Garahy 123,000 93,000 James C. Kenny 117,000 97,000 Tom Moran 98,000 78,000 Con Murphy 78,000 33,833 Christopher Rogers** 68,666 – Philip Toomey 277,667 98,000 1,185,291 833,999
* Retired on 30 April 2017 and 3 May 2018 respectively ** Appointed to the Board on 8 May 2018
Non-Executive Directors’ remuneration consists of fees only. Non-Executive Directors are reimbursed for travel and accommodation expenses and any personal tax that may be due on those expenses. The gross amount of these expenses that were deemed to be taxable is €19,814.
Payments to Former Directors Table 8: Payments to Former Directors (Audited) Former Director 2018 2017 €’000 €’000 Stan McCarthy 1,259 – Flor Healy – 298 1,259 298
Stan McCarthy, who retired from the Board on 31 December 2017, was paid 12 months base salary for abiding with the contractual non- compete/non-solicitation requirements of his employment agreement. This amounted to €1,259,000 ($1,486,000) during 2018. In addition, his vested 2013 LTIP awards and vested 2015 STIP awards, which were subject to deferral and disclosed in previous annual reports, were released to him at the normal applicable release dates following the 2 year deferral period.
Flor Healy, who retired from the Board on 8 August 2017, was paid €298,000 remuneration in the period 9 August to 31 December 2017. During 2018 he had vested 2013 LTIP awards and vested 2015 STIP awards, which were subject to deferral and disclosed in previous annual reports, released to him at the normal applicable release dates following the 2 year deferral period.
Payments for Loss of Office There were no payments for loss of office in 2018 (2017: €nil).
Directors’ and Company Secretary’s Interests There have been no contracts or arrangements with the Company or any subsidiary during the year, in which a Director of the Company was materially interested and which were significant in relation to the Group’s business. The interests of the Directors and the Company Secretary of the Company and their spouses and minor children in the share capital of the Company, all of which were beneficial unless otherwise indicated, are shown overleaf:
128 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 129
– – – – – 500 1,231 7,721 7,757 Total Total 1,050 3,230 2,084 6,000 11,694
10,636 58,379 98,028 Number 1 January 2018 1 January 2018 – – – – – – – – – – – – – 1,231 7,757 2,083 2,084 57,694 Kerry Group Annual Report 2018 Annual Report Group Kerry Number Share Options Share 1 January 2018 1 January 2018 – – – – – – – – – 500 7,721 9,611 1,050 3,230 6,000 10,636 58,379 40,334 Number 1 January 2018 1 January 2018 Ordinary Shares Shares Ordinary
– – – 539 640 7,721 1,862 Total Total 1,250 4,481 1,050 1,500 4,758 6,000 14,667 10,583 14,905 58,839 92,600 Number As a Multiple of Basic Salary As 1.6x 0.2x 8.4x 31 December 2018 – – – – – – – – – – – – 1,528 1,862 4,481 5,056 10,583 52,266 Number Share Options Share 31 December 2018 – – – – – – 539 640 9,611 7,721 1,250 1,050 1,500 3,230 6,000 14,905 58,839 40,334 Number Ordinary Shares Shares Ordinary 31 December 2018
4 2 etired from the Board on 28 December 2018 and his closing shareholding above is reflected as at that date. that as at is reflected above and his closing shareholding on 28 December 2018 the Board from etired 3 5 1 1 1 1 Brian Mehigan r Mar Christopher Rogers was appointed to the Board on 8 May 2018 and his opening shareholdings are reflected as at that date. that as at reflected are and his opening shareholdings 2018 on 8 May the Board to appointed was Rogers Christopher date. that as at reflected are and his opening shareholdings 2018 on 1 March Secretary as Company appointed was Deasy Ronan The deferred shares and share options above, relate to 25% of the Executive Directors 2016 and 2017 STIP awards and 50% of the 2014 and 2015 LTIP award (vested in March in March (vested award LTIP and 2015 and 50% of the 2014 awards STIP and 2017 2016 Directors 25% of the Executive to relate options above, and share shares The deferred respectively. 2020 and March 2019 in March options in shares/share period and will be delivered deferral year a two subject to are These awards respectively). and 2018 2017
date. that asat reflected are andheropening shareholdings on30September 2018 theBoard to appointed Larkinwas guerite
Executive Director Executive Edmond Scanlon Edmond Larkin Marguerite Gerry Behan Directors Gerry Behan - Deferred Company Secretary Company Deasy Ronan Hugh Brady Gerard Culligan Gerard Dorrepaal Karin Joan Garahy James C. Kenny James C. Marguerite Larkin Marguerite - Deferred Brian Mehigan - Deferred Edmond Scanlon Edmond - Deferred Christopher Rogers Christopher Tom Moran Tom Con Murphy Philip Toomey Table 9: Directors and Company Secretary Shareholdings (Audited) Shareholdings Secretary and Company 9: Directors Table the new CFO, in line with policy, has five years to increase her shareholding to the minimum 1.8x basic salary. the minimum 1.8x to her shareholding increase to years has five in line with policy, the new CFO, Edmond Scanlon, in line with policy, has four years to increase his shareholding to the minimum 2.0x basic salary. Marguerite Larkin, Marguerite basic salary. the minimum 2.0x to his shareholding increase to years has four Scanlon, in line with policy, Edmond The share price used to calculate the above is the share price as at 31 December 2018. 31 as at price is the share the above calculate used to price 1: The share Note Table 10: Individual Shareholding as a Multiple of Basic Salary Shareholding 10: Individual Table Guidelines Shareholding the to Please refer a multiple of basic salary. shown as December 2018 31 at shareholding Directors’ below out the Executive sets The table requirements. shareholding Director on page 117 in Section of the Executive details C for Table Policy Remuneration Note 3: Note 4: Note 5: Note Note 1: Note Note 2:Note
900 800 700 600 500 TSR Performance400 and Chief Executive Officer Remuneration The graph300 below illustrates the TSR performance of the Group over the past ten years showing the increase in value of €100 invested in Group’s shares from 31 December 2008 to 31 December 2018. Also outlined in the table below, the remuneration of the Chief Executive Officer is200 calculated in line with the methodology captured under legislation which was enacted for UK incorporated companies. 100 10 Year Total Shareholder Return (Value of €100 Invested on 31/12/2008)
00 800 00 00 00 00 00 200 100 2008 200 2010 2011 2012 201 201 201 201 201 2018 Kerry S urope oo ro ucer 00 oo e erage
Table 11: Remuneration Paid to the CEO 2009 – 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 Chief Executive Officer – Stan McCarthy €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 Total remuneration €’000 1,751 2,116 3,283 3,538 3,592 3,283 4,161 3,625 5,285 Annual incentive achieved as a % of maximum 57% 90% 73% 74% 70% 57% 58% 62% 75% LTIP achieved as a % of maximum N/A1 N/A1 100% 100% 100% 91.9% 61.8%2 29.4% 62.3%
Note 1: There was no LTIP with a performance period ending in 2009 or 2010. Note 2: This is the combined average of the 2015 LTIP paid out from the 2006 and 2013 plans.
2017 2018 Chief Executive Officer – Edmond Scanlon €’000 €’000 Total remuneration €’000 808 2,577 Annual incentive achieved as a % of maximum 75% 60% LTIP achieved as a % of maximum 62.3% 63.7%
Note 1: Edmond Scanlon was appointed CEO and to the Board on 1 October 2017 and his remuneration reflected in the table above relates to remuneration from that date.
Table 12: CEO Pay v Normal Employee Pay Comparison In line with the recently enacted European Shareholders Rights directive, outlined below is the annual change over the last five financial years for: – the remuneration of the CEO, – the average remuneration of employees of the company (calculated on a full time equivalent basis) other than directors, and – the performance of the company.
2014 2015 2016 2017 2018 Chief Executive Officer Basic pay YoY % change 2% 2% 9% 2.5% 0% All Group Employees Average basic pay YoY % change 3.4% 3.6% 3.5% 3.1% 2.8%
130 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 131 2018 Kerry Group Annual Report 2018 Annual Report Group Kerry 2017 Director Remuneration (0.6%) Profit after tax before NTIs (29.8%) Dividends Paid (5.3%) Taxation Paid (7.1%) Employee costs (57.2%) 201 Votes Withheld/Abstained Votes 203,299 261,701 201 201 Votes Against Votes 3,150,752 3.1% 2,343,694 2.3% S urope oo ro ucer 00 oo e erage 201 2018 Director Remuneration (0.4%) Profit after tax before NTIs (30.6%) Dividends Paid (5.9%) Taxation Paid (7.0%) Employee costs (56.1%) Votes For Votes 97,669,720 96.9% 98,418,376 97.7% Kerry 201 Total Votes Cast Votes Total Directors’ Remuneration Report Remuneration Directors’ 100,820,472 Remuneration Policy Remuneration 100,762,070 1 0 100 2 0 200 00 Table 13: 2018 AGM – Votes on Remuneration – Votes 13: 2018 AGM Table Statement on Shareholder Voting on Shareholder Statement Report. Remuneration the Directors’ approve to AGM the most recent at place which took of the voting Below is an overview The potential future dilution level from unvested share awards/share options as a result of these schemes options as a result is a further 0.6%. awards/share share unvested from level dilution future The potential The Group offers Executive Directors and senior management the opportunity to participate in share based schemes as part of the in share to participate and senior management the opportunity Directors Executive offers The Group under granted awards of share the level that ensures guidelines, the company In line with best practice policy. remuneration Group’s share vested from The dilution resulting capital. share of the Group’s 10% period, does year not exceed ten a rolling these schemes, over below of dilution is well the maximum dilution level This level is 1.1%. December 2018 31 period to year the ten options for awards/share plans. based incentive share executive for recommended Dilution
Relative Importance of Spend on Pay of Spend Importance Relative is outlined pay employee Plan) and overall Incentive Term (including Long remuneration Director amount spent on Executive The total profit, paid. and taxation dividends paid retained to below in relation Performance of the company: 5 Year Total Shareholder Return Shareholder Total 5 Year company: of the Performance The Committee appreciates the level of support shown by the shareholders for the Remuneration Policy and Report and is committed to to and is committed and Report Policy Remuneration the for the shareholders of support shown by the level appreciates The Committee policy. the remuneration to with regard with shareholders consultation continued 100 150 200 250 300 INDEPENDENT INDEPENDENT AUDITORS’ AUDITORS’ REPORT TO THE MEMBERS REPORT OF KERRY GROUP PLC
Report on the audit of the Separate opinion in relation to IFRSs as issued by the IASB financial statements As explained in note 1 to the financial statements, the Group, in addition to applying IFRSs as adopted by the European Union, Opinion has also applied IFRSs as issued by the International Accounting In our opinion Kerry Group plc’s consolidated financial statements Standards Board (IASB). and Company financial statements (the ‘financial statements’): In our opinion, the consolidated financial statements comply with – give a true and fair view of the Group’s and the Company’s assets, IFRSs as issued by the IASB. liabilities and financial position as at 31 December 2018 and of the Group’s profit and the Group’s and the Company’s cash flows Basis for opinion for the year then ended; – have been properly prepared in accordance with International We conducted our audit in accordance with International Standards Financial Reporting Standards (‘FRSs’) as adopted by the on Auditing (Ireland) (‘ISAs (Ireland)’) and applicable law. Our European Union and, as regards the Company’s financial responsibilities under ISAs (Ireland) are further described in the statements, as applied in accordance with the provisions of the Auditors’ responsibilities for the audit of the financial statements Companies Act 2014; and section of our report. We believe that the audit evidence we have – have been properly prepared in accordance with the obtained is sufficient and appropriate to provide a basis for our requirements of the Companies Act 2014 and, as regards the opinion. consolidated financial statements, Article 4 of the IAS Regulation. Independence We have audited the financial statements, included within the We remained independent of the Group in accordance with the Annual Report, which comprise: ethical requirements that are relevant to our audit of the financial statements in Ireland, which includes IAASA’s Ethical Standard as – the Consolidated and Company balance sheets as at 31 applicable to listed public interest entities, and we have fulfilled our December 2018; other ethical responsibilities in accordance with these requirements. – the Consolidated income statement and Consolidated statement of comprehensive income for the year then ended; To the best of our knowledge and belief, we declare that non-audit – the Consolidated and Company cash flow statements for the year services prohibited by IAASA’s Ethical Standard were not provided then ended; to the Group or the Company. – the Consolidated and Company statements of changes in equity for the year then ended; and Other than those disclosed in note 3 to the financial statements, we – the notes to the financial statements, which include a description have provided no non-audit services to the Group or the Company of the significant accounting policies. in the period from 1 January 2018 to 31 December 2018.
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements and are described as being an integral part of the financial statements as set out in the basis of preparation on page 146. These are cross-referenced from the financial statements and are identified as audited.
Our opinion is consistent with our reporting to the Audit Committee.
132 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 133
Kerry Group Annual Report 2018 Annual Report Group Kerry How our audit addressed the key audit matter the key our audit addressed How Our audit team assisted by our valuation experts interrogated the Group’s impairment the Group’s interrogated experts our valuation by assisted Our audit team assumptions used. and key the methodology followed models and evaluated which by and the process cash flow forecasts, future assessed management’s We management with the latest consistent were they and concluded up, drawn were they the Group’s we considered these forecasts forecast. year In evaluating five approved also We objectives. strategic of achieving past record and its performance historic of the cash flow model. accuracy the mathematical tested growth forecast of the Group’s the appropriateness satisfied as to ourselves We them comparing by five, year at values terminal assumptions calculate used to rate for rates growth of projected OECD statistics) example, (for independent sources to each region. an recalculating used by rates of the discount calculation challenged management’s We with each group associated risks reflect to (adjusted rates of discount range acceptable and concluded sources independent external from inputs using observable of CGUs) range. within that management fell used by rates the discount on the impact of changes analysis in key our own sensitivity performed We assumptions on the impairment assessment, rates discount the cash flows, example for management. assumed by of growth and the rates within the disclosures assessed of the related the appropriateness We financial statements.
ss combinations. .3 million (2017: €7 million) - Company financial statements - Company €7 million) (2017: million .3 e conducted audit work in 39 reporting components. We paid particular attention to these to paid particular attention We components. reporting audit work in 39 e conducted oodwill and indefinite life intangible assets impairment assessment. intangible life oodwill and indefinite ased on c. 1% of net assetsof the Company. ased on c. 5% of profit before taxation and non-trading items. and non-trading taxation before ased on c. profit of 5% axation. aken together, the reporting components where an audit on the full financial information was was an audit on the full financial information where components the reporting together, aken € components due to their size or characteristics and to ensure appropriate audit coverage. An audit An audit audit coverage. appropriate ensure and to or characteristics their size due to components on 35 of and specified performed was procedures on the full financial information components performed. were of a further 4 components balances account selected and taxation before profit and Group revenues of Group of 90% in excess for accounted performed items. non-trading G Busine T B €7 B W T – €33 statements financial –Consolidated million) million (2017: 33.5 scope Audit audit matters Key – – – – – – – – Materiality
Key audit matter Key Goodwill and indefinite life intangible assets assets Goodwill intangible life and indefinite impairment assessment policies’ accounting of 1 ‘Statement note to Refer assets’. 12 ‘Intangible and note life has goodwill and indefinite The Group 31 million at assetsintangible of €3,534.6 42% approximately representing December 2018 end. assets year at total of the Group’s Goodwill assets intangible life and indefinite on an annual impairment testing subject to are of indicators are if there frequently basis or more impairment. the scale of the given on this area focused We of whether assets and because the determination goodwill or indefinite for an impairment charge assets necessary intangible was life involves significant judgement in estimating the future of the business the results and determining use. to rate discount appropriate Key audit matters Key that, judgement, those matters in the audit of the financial professional of most significance are in the auditors’ audit matters were Key fraud) or not due to period (whether include the most significant assessed and misstatement of the current of material risks statements in the resources the allocation of audit strategy; overall on: the effect including those which had the greatest the auditors, identified by results of our procedures on the make we comments and any team. These matters, of the engagement the efforts audit; and directing and we do our opinion thereon, as a whole, and in forming of our audit of the financial statements in the context addressed were thereon, our audit. identified by list of all risks a complete This is not opinion on these matters. a separate not provide The scope of our audit As In part of designing our audit, in the financial statements. and assessed misstatement materiality of material the risks we determined estimates that of significant accounting in respect example for judgements, made subjective the directors where at we looked particular, As the risk we also addressed in all of our audits uncertain. inherently are that events making assumptions future and considering involved a represented that the directors of bias by evidence was whether there including evaluating controls, of internal of management override fraud. due to misstatement risk of material
Overview Our Audit Approach Approach Our Audit Key audit matter How our audit addressed the key audit matter Business combinations We obtained and evaluated the reports prepared by management’s Refer to note 1 ‘Statement of accounting policies’ and note 30 valuation specialists to value brand related intangibles. ‘Business combinations’. We were assisted by our in house valuation experts in assessing the The Group completed 10 acquisitions during 2018, the most significant reasonableness of the valuation methodologies and assumptions of which was Fleischman’s Vinegar Company Inc. in the Americas used by the Group. region of the Taste & Nutrition segment. We considered the assumptions used to derive the cash flows The Group was required to determine the fair values of all acquired underlying the valuation model, (including the growth rate and the assets and liabilities including the identification and valuation of excess earnings rate) by agreeing them to the board approved intangible assets. The most significant acquired asset in all cases was business case and external data where available. brand related intangibles. We also considered the discount rate and contributory asset charge In accordance with IFRS3, ‘Business Combinations’, the valuations in light of the acquiree’s industry and geography. referred to above have been prepared on a provisional basis. The Group will finalise its valuations within the 12 month We were satisfied that the methodology and assumptions used measurement period. were reasonable. 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 We obtained an understanding of the Group tax strategy Refer to note 1 ‘Statement of accounting policies’ and note 7 through discussions with management and the Group’s ‘Income Taxes’. in-house tax specialists. The global nature of the Group means that it operates across a large The team, assisted by PwC International and Irish taxation number of jurisdictions and is subject to periodic challenges by local specialists, challenged judgements used and estimates made by tax authorities on a range of tax matters during the normal course management to measure uncertain tax positions in the context of business. Tax legislation is open to different interpretations and of the recognition of current and deferred tax assets/liabilities. the tax treatments of many items is uncertain. Tax audits can require This included obtaining explanations regarding the tax treatment several years to conclude and transfer pricing judgements may impact applied to material transactions and evidence to corroborate the Group’s tax liabilities. Management judgement and estimation is management’s explanations. Such evidence included management’s required in the measurement of uncertain tax positions in the context communications with local tax authorities and copies of tax advice of the recognition of current and deferred tax assets/liabilities. obtained by management from its external tax advisors. This area required our focus due to its inherent complexity and the Based on the evidence obtained, while noting the inherent estimation and judgement involved in the measurement of uncertain uncertainty with such tax matters, we determined the measurement tax positions in the context of the recognition of current and deferred of uncertain tax positions in the context of the recognition of tax assets/liabilities. current and deferred tax assets/liabilities as at 31 December 2018 to be within an acceptable range of reasonable estimates.
How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The Group is structured along two operating segments: Taste and Nutrition and Consumer Foods across 32 countries. The majority of the Group’s components are supported by one of five principal shared service centres in Ireland, Malaysia, the United Kingdom and the United States.
We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls including those performed at the Group’s shared service centres, and the industry in which the Group operates.
We determined that an audit of the full financial information should be performed at 35 components due to their size or risk characteristics and to ensure appropriate coverage. These 35 components span 13 countries and included components that control central Group functions such as Treasury and Employee Benefits.
134 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 135 The entity is a The entity holding Company whose main activity is the management in of investments subsidiaries. Company Company financial statements €7.3 million €7.3 €7 million) (2017: c. 1% of net assets of the Company Kerry Group Annual Report 2018 Annual Report Group Kerry
Outcome We have nothing material to add or to draw draw add or to to nothing material have We because not all future However, to. attention can be predicted, or conditions events the as to is not a guarantee this statement continue to ability or the Company’s Group’s as a going concern. report. nothing to have We volatility in earnings. volatility Consolidated Consolidated financial statements €33.5 million €33 million) (2017: c. 5% of profit before before c. of profit 5% and non-trading taxation items We applied this We benchmark because in our view this is a metric against which the performance recurring is of the Group measured commonly stakeholders its by in using and it results that level a materiality the impact of excludes Overall Overall materiality How we we How determined it Rationale for for Rationale benchmark applied For each component in the scope of our Group audit, of our Group in the scope each component we allocated For The materiality. Group is less that than our overall a materiality to €0.5m was components across allocated of materiality range audit a local statutory to audited were €25m. components Certain materiality. group also less was that than our overall materiality them to we would report that Committee with the Audit agreed We million (Group €1.7 identified during our audit above misstatements audit) (2017: (Company million) and €360,000 €1.65 audit) (2017: below amount that, that as well as misstatements in our €350,000) reasons. qualitative for reporting warranted view,
Materiality of our application by influenced was of our audit The scope materiality. for thresholds quantitative set certain We materiality. helped us considerations, with qualitative These, together timing of our audit and the nature, the scope determine to on the individual financial our audit procedures of and extent of effect the in evaluating and and disclosures line items statement the financial on both individually and in aggregate misstatements, as a whole. statements Based judgement, on our professional materiality we determined as a whole as follows: the financial statements for
twelve months from the date of approval of the financial statements. of approval the date months from twelve Reporting obligation We are required to report if we have anything material to add or draw attention to in to attention add or draw to material anything if we have report to required are We about whether the directors in the financial statements statement of the directors’ respect the in preparing basis of accounting concern adopt the going to it appropriate considered the to uncertainties material of any identification and the directors’ financial statements a period least of at over as a going concern continue to ability or the Company’s Group’s We are required to report if the directors’ statement relating to going concern in concern going to relating statement if the directors’ report to required are We of the the Main Securities for the Listing Rules of Market 6.8.3(3) with Rule accordance in the audit. with our knowledge obtained inconsistent is materially Exchange Irish Stock Going concern as follows: we report with ISAs (Ireland) In accordance In the current year, senior representatives from the Group the Group from representatives senior year, In the current is that visits of planned site a programme continued team The Group team were responsible for the scope and direction of and direction the scope for responsible were team The Group component by performed the work was Where the audit process. the Group of involvement the level we determined auditors, sufficient whether conclude be able to to have needed to team our had been as a basis for obtained audit evidence appropriate as a whole. financial statements opinion on the consolidated team the Group by performed with audit procedures This, together benefits, the consolidation post retirement treasury, IT systems, over positions, tax including uncertain audit matters and key process assets, intangible lived of goodwillimpairment testing and indefinite our we needed for us the evidence and business gave combinations, as a whole. financial statements opinion on the consolidated The Group team performed the audit of the central function audit of the central the performed team The Group within PwC from and auditors ROI and component components under our instruction, performedother PwC firms, operating network supporting audit and the required the audit on all other components centres. service shared principal each of the five work at to teams meeting with our component These involved visits discussing also involved The visits audit approach. their confirm holding the significant audit risk areas, and understanding meetings with local management, on updates and obtaining In addition matters. other relevant and local and regulations laws regularly interacted team the Group above, noted the visits to during all stages of the audit. teams with the component Post to audit teams held with all in scope calls were audit conference in detail reviewed were audit findings which discuss their final key the Group this, In addition to team. of the Group members by papers of of the audit working certain reviewed engagement team significant components. Taken collectively these components represent the principal the principal represent thesecomponents collectively Taken of 90% of Group in excess for and account business Group of the items. and non-trading tax before profit and Group revenue and transactions balances on certain Specific audit procedures components reporting remaining 4 of the at performed were coverage. audit appropriate ensure primarily to audit members will visit the full scope designed senior team so that the Group basis. During 2018, rotational on a locations regularly the UK, in Ireland, locations component the USA, visited team and Asia Pacific. Mexico Reporting on other information Corporate governance statement The other information comprises all of the information in the – In our opinion, based on the work undertaken in the course of Annual Report other than the financial statements and our the audit of the financial statements: auditors’ report thereon. The directors are responsible for the other – the description of the main features of the internal control information. Our opinion on the financial statements does not cover and risk management systems in relation to the financial the other information and, accordingly, we do not express an audit reporting process included in the Corporate Governance opinion or, except to the extent otherwise explicitly stated in this Report; and report, any form of assurance thereon. – the information required by Section 1373(2)(d) of the Companies Act 2014 included in the Report of the In connection with our audit of the financial statements, our Directors; responsibility is to read the other information and, in doing so, is consistent with the financial statements and has been consider whether the other information is materially inconsistent prepared in accordance with section 1373(2) of the Companies with the financial statements or our knowledge obtained in the Act 2014. (CA14) audit, or otherwise appears to be materially misstated. If we identify – Based on our knowledge and understanding of the Company an apparent material inconsistency or material misstatement, we and its environment obtained in the course of the audit of are required to perform procedures to conclude whether there is the financial statements, we have not identified material a material misstatement of the financial statements or a material misstatements in the description of the main features of the misstatement of the other information. If, based on the work we internal control and risk management systems in relation to have performed, we conclude that there is a material misstatement the financial reporting process and the information required of this other information, we are required to report that fact. We by section 1373(2)(d) of the Companies Act 2014 included have nothing to report based on these responsibilities. in the Corporate Governance Report and the Report of the Directors. (CA14) With respect to the Directors’ Report, we also considered – In our opinion, based on the work undertaken during the whether the disclosures required by the Companies Act 2014 course of the audit of the financial statements, the information (excluding the information included in the ‘Non Financial required by section 1373(2)(a),(b),(e) and (f) of the Companies Statement’ as defined by that Act on which we are not required to Act 2014 and regulation 6 of the European Union (Disclosure report) have been included. of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017 is contained in the Based on the responsibilities described above and our work Directors Report. (CA14) 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 The directors’ assessment of the prospects of the Group and and matters as described below (required by ISAs (Ireland) unless of the principal risks that would threaten the solvency or otherwise stated). liquidity of the Group
We have nothing material to add or to draw attention to regarding: Directors’ Report – The directors’ confirmation on page 99 of the Annual Report – In our opinion, based on the work undertaken in the course that they have carried out a robust assessment of the principal of the audit, the information given in the Directors’ Report risks facing the Group, including those that would threaten its (excluding the information included in the ‘Non Financial business model, future performance, solvency or liquidity. Statement’ on which we are not required to report) for the – The disclosures in the Annual Report that describe those risks year ended 31 December 2018 is consistent with the financial and explain how they are being managed or mitigated. statements and has been prepared in accordance with the – The directors’ explanation on page 86 of the Annual Report as applicable legal requirements. (CA14) to how they have assessed the prospects of the Group, over – Based on our knowledge and understanding of the Group and what period they have done so and why they consider that Company and their environment obtained in the course of period to be appropriate, and their statement as to whether the audit, we did not identify any material misstatements in they have a reasonable expectation that the Group will be the Directors’ Report (excluding the information included in able to continue in operation and meet its liabilities as they fall the ‘Non Financial Statement’ on which we are not required to due over the period of their assessment, including any related report). (CA14) disclosures drawing attention to any necessary qualifications or assumptions. We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the principal risks facing the Group and the directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the ‘Code’); and considering whether the statements are consistent with the knowledge and understanding of the Group and the Company and their environment obtained in the course of the audit. (Listing Rules)
136 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 137 Kerry Group Annual Report 2018 Annual Report Group Kerry counting records of the Company were were of the Company records counting records. accounting consider necessaryconsider the purposes for of our audit. to be financial statements to permit the Company sufficient audited. and properly readily The C W In our opinion the ac
– withthe sheet isinagreement balance ompany reporting 2014 exception Companies Act and transactions remuneration Directors’ you to report to required we are Under the Companies 2014 Act and remuneration of directors’ in our opinion, the disclosures if, have Act of that 312 sections 305 to specified by transactions this arising from report to no exceptions have not been We made. responsibility. Appointment audit the to the members on 28 April 2016 by appointed were We and December 2016 ended 31 the year for financial statements uninterrupted subsequent financial periods. The period of total December ended 31 the years covering engagement is 3 years, December 2018. 31 to 2016 John McDonnell and on behalf of PricewaterhouseCoopers for Firm Audit and Statutory Accountants Chartered Dublin 2019 18 February reporting Other required 2014 opinions on other matters Companies Act – whichwe andexplanations alltheinformation obtained e have – A further description of our responsibilities for the audit of the the audit descriptionA further for of our responsibilities at: website IAASA on the is located financial statements https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f- a98202dc9c3a/Description_of_auditors_responsibilities_for_audit.pdf report.This description part of our auditors’ forms Use of this report and only for This report, the opinions, has been including prepared with section members as a body in accordance the Company’s for do no other purpose. We and for Companies of the 2014 Act 391 not, for or assume responsibility in giving these opinions, accept is whom this report person to other any other purpose or to any expressly where save come whose hands it may shown or into in writing. our prior consent by agreed
compliance with the Code and the Irish Corporate Governance Governance with the Code and the Irish Corporate compliance a relevant from disclose a departure does not properly Annex specified, under the Listing of the Code or the Annex provision the auditors. by review for Rules, work of the Audit Committee does not appropriately address address does Committee not appropriately work of the Audit Committee. the Audit us to by communicated matters consider the Annual Report taken as a whole to be fair, be fair, to as a whole taken the Annual Report consider the information provides and and understandable balanced and necessary assess to the members for the Group’s business position and performance, model and Company’s with our knowledge of the inconsistent is materially strategy of performing in the course obtained and Company Group our audit. The dir The se The st
– theCompany’s to relating statement ectors’ – onpage103 describingction oftheAnnualReport the – they that onpage93 thedirectors by given atement Other Code provisions to of our responsibility in respect report nothing to have We when: report Auditors’ responsibilities for the audit of the financial statements for responsibilities Auditors’ about whether assurance reasonable obtain to are Our objectives material from free as a whole are the financial statements issue an to and misstatement, or error, fraud whether due to assurance includes that our opinion. Reasonable report auditors’ an audit that but is not a guarantee of assurance, is a high level detect will always with ISAs (Ireland) in accordance conducted can arise Misstatements when it exists. misstatement a material individually or in if, material considered and are or error fraud from the influence to be expected reasonably could they the aggregate, on the basis of these financial decisions taken of users economic statements. In preparing the financial statements, the directors are responsible responsible are the directors financial statements, the In preparing as continue to ability and the Company’s assessingfor the Group’s going to related disclosing as applicable, matters a going concern, unless basis of accounting and using the going concern concern or the Company the Group liquidate to either intend the directors do so. but to alternative no realistic or have operations, cease or to The directors are also responsible for such internal control as control such internal for also responsible are The directors of financial is necessary enable the preparation determine to they misstatement, material due whether from free are that statements or error. fraud to Responsibilities of the directors for the financial statements for Responsibilities of the directors Statement Responsibility fully in the Directors’ more As explained the for responsible are the directors set out on page 93, with the in accordance of the financial statements preparation a true give being satisfied and for they that applicable framework view. and fair Responsibilities for the financial statements the financial statements Responsibilities for and the audit
FINANCIAL CONSOLIDATED INCOME STATEMENT STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018
Before Before Non-Trading Non-Trading Non-Trading Non-Trading Items Items Total Items Items Total 2018 2018 2018 2017 2017 2017 Notes €’m €’m €’m €’m €’m €’m Continuing operations Revenue 2 6,607.6 - 6,607.6 6,407.9 - 6,407.9
Trading profit 2/3 805.6 - 805.6 781.3 - 781.3
Intangible asset amortisation 12 (53.8) - (53.8) (47.9) - (47.9) Non-trading items 5 - (66.9) (66.9) - (54.5) (54.5) Operating profit 3 751.8 (66.9) 684.9 733.4 (54.5) 678.9
Finance income 6 0.5 - 0.5 0.1 - 0.1 Finance costs 6 (67.5) - (67.5) (65.7) - (65.7) Profit before taxation 684.8 (66.9) 617.9 667.8 (54.5) 613.3
Income taxes 7 (89.2) 11.8 (77.4) (89.5) 64.7 (24.8) Profit after taxation attributable to owners of the parent 595.6 (55.1) 540.5 578.3 10.2 588.5
Earnings per A ordinary share Cent Cent - basic 9 305.9 333.6 - diluted 9 305.7 333.2
138 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 139 - 3.5 5.3 €’m 130.1 2017 (0.6) 588.5 568.6 (19.9) (29.2) (20.2) (108.8) 2.2 €’m 22.9 34.5 (1.9) (2.5) (6.3) 2018 (2.0) (0.9) (0.2) 563.4 540.5 Kerry Group Annual Report 2018 Annual Report Group Kerry 17 17 13 24 24 26 Notes Deferred tax effect of re-measurement on retirement benefits obligation benefits retirement re-measurement on of effect tax Deferred income other comprehensive in total recognised directly Net income/(expense) Deferred tax effect of fair value movements on cash flow hedges on cash flow movements value fair of effect tax Deferred operations foreign of on translation difference Exchange through value of financial assets fair held at on revaluation movement value Fair income/available-for-sale other comprehensive or loss: will not be subsequently profit reclassified that to Items obligation benefits Re-measurement on retirement income comprehensive Total Cash flow hedges - reclassified to profit or loss from equity loss or from profit to Cash flow hedges - reclassified of hedging Net change in cost Items that are or may be reclassified subsequently to profit or loss: be subsequently profit reclassified to or may are that Items on cash flow hedges movements value Fair Profit after taxation attributable to owners of the parent owners to attributable after taxation Profit income: Other comprehensive FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018 DECEMBER ENDED 31 FINANCIAL YEAR FOR THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME COMPREHENSIVE OF STATEMENT CONSOLIDATED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2018
31 December 31 December 2018 2017 Notes €’m €’m Non-current assets Property, plant and equipment 11 1,767.0 1,529.6 Intangible assets 12 4,095.6 3,646.7 Financial asset investments 13 35.3 44.6 Investment in associates and joint ventures 14 15.6 5.8 Other non-current financial instruments 23 101.7 95.4 Deferred tax assets 17 37.1 46.4 6,052.3 5,368.5 Current assets Inventories 16 877.8 797.5 Trade and other receivables 19 967.8 893.1 Cash at bank and in hand 23 413.8 312.5 Other current financial instruments 23 10.0 20.3 Assets classified as held for sale 18 2.0 8.3 2,271.4 2,031.7 Total assets 8,323.7 7,400.2 Current liabilities Trade and other payables 20 1,482.1 1,410.5 Borrowings and overdrafts 23 13.8 13.3 Other current financial instruments 23 11.0 9.1 Tax liabilities 122.4 108.4 Provisions 25 20.3 25.3 Deferred income 21 1.2 1.2 1,650.8 1,567.8 Non-current liabilities Borrowings 23 2,119.7 1,728.4 Other non-current financial instruments 23 5.6 7.9 Retirement benefits obligation 26 53.2 124.3 Other non-current liabilities 22 82.6 96.7 Deferred tax liabilities 17 324.1 241.9 Provisions 25 32.1 37.1 Deferred income 21 21.2 22.9 2,638.5 2,259.2 Total liabilities 4,289.3 3,827.0 Net assets 4,034.4 3,573.2 Issued capital and reserves attributable to owners of the parent Share capital 27 22.0 22.0 Share premium 398.7 398.7 Other reserves (207.3) (214.4) Retained earnings 3,821.0 3,366.9 Shareholders’ equity 4,034.4 3,573.2
The financial statements were approved by the Board of Directors on 18 February 2019 and signed on its behalf by:
Philip Toomey, Chairman Edmond Scanlon, Chief Executive
140 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 141
0.1 0.1 8.3 8.2 8.2 0.4 53.1 €’m 22.0 2017 2017 115.9 115.9 271.9 638.1 637.7 745.7 745.7 398.7 754.0 31 December 31
0.1 0.1 6.3 6.3 0.3 6.4 €’m 94.1 94.1 65.3 22.0 2018 714.7 316.4 714.4 398.7 808.8 802.4 802.4 Kerry Group Annual Report 2018 Annual Report Group Kerry 31 December 11 21 15 19 27 20 Notes dmond Scanlon, Chief Executive E
The financial statements were approved by the Board of Directors on 18 February 2019 and signed on its behalf by: behalf and signed on its by: 2019 on 18 February of Directors the Board by approved were The financial statements
for the year ended 31 December 2018 (2017: €107.9m). (2017: December 2018 ended 31 the year for of €158.9m earned a profit The Company Shareholders’ equity Shareholders’ Retained earnings Retained Other reserves Share premium Share Issued capital and reserves Issued capital capital Share Net assets Total liabilities Total Non-current liabilities income Deferred Current liabilities Current and other payables Trade Total assets Total Current assets Current and other receivables Trade Investments in subsidiaries Investments Non-current assets plant and equipment Property, Philip Toomey, Chairman Philip Toomey, AS AT 31 DECEMBER 2018 DECEMBER 31 AT AS COMPANY BALANCE SHEET BALANCE COMPANY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018
Share Share Other Retained Capital Premium Reserves Earnings Total Notes €’m €’m €’m €’m €’m Group:
At 1 January 2017 22.0 398.7 (98.0) 2,771.3 3,094.0 Profit after tax attributable to owners of the parent - - - 588.5 588.5 Other comprehensive (expense)/income - - (129.2) 109.3 (19.9)
Total comprehensive (expense)/income - - (129.2) 697.8 568.6
Dividends paid 10 - - - (102.2) (102.2) Share-based payment expense 28 - - 12.8 - 12.8
At 31 December 2017 22.0 398.7 (214.4) 3,366.9 3,573.2
Profit after tax attributable to owners of the parent - - - 540.5 540.5 Other comprehensive (expense)/income - - (5.1) 28.0 22.9
Total comprehensive (expense)/income - - (5.1) 568.5 563.4
Dividends paid 10 - - - (114.4) (114.4) Share-based payment expense 28 - - 12.2 - 12.2
At 31 December 2018 22.0 398.7 (207.3) 3,821.0 4,034.4
Other Reserves comprise the following:
Capital Other Share-Based Cost of FVOCI/AFS Redemption Undenominated Payment Translation Hedging Hedging Reserve* Reserve Capital Reserve Reserve Reserve Reserve Total Note €’m €’m €’m €’m €’m €’m €’m €’m At 1 January 2017 - 1.7 0.3 38.3 (147.0) 8.7 - (98.0) Other comprehensive income/(expense) 3.5 - - - (108.8) (23.9) - (129.2) Share-based payment expense 28 - - - 12.8 - - - 12.8
At 31 December 2017 3.5 1.7 0.3 51.1 (255.8) (15.2) - (214.4) Other comprehensive expense (1.9) - - - (0.9) (0.3) (2.0) (5.1) Share-based payment expense 28 - - - 12.2 - - - 12.2
At 31 December 2018 1.6 1.7 0.3 63.3 (256.7) (15.5) (2.0) (207.3) * The available-for-sale (AFS) reserve under IAS 39 ‘Financial Instruments: Recognition and Measurement’ becomes the fair value through other comprehensive income reserve (FVOCI) under IFRS 9 ‘Financial Instruments’ at 1 January 2018.
The nature and purpose of each reserve within shareholders’ equity are described in note 35.
142 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 143
- - 53.1 12.8 12.8 €’m €’m 12.2 12.2 40.3 65.3 107.9 107.9 727.2 745.7 Total Total 158.9 158.9 Total Total 802.4 (114.4) (102.2)
- - - - 51.1 12.8 €’m €’m 38.3 12.2 63.3 271.9 107.9 107.9 158.9 158.9 316.4 266.2 (114.4) (102.2) Reserve Reserve Payment Payment Earnings Earnings Retained Retained Kerry Group Annual Report 2018 Annual Report Group Kerry Share-Based
------0.3 0.3 0.3 53.1 12.8 €’m €’m 12.2 40.3 65.3 Other Other Capital Capital
Reserves Reserves Undenominated Undenominated
------1.7 1.7 1.7 €’m €’m 398.7 398.7 398.7 Share Share Capital Capital Reserve Reserve Premium Premium
Redemption Redemption
------€’m 22.0 22.0 22.0 Share Share Capital Capital 8 8 10 10 28 28 28 28 Note Notes Share-based expense payment At 1 January 2017 At Other Reserves comprise the following: Other Reserves At 31 December 2018 At Share-based expense payment Dividends paid Total comprehensive income comprehensive Total Other comprehensive income Other comprehensive Profit after tax Profit At 31 December 2017 31 At Share-based expense payment Dividends paid Total comprehensive income comprehensive Total Other comprehensive income Other comprehensive Profit after tax after tax Profit At 31 December 2018 At Share-based expense payment At 1 January 2017 At Company: At 31 December 2017 31 At
The nature and purpose of each reserve within shareholders’ equity are described 35. in note are equity within shareholders’ and purpose of each reserve The nature FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018 DECEMBER ENDED 31 FINANCIAL YEAR FOR THE COMPANY STATEMENT OF CHANGES IN EQUITY OF CHANGES STATEMENT COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018
2018 2017 Notes €’m €’m Operating activities Trading profit 29 805.6 781.3 Adjustments for: Depreciation (net) 134.1 134.0 Change in working capital 29 (78.8) 9.1 Pension contributions paid less pension expense (40.0) (95.3) Payments on non-trading items (59.8) (34.0) Exchange translation adjustment 0.5 (8.8) Cash generated from operations 761.6 786.3 Income taxes paid (46.1) (54.7) Finance income received 0.5 0.1 Finance costs paid (65.0) (60.3) Net cash from operating activities 651.0 671.4 Investing activities Purchase of assets (net) 29 (296.1) (301.3) Proceeds from the sale of assets 10.6 3.1 Capital grants received - 0.9 Purchase of businesses (net of cash acquired) 30 (476.8) (396.5) (Purchase)/disposal of share in associates and joint ventures (14.5) 29.5 Income received from associates and joint ventures 14 - - Disposal of businesses - - Payments relating to previous acquisitions (11.9) (0.9) Net cash used in investing activities (788.7) (665.2) Financing activities Dividends paid 10 (114.4) (102.2) Issue of share capital 27 - - Net movement on borrowings (net of swaps) 350.2 (144.3) Net cash movement due to financing activities 235.8 (246.5) Net increase/(decrease) in cash and cash equivalents 98.1 (240.3) Cash and cash equivalents at beginning of the financial year 305.6 561.1 Exchange translation adjustment on cash and cash equivalents 0.2 (15.2) Cash and cash equivalents at end of the financial year 29 403.9 305.6
Reconciliation of Net Cash Flow to Movement in Net Debt Net increase/(decrease) in cash and cash equivalents 98.1 (240.3) Cash flow from debt financing (350.2) 144.3 Changes in net debt resulting from cash flows (252.1) (96.0) Fair value movement on interest rate swaps (net of adjustment to borrowings) 29 (2.6) 2.8 Exchange translation adjustment on net debt 29 (27.1) 75.2 Movement in net debt in the financial year (281.8) (18.0) Net debt at beginning of the financial year (1,341.7) (1,323.7) Net debt at end of the financial year 23 (1,623.5) (1,341.7)
144 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 145
------0.2 €’m (4.2) 2017 2017 102.2 106.2 (102.2) (102.2)
- - - - 0.1 36.1 €’m 191.1 2018 154.9 (76.7) (76.7) (114.4) (114.4) Kerry Group Annual Report 2018 Annual Report Group Kerry
11 15 10 27 29 29 29 Notes Cash and cash equivalents at end of the financial year at Cash and cash equivalents Cash and cash equivalents at beginning of the financial year at Cash and cash equivalents Net increase in cash and cash equivalents Net increase Net cash movement due to financing activities due to Net cash movement Issue of share capital Issue of share Financing activities Dividends paid Net cash from investing activities investing Net cash from Investing activities Investing in subsidiary undertakings Investments Net cash from operating activities operating Net cash from Change in working capital Adjustments for: Adjustments Depreciation Operating activities Operating profit Trading FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018 DECEMBER ENDED 31 FINANCIAL YEAR FOR THE COMPANY STATEMENT OF CASH FLOWS OF CASH STATEMENT COMPANY FINANCIAL NOTES TO THE FINANCIAL STATEMENTS STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018
1. Statement of accounting policies Basis of consolidation Subsidiaries General information The consolidated financial statements incorporate the financial Kerry Group plc is a public limited company incorporated in the statements of the Company and the entities controlled by the Company Republic of Ireland. The registered number is 111471 and registered (its subsidiaries), all of which prepare financial statements up to 31 office address is Prince’s Street, Tralee, Co. Kerry. The principal activities December. Accounting policies of subsidiaries are consistent with the of the Company and its subsidiaries are described in the Business policies adopted by the Group. Control is achieved where the Company Reviews. has the power over the investee, is exposed or has rights to variable
returns from its involvement with the investee and has the ability to Basis of preparation use its power to affect its returns. The consolidated financial statements of Kerry Group plc have
been prepared in accordance with International Financial Reporting The results of subsidiaries acquired or disposed of during the financial Standards (‘IFRS’), International Financial Reporting Interpretations year are included in the Consolidated Income Statement from the Committee (‘IFRIC’) interpretations and those parts of the Companies date the Company gains control until the date the Company ceases Act 2014 applicable to companies reporting under IFRS. The financial to control the subsidiary. All inter-group transactions and balances statements comprise the Consolidated Income Statement, the are eliminated on consolidation. Consolidated Statement of Comprehensive Income, the Consolidated
Balance Sheet, the Company Balance Sheet, the Consolidated Associates Statement of Changes in Equity, the Company Statement of Changes Associates are all entities over which the Group has significant influence in Equity, the Consolidated Statement of Cash Flows, the Company but not control, generally accompanying a shareholding of between Statement of Cash Flows and the notes to the financial statements. The 20% and 50% of the voting rights. Significant influence is the power to financial statements include the information in the remuneration report participate in the financial and operating policy decisions of the investee that is described as being an integral part of the financial statements. but is not control or joint control over those policies. Investments in Both the Parent Company and Group financial statements have also associates are accounted for using the equity method of accounting been prepared in accordance with IFRS adopted by the European Union and are initially recognised at cost. On acquisition of the investment in (‘EU’) which comprise standards and interpretations approved by the associate, any excess of the cost of the investment over the Group’s International Accounting Standards Board (‘IASB’). The Group financial share of the net fair value of the identifiable assets and liabilities of the statements comply with Article 4 of the EU IAS Regulation. IFRS investee is recognised as goodwill, which is included within the carrying adopted by the EU differs in certain respects from IFRS issued by the value of the investment. IASB. References to IFRS hereafter refer to IFRS adopted by the EU. The Group’s share of its associates’ post-acquisition profits or losses The Parent Company’s financial statements are prepared using is recognised in ‘Share of associate and joint ventures’ profit/loss after accounting policies consistent with the accounting policies applied to tax’ within Trading Profit in the Consolidated Income Statement, and the consolidated financial statements by the Group. its share of post-acquisition movements in reserves is recognised in
reserves. The cumulative post-acquisition movements are adjusted The consolidated financial statements have been prepared under the against the carrying amount of the investment, less any impairment in historical cost convention, as modified by the revaluation of certain value. Where indicators of impairment arise, the carrying amount of the financial assets and liabilities (including derivative financial instruments) associate is tested for impairment by comparing its recoverable amount and financial asset investments which are held at fair value. Assets with its carrying amount. 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 Unrealised gains arising from transactions with associates are eliminated ventures are accounted for using the equity method. 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 consolidated and company financial statements have been The accounting policies of associates are amended where necessary to prepared on a going concern basis of accounting. ensure consistency of accounting treatment at Group level.
The consolidated financial statements contained herein are presented Joint ventures in euro, which is the functional currency of the Parent Company, Kerry Joint ventures are all entities over which the Group has joint control, Group plc. The functional currencies of the Group’s main subsidiaries whereby the Group has rights to the net assets of the arrangement, are euro, US dollar and sterling. rather than rights to its assets and obligations for its liabilities.
Investments in joint ventures are accounted for using the equity method Certain income statement headings and other financial measures of accounting and are initially recognised at cost. On acquisition of the included in the consolidated financial statements are not defined by investment in joint venture, any excess of the cost of the investment IFRS. The Group make this distinction to give a better understanding of over the Group’s share of the net fair value of the identifiable assets and the financial performance of the business. liabilities of the investee is recognised as goodwill, which is included
within the carrying value of the investment. As the available-for-sale reserve (AFS) under IAS 39 ‘Financial
Instruments: Recognition and Measurement’ becomes the fair value
through other comprehensive income reserve (FVOCI) under IFRS 9 ‘Financial Instruments’ at 1 January 2018, throughout these financial statements respective headings will be presented as FVOCI/AFS.
146 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 147
% - 5% % - 25% 2 7 20%
Kerry Group Annual Report 2018 Annual Report Group Kerry
es of Group assets are determined by management at the management at by determined assets are es of Group , machinery and equipment or vehicles ge in respect of periodic depreciation is calculated after is calculated of periodic depreciation ge in respect Buildings Plant Mot
- - - The char The useful liv A S Op The Gr Pr P to be completed within one year from the date of classification. the date from within one year be completed to the lower of carrying at Assets measured classified sale as held for are sell. less to costs value and fair value Income Statement at the following annual rates: the following at Statement Income residual and the expected useful life of the asset’s establishing an estimate life expected an asset’s Increasing/(decreasing) life. the end of its at value depreciation in a (decreased)/increased would result value residual or its as well as an increase/ Statement Income the Consolidated to charge of the asset. in the carrying value (decrease) appropriateness. annually for and reviewed acquired time the assets are similar assets with as well as experience based on historical These are lives such as changes impact their life, which may events, of future anticipation have values changes or residual in useful lives Historically, in technology. charge. depreciation the Group’s changes to in material not resulted impairment loss. less recognised carried cost at any purposes are costs. attributable feesCost and other directly includes professional for ready of these when the assets assets are Depreciation commences assets. use, on the sametheir intended basis as other property classified sale as held for Assets will be classified saleAssets as held for if their carrying value are use. continuing through than a sale rather transaction through recovered end, the sale is the financial year at met if, as is regarded This condition sale present in its immediate for the asset is available highly probable, the sale and the sale to is expected management is committed condition, management structure of the Group and the internal financial information financial internal and the Group of the structure management executive (the Decision Maker Chief Operating the Group’s to provided decisions, allocating making strategic for who is responsible directors) and assessing monitoring of each segment. the performance resources, utilised measure the key segment is by internally as reported profit Trading within the Group. segments in assessing of operating performance the and stewardship activities, of corporate Other such as the cost Corporate along with the reported are programme, of the Kerryconnect the cost Eliminations activities ‘Group under the heading of inter-group elimination net items, asset Intangible amortisation, non-trading and Unallocated’. basis and managed on a centralised are taxes and income costs finance and segments operating between not allocated are these items therefore, 2. per segment in note not reported are & Nutrition segment The Taste & Nutrition and Consumer Foods. & nutrition of taste portfolio an innovative distributes and manufactures the global food, for & actives solutions and functional ingredients segment industries. The Consumer and pharmaceutical Foods beverage branded and consumer branded and supplies added value manufactures markets. international the Irish, UK and selected to chilled products food impairment accumulated and any depreciation lesscost accumulated attributable and other directly price losses. Cost purchase comprises and is not depreciated. cost at land is stated Freehold costs. plant and equipment is property, on the remaining Depreciation the Consolidated to equal annual instalments charging by calculated
oradministrative production for ofconstruction ssets inthecourse analysis egmental withtheinternal consistent inamanner reported are segments erating Taste segments: reportable ithastwo oup hasdetermined plantandequipment operty, at stated plantandequipment, land,are otherthanfreehold roperty,
(continued)
(continued)
onsolidation
Re Revenue Unr Basis of c Joint v The Gr Trading profit Trading the businesses by generated profit the operating to refers profit Trading asset from intangible amortisationor losses and gains generated before before profit operating represents profit Trading items. non-trading performance of underlying trading not reflective are that specific items of the performance of the trading hinder comparison and therefore or with other businesses. businesses, either year-on-year Group’s Revenue represents the fair value of the consideration received or received of the consideration value the fair represents Revenue foods and consumer and nutrition applications taste for receivable, customers. party third from products, and non-branded branded allowances, net of discounts, value, invoice at is recorded Revenue is Revenue VAT. and excludes rebates and promotional volume of the of ownership and rewards when the significant risks recognised which is usually upon the customer, to been transferred goods have and shipment,with individual customers agreed or in line with terms can be measured incurred and costs when the amount of revenue of the amount due is when the collection is recorded Revenue reliably. sales is made on the basis of historical An estimate assured. reasonably the same period to as these returns allocate to and is recorded returns for provided are and discounts Rebates is recorded. the original revenue promotional agreed with customers, or contracts based on agreements unutilised accrual Any experience. and accumulated arrangements after assessment of such a claim being is released the likelihood that made is no longer probable. probable. Group level. Group or received consideration of the the value represents Revenue foods and consumer and nutrition applications taste for receivable, customers. party third from products, and non-branded branded allowances, net of discounts, value, invoice at is recorded Revenue is Revenue VAT. and excludes rebates and promotional volume which is has transferred, of the products when control recognised usually upon shipment, with individual agreed terms or in line with is no unfulfilled obligation there when is recorded Revenue customers. of historical is made on the basis An estimate on the part of the Group. the same to these returns allocate to and is recorded sales returns and discounts Rebates is recorded. period as the original revenue with customers, or contracts based on agreements for provided are using experience and accumulated arrangements promotional agreed after is released unutilised accrual method. Any value the expected assessment of such a claim being made is highly the likelihood that comparing its recoverable amount with its carrying amount. amount with its recoverable its comparing Unrealised the entity. in interest of the Group’s the extent to eliminated evidence do not provide they that the extent to eliminated losses are amended are of impairment. policies of joint ventures The accounting at treatment of accounting consistency necessary ensure to where recognised in ‘Share of associate and joint ventures’ profit/loss after tax’ and joint ventures’ of associate ‘Share in recognised Statement, Income in the Consolidated share and its Profit within Trading untilin reserves is recognised in reserves movements of post-acquisition post-acquisition The cumulative ceases. on which joint control the date investment, against the carrying amount of the adjusted are movements of impairment arise, indicators Where less value. impairment in any impairment by for is tested joint venture the carrying amount of the S
1January applicable policy before 2018 venue
are withjointventures transactions ealised gainsarisingfrom (continued) entures losses or is profits post-acquisition jointventures’ ofits share oup’s 1. accounting of policies tatement 1. Statement of accounting policies (continued) Computer software is amortised over its expected useful life, which ranges from 3 to 7 years, by charging equal annual instalments to the Intangible assets Consolidated Income Statement. Amortisation commences when the (i) Goodwill assets are ready for use. 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 Impairment of non-financial assets identifiable assets and liabilities of a subsidiary entity at the date control Goodwill and other intangible assets that have an indefinite useful is achieved. life are not subject to amortisation. They are tested annually for
impairment or when indications exist that the asset may be impaired. Goodwill arising on acquisitions before the date of transition to IFRS For the purpose of assessing impairment, these assets are allocated has been retained at the previous Irish/UK GAAP amounts subject to CGUs using a reasonable and consistent basis for corporate assets. to impairment testing. Goodwill written off to reserves under Irish/ An impairment loss is recognised immediately in the Consolidated UK GAAP prior to 1998 has not been reinstated and is not included in Income Statement for the amount by which the asset’s carrying value determining any subsequent profit or loss on disposal. 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 At the date control is achieved, goodwill is allocated for the purpose is determined as the discounted future cash flows of the CGU. The key of impairment testing to cash generating units or groups of cash assumptions during the financial year for the value in use calculations generating units (CGUs) provided they represent the lowest level at which are discount rates, cash flows and growth rates. management monitor goodwill for impairment purposes. Goodwill is not amortised but is reviewed for indications of impairment at least annually When an impairment loss (other than on goodwill) subsequently reverses, and is carried at cost less accumulated impairment losses, where identified. the carrying amount of the asset is increased to the revised estimate of Impairment is recognised immediately in the Consolidated Income its recoverable amount, not exceeding its carrying amount that would Statement and is not subsequently reversed. On disposal of a subsidiary, have been determined had no impairment loss been recognised for the the attributable amount of goodwill (not previously written off to reserves) asset in prior years. Assets that are subject to amortisation are reviewed is included in the determination of the profit or loss on disposal. for impairment whenever events or changes in circumstances indicate
the carrying amount may not be recoverable. Impairment is reviewed by (ii) Brand related intangibles assessing the asset’s value in use when compared to its carrying value. Brand related intangibles acquired as part of a business combination are valued at their fair value at the date control is achieved. Intangible The carrying amounts of property, plant and equipment are reviewed at assets determined to have an indefinite useful life are not amortised each balance sheet date to determine whether there is any indication of and are tested for impairment at least annually. Indefinite life intangible impairment. An impairment loss is recognised when the carrying value assets are those for which there is no foreseeable limit to their of an asset exceeds its recoverable amount. expected useful life. In arriving at the conclusion that these brand related intangibles have an indefinite life, management considers the Inventories nature and type of the intangible asset, the absence of any legal or Inventories are valued at the lower of cost and net realisable value. other limits on the assets’ use, the fact the business and products have Cost includes raw materials, direct labour and all other expenditure a track record of stability, the high barriers to market entry and the incurred in the normal course of business in bringing the products to Group’s commitment to continue to invest for the long-term to extend their present location and condition. Cost is calculated at the weighted the period over which the intangible asset is expected to continue to average cost incurred in acquiring inventories. Net realisable value is provide economic benefits. The classification of intangible assets as the estimated selling price of inventory on hand less all further costs indefinite is reviewed annually. to completion and all costs expected to be incurred in distribution and
selling. Write-downs of inventories are primarily recognised under ‘raw Finite life brand related intangible assets are amortised over the materials and consumables’ in the Consolidated Income Statement. period of their expected useful lives, which range from 2 to 20 years, by charging equal annual instalments to the Consolidated Income taxes Income Statement. The useful life used to amortise finite intangible Income taxes include both current and deferred taxes. Income taxes assets relates to the future performance of the assets acquired and are charged or credited to the Consolidated Income Statement management’s estimate of the period over which economic benefit will except when they relate to items charged or credited directly in other be derived from the asset. Historically, changes in useful lives have not comprehensive income or shareholders’ equity. In this instance the resulted in material changes to the Group’s amortisation charge. income taxes are also charged or credited to other comprehensive
income or shareholders’ equity. (iii) Computer software Computer software separately acquired, including computer software The current tax charge is calculated as the amount payable based on which is not an integral part of an item of computer hardware, is stated taxable profit and the tax rates applying to those profits in the financial at cost less any accumulated amortisation and any accumulated year together with adjustments relating to prior years. Deferred taxes impairment losses. Cost comprises purchase price and other directly are calculated using the tax rates that are expected to apply in the attributable costs. 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 Costs relating to the development of computer software for internal use sheet date. are capitalised once the recognition criteria outlined as follows are met: - an asset can be separately identified; The Group is subject to uncertainties, including tax audits, in any of the - it is probable that the asset created will generate future economic jurisdictions in which it operates. The Group accounts for uncertain tax benefits; positions in line with IFRIC 23 ‘Uncertainty over Income Tax Treatments’. - the development cost of the asset can be measured reliably; The Group considers each uncertain tax treatment separately or - it is probable that the expected future economic benefits that are together with one or more uncertain tax treatments based on which attributable to the asset will flow to the entity; and approach better predicts the resolution of the uncertainty. - the cost of the asset can be measured reliably.
148 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 149
Kerry Group Annual Report 2018 Annual Report Group Kerry
ecognised as a provision is the best is the of the estimate as a provision ecognised ended to complete the asset the use or sale; for complete ended to velopment cost of the asset can be measured reliably. asset of the can be cost measured velopment oup has the ability to use or sell the intangible asset; use or sell the intangible to oup has the ability oup has a present obligation (legal or constructive) as a (legal or constructive) obligation oup has a present obable that the asset created will generate future economic economic future will generate the assetobable that created obable that the Group will be required to settle the to will be required the Group obable that
echnically feasible to complete the asset use or sale; for complete to echnically feasible d benefit liability recognised in the Consolidated Balance in the Consolidated recognised d benefit liability
quate resources are available to complete the assetsale for or complete to available are resources quate eliable estimate can be of the obligation. made of the amount eliable estimate come depends on future events which are by their nature their nature by which are events depends on future come it is t it is int the Gr it is pr benefits; ade use; and the de the Gr of a past event; result it is pr and obligation; a r
Non-tr Non-tr R D ------The define - - - The amount r The out Capitalised development costs are amortised over their expected their expected amortised over are costs development Capitalised asset intangible can generated no internally Where lives. economic as an is recognised expenditure development product be recognised, has the Group Accordingly, it is incurred. in the financial year expense date. to expenditure development product not capitalised 25 to the consolidated financial statements. 25 the consolidated to and amount, disclosed of their nature are virtue by items, Certain of the understanding a proper obtain the user to for in order separately that or circumstances events to relate These items financial information. labelled collectively activities are and normal trading to not related are items’. as ‘non-trading disposal of assets (non-current assets and assets classified as held for of disposal restructuring of assets, material in preparation costs sale), costs and restructuring integration transaction, and material costs 5 disclosed in note are items Non-trading with acquisitions. associated financial statements. the consolidated to in the as an expense activities is recognised on research Expenditure it is incurred. financial year asset criteria: intangible all of the following only if it meets generated Sheet represents the present value of the defined benefit obligation value present the Sheet represents plan assets. also Defined of any benefitless assets are value the fair to limited Balance Consolidated in the Sheet but are recognised in future and reductions from, refunds of available value the present the plan. to, contributions Provisions by other types of liability can bedistinguished from Provisions and the degree the obligation rise to give that the events considering These are or timing of the liability. the amount as to of uncertainty Balance in the Consolidated Sheet when: recognised sheet the balance at obligation settle the present to amount required the surrounding and uncertainties of the risks account after taking date, obligation. management bases its In assessing outcome, uncertain. the likely believed are that and other factors assessment experience on historical disclosed in note are Provisions in the circumstances. be reasonable to
ading items includegainsorlossesading items onthedisposal ofbusinesses, expenditure esearch anddevelopment isassessed asaninternally andcapitalised expenditure evelopment
(continued)
oup concludes that it is not probable that a taxation authority authority a taxation that not probable it is that oup concludes t and it the Group by is controlled the timing of the reversal where in the reverse will not difference the temporary that is probable future. foreseeable t other than a businessof an asset in a transaction or liability does the time of the transaction at not affect that combination of or loss, or on the initial recognition profit or taxable accounting and deduction is not available; which a tax goodwill for
C A R P C - The r D - If the Gr the Consolidated Statement of Comprehensive Income. of Comprehensive Statement the Consolidated Consolidated Income Statement as they arise. Past service cost, service arise. Past as they Statement Income Consolidated in the immediately is recognised or negative, which can be positive Statement. Income Consolidated Gains or losses on the curtailment Income in the Consolidated recognised or settlement of a plan are Re-measurement or settlement occurs. when the curtailment Statement gains and losses actuarial comprising obligation, benefits on retirement included in net amounts on plan assets (excluding and the return in occur in full in the period in which they recognised are cost) interest Consolidated BalanceConsolidated Sheet. defined benefit plans, using the to in relation sheet date balance the schemes’ liabilities determine and method, to unit credit projected for accounted Scheme benefits. assets are of providing cost the related using bid prices. value fair at taxation authority and the Group intends to settle on a net basis. to intends and the Group authority taxation contributions due and any fall as they Statement Income Consolidated in the included as an accrual end are the financial year at outstanding probable that sufficient and suitable taxable profits will be available in available will be profits taxable sufficient and suitable that probable can be differences of temporary against which the reversal the future, date. each reporting at reviewed assets tax are Deferred deducted. recognised offset to right the is a legally enforceable there where income settle on a net basis. Deferred to intends and the Group amounts is a there offset where liabilities tax are income assetstax and deferred the deferred amounts, recognised offset right to the legally enforceable the same by levied taxes to liabilities tax relate assetstax and deferred arise between the tax base of the asset or liability and its carrying value base of the asset and its the tax or liability arise between on all recognised Balancein the Consolidated Sheet. are taxes Deferred for: except sheet date at the balance existence in differences temporary Income taxes (continued) Income taxes the effect reflects the Group treatment tax an uncertain will accept profit, taxable bases, tax the related in determining of the uncertainty the reflects The Group rate. or tax losses,unused tax credits unused tax expected using an treatment tax each uncertain for of uncertainty effect depending which method on approach or a most likely approach value of the uncertainty. the resolution predict better to expects the Group purposes tax/deferred is the income recognition for The unit of account for separately does assets not provide tax or liabilities and the Group these for items outcome positions. the final tax When tax uncertain will impact the such differences recorded, amounts from is different in the period in which such a determination tax and deferred tax income cash position. is made, as well as the Group’s S
inthe recognised are cost andnetinterest cost service urrent each carried outat purposes are accounting for valuations ctuarial inthe recognised plansare defined contribution to ayments benefits obligation etirement offset liabilities tax are income assets andcurrent tax income urrent asset tax isbased upon whetheritis ofadeferred ecognition insubsidiaries whichariseoninvestments differences emporary recognition theinitial whicharisefrom differences emporary that differences based onthetemporary calculated are taxes eferred
1. accounting of policies tatement 1. Statement of accounting policies (continued) Borrowing costs Borrowing costs incurred for qualifying assets, which take a substantial Grants period of time to construct, are added to the cost of the asset during Grants of a capital nature are accounted for as deferred income the period of time required to complete and prepare the asset for its in the Consolidated Balance Sheet and are released to the intended use. Other borrowing costs are expensed to the Consolidated Consolidated Income Statement at the same rates as the related Income Statement in the period in which they are incurred. assets are depreciated. Grants of a revenue nature are credited to the Consolidated Income Statement to offset the matching expenditure. Business combinations The acquisition method of accounting is used for the acquisition of Dividends subsidiaries. The cost of the acquisition is measured at the aggregate Dividends are accounted for when they are approved, through the fair value of the consideration given. The acquiree’s identifiable assets, retained earnings reserve. Dividends proposed do not meet the definition liabilities and contingent liabilities that meet the conditions for recognition of a liability until such time as they have been approved. Dividends are under IFRS 3 ‘Business Combinations’ are recognised at their fair value at disclosed in note 10 to the consolidated financial statements. the date the Group assumes control of the acquiree. Acquisition related costs are recognised in the Consolidated Income Statement as incurred. Operating leases If the business combination is achieved in stages, the acquisition date Annual rentals payable under operating leases are charged to the fair value of the Group’s previously held investment in the acquiree is Consolidated Income Statement on a straight line basis over the period remeasured to fair value at the acquisition date through profit or loss. of the lease. Certain assets and liabilities are not recognised at their fair value at Share-based payments the date control was achieved as they are accounted for using other The Group has granted share-based payments to Executive Directors applicable IFRSs. These include deferred tax assets/liabilities and also and senior executives under a long term incentive plan and to Executive any assets related to employee benefit arrangements. Directors under a short term incentive plan. If the initial accounting for a business combination is incomplete by the The equity-settled share-based awards granted under these plans are end of the reporting period in which the combination occurs, the Group measured at the fair value of the equity instrument at the date of grant. reports provisional amounts for the items for which the valuation of The cost of the award is charged to the Consolidated Income Statement the fair value of assets and liabilities acquired is still in progress. Those over the vesting period of the awards based on the probable number provisional amounts are adjusted during the measurement period of of awards that will eventually vest, with a corresponding credit to one year from the date control is achieved when additional information shareholders’ equity. is obtained about facts and circumstances which would have affected the amounts recognised as of that date. 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 Where applicable, the consideration for the acquisition includes any term incentive plan, the fair value of the expense equates directly to the asset or liability resulting from a contingent consideration arrangement cash value of the portion of the short term incentive plan that will be measured at fair value at the date control is achieved. Subsequent changes settled by way of shares/share options. in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes At the balance sheet date, the estimate of the level of vesting in the fair value of contingent consideration classified as an asset or liability is reviewed and any adjustment necessary is recognised in the are accounted for in accordance with relevant IFRSs. Consolidated Income Statement and in the Statement of Changes in Equity. Share-based payments are disclosed in note 28 to the Any fair value adjustments in relation to acquisitions completed prior consolidated financial statements. to 1 January 2010 have been accounted for under IFRS 3 ‘Business
Combinations (2004)’. Foreign currency Foreign currency transactions are translated into functional currency Investments in subsidiaries at the rate of exchange ruling at the date of the transaction. Exchange Investments in subsidiaries held by the Parent Company are carried at differences arising from either the retranslation of the resulting cost less accumulated impairment losses. 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 Investments in associates and joint ventures recognised in the Consolidated Income Statement when they occur. Investments in associates and joint ventures held by the Group are accounted for using the equity method, after initially being recognised On consolidation, the income statements of foreign currency at cost in the Consolidated Balance Sheet. subsidiaries are translated into euro at the average exchange rate. If this average is not a reasonable approximation of the cumulative effect of Financial instruments the rates prevailing on the transaction dates, a weighted average rate is Financial assets and financial liabilities are recognised on the used. The balance sheets of such subsidiaries are translated at the rate Consolidated Balance Sheet when the Group becomes party to the of exchange at the balance sheet date. Resulting exchange differences contractual provisions of the instrument. arising on the translation of foreign currency subsidiaries are taken directly to a separate component of shareholders’ equity. Financial assets and liabilities are initially measured at fair value plus transaction costs, except for those classified as fair value through profit Goodwill and fair value adjustments arising on the acquisition of or loss, which are initially measured at fair value. foreign subsidiaries are treated as assets and liabilities of the foreign subsidiaries and are translated at the closing rate. 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 On disposal of a foreign currency subsidiary, the cumulative translation whose terms require delivery of the financial asset within the timeframe difference for that foreign subsidiary is recycled to the Consolidated of the market concerned. Income Statement as part of the profit or loss on disposal.
150 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 151
Kerry Group Annual Report 2018 Annual Report Group Kerry
eceivables; s measured at amortised at s measured cost or loss (FVTPL) profit through value fair s at quivalents carried at amortised cost consists of cash consists amortised carried cost at quivalents
or trading; ative hedging instruments; and hedging instruments; ative FVTPL. as at ative s in the fair value of financial assets measured at FVPL at financial assets of measured value fair s in the a a - held f - deriv - deriv loans and r
(Rabbi Trust assets) are recognised in the Consolidated Income Income in the Consolidated recognised are assets) (Rabbi Trust on of impairment losses) Statement. losses Impairment reversal (and separately not reported are FVOCI at measured investments equity were instruments equity Previously, value. other changes in fair from or available-for-sale under equities) (Rabbi Trust as FVPL accounted and Measurement’ and were Recognition ‘Financial Instruments: 39 IAS - - Financial liabilitie D Financial liabilitie The Gr - Change T Cash and cash e liabilities approximates to their fair value. their fair to liabilities approximates Other and non-derivative primarily of trade financial liabilities consist at stated are and other payables Trade and borrowings. other payables the short given value their fair to amortised cost, which approximates non- are and other payables of these liabilities. Trade nature term bearing. interest for amortised cost, at reported except are Subsequently they costs. hedged under are debt instruments that the extent hedged debt. To of the debt instrument is hedges, the carrying value qualifying value fair of the hedged risk, value changes for in the fair adjusted with changes Statement. Income in the Consolidated value The fair arising recognised cash using the discounted is primarily determined of the hedged item flow basis. either Financial liabilities FVTPL arise when the financial liabilities at are upon initial designated are or they liabilities trading held for derivative as FVTPL.recognition as a hedging instrument. effective and designated does not The Group other financial liabilities classified any trading. as held for have January 1 Financial assets applicable policy before 2018 classified one of the following financial assets its into The Group categories: measured at fair value. fair at measured of business. course Trade in the ordinary performed or services that the amount of consideration initially at recognised are receivables significant financing components, unless contain is unconditional they holds the trade The Group value. fair at recognised are when they and cash flows the contractual collect to with the objective receivables using the amortised subsequently them cost at measures therefore method. interest effective and short the Group held by bank and in hand, bank overdrafts at the months or less from of three with a maturity bank deposits term of placement.date bank and short term bank and in hand Cash at Balance assets on the Consolidated shown under current are deposits in and overdrafts’ shown within ‘Borrowings Sheet. are Bank overdrafts included Balance liabilities on the Consolidated Sheet but are current the purpose of the for of cash and cash equivalents as a component amount of these The carrying of Cash Flows. assets and Statement vailable-for-sale; and t FVTPL, as: thiscategory andwithin netoftransaction value, fair at initiallyrecorded are ebt instruments not are that derivatives certain oup classifies trading asheldfor goods sold for customers duefrom amounts are receivables rade
(continued)
(continued) s
d cost: Assets that are held for collection of contractual of contractual collection held for d cost: Assets are that o be measured subsequently at fair value (either through through (either value fair subsequently at o be measured amortised at cost.o be measured : Assets that do not meet the criteria for amortised cost amortised: Assets cost for do not meet the criteria that
sets and liabilities are offset and presented on a net basis in on a offset and presented liabilities and sets are OCI: Assets that are held for collection of contractual cash of contractual collection OCI: held for Assets are that sification depends on the Group’s business managing model for depends on the Group’s sification Statement. FVPL FVPL. at measured are In addition, assetsor FVOCI are that or eliminate to origination as FVPL at designated irrevocably also measured are mismatch an accounting significantly reduce FVPL.at is subsequently that A gain or loss on a debt investment Income in the Consolidated FVPL is recognised at measured cash flows, where those cash flows represent solely payments solely payments represent those cash flows where cash flows, amortised cost. at measured of principal and interest, Any are in the directly is recognised gain or loss arising on derecognition Statement. Income Consolidated presented Impairment losses are Statement. Income in the Consolidated FV the assets’ selling the financial assets, where and for flows of principal and interest, payments solely represent cash flows no debt instruments have The Group FVOCI. at measured are FVOCI. at measured Amortise Those t and or loss); profit OCI or through Those t
E - - - F F - - The clas The Gr Financial instrument Financial as established. The Group subsequently measures all equity investments at fair value. value. fair at investments all equity subsequently measures The Group value fair present to management has elected the Group’s Where is no subsequent in OCI,gains and losses there investments on equity Income gains and losses the Consolidated to value fair of reclassification of the investment. Dividends the derecognition following Statement in Consolidated be recognised to continue such investments from is payments receive right to when the Group’s Statement Income Debt instruments: depend on the of debt instruments Subsequent measurement business the asset managing model for flow and the cash Group’s categories measurement of the asset. three characteristics are There classifies debt instruments: its which the Group into the financial assets and the contractual terms of the cash flows. terms the financial assets and the contractual instruments in equity or loss investments OCI. or For in profit recorded has this will depend on whether the Group trading, not held for are that account to election time of initial recognition the at made an irrevocable other comprehensive through value fair at investment the equity for (FVOCI). income following measurement categories: measurement following Consolidated BalanceConsolidated Sheet. and ‘New standards (see the comparatives restate not to has elected information As a result, 154). on page the comparative interpretations’ previous with the Group’s in accordance for be accounted to continues policies Recognition ‘Financial Instruments: 39 IAS under accounting and Measurement’. the Consolidated Balance Sheet, only if the Group holds an enforceable Balancethe Consolidated Sheet, an enforceable holds Group only if the to is an intention and there for such amounts set off legal right of an asset and settle the liability realise basis or to settle on a net in the gross presented are they In all other instances simultaneously. S
instruments: quity
gainsandlosses willeitherbe value, fair at or assets measured
classifies financialassets its inthe theGroup 1January2018, rom but appliedoup has retrospectively IFRS Instruments’ 9‘Financial
1. accounting of policies tatement 1. Statement of accounting policies (continued) Derecognition of financial liabilities The Group derecognises financial liabilities only when the Group’s Financial instruments (continued) obligations are discharged, cancelled or expire. Financial assets subsequent measurement and gains and losses policy applicable before 1 January 2018 Derivative financial instruments and hedge accounting The Group classified its financial assets into one of the following Derivatives are carried at fair value. The Group’s activities expose it to categories: risks of changes in foreign currency exchange rates and interest rates - loans and receivables: measured at amortised cost using the in relation to international trading and long-term debt. The Group uses effective interest method. foreign exchange forward contracts, interest rate swaps and forward - available-for-sale financial assets: measured at fair value and rate agreements to hedge these exposures. The Group does not changes therein, other than impairment losses, interest income use derivative financial instruments for speculative purposes. When and foreign currency differences on debt instruments, were cross currency interest rate swaps are used to hedge interest rates recognised in OCI and accumulated in the fair value reserve. and foreign exchange rates, the change in the foreign currency basis When these assets were derecognised, the gain or loss spreads element of the contract that relates to the hedged item is accumulated in equity was reclassified to profit or loss. recognised within other reserves under the cost of hedging reserve. - financial assets at FVTPL: measured at fair value and changes therein, including any interest or dividend income, were At inception of the hedge relationship, the Group documents the recognised in profit or loss. economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments Trade and other receivables that have fixed or determinable payments are expected to offset changes in the cash flows of hedged items. that are not quoted in an active market are stated at amortised cost, which The Group documents its risk management objective and strategy for approximates fair value given the short term nature of these assets which undertaking its hedge transactions. are neither past due more than 3 months or impaired. An allowance for doubtful trade receivables is created based on incurred loss experience Fair value of financial instrument derivatives or where there is objective evidence that amounts are irrecoverable. The fair value of derivative instruments is calculated using quoted prices. Movements in this allowance are recorded in ‘other external charges’ which Where such prices are not available a discounted cash flow analysis is used is included within Trading Profit in the Consolidated Income Statement. based on the applicable yield curve adjusted for counterparty risk for the duration and currency of the instrument, which are observable: Impairment of financial assets - Foreign exchange forward contracts are measured using From 1 January 2018, the Group assesses on a forward looking basis the quoted forward exchange rates to match the maturities of these expected credit losses associated with its debt instruments carried at contracts; and amortised cost and FVOCI. The impairment methodology applied depends - Interest rate swaps are measured at the present value of future on whether there has been a significant increase in credit risk. cash flows estimated and discounted based on the applicable yield curves adjusted for counterparty credit risk. For trade receivables, the Group applies the simplified approach permitted by IFRS 9 ‘Financial Instruments’, which requires expected lifetime losses to Cash flow hedges be recognised from initial recognition of the receivables. Where derivatives, including forward foreign exchange contracts and floating to fixed interest rate swaps or cross currency swaps are used, they Impairment policy applicable before 1 January 2018 are primarily treated as cash flow hedges. The gain or loss relating to the Financial assets, other than those at FVTPL, are assessed for indicators effective portion of the interest rate swaps and cross currency interest rate of impairment at the end of each reporting period. Financial assets are swaps is recognised in other comprehensive income and is reclassified to impaired when objective evidence highlights that the estimated future profit or loss in the period when the hedged item is recognised through cash flows from the investment have been affected. profit or loss. Any such reclassification to profit or loss is recognised within finance costs in the Consolidated Income Statement and all effective For quoted and unquoted equity investments classified as available- amounts directly offset against movements in the underlying hedged item. for-sale, a significant or prolonged decline in the fair value of the asset Any ineffective portion of the hedge is recognised in the Consolidated below its cost is considered to be objective evidence of impairment. Income Statement. The gain or loss relating to the effective portion of forward foreign exchange contracts is recognised in other comprehensive For trade receivables, unusual or increasingly delayed payments, increase income and is reclassified to profit or loss in the period the hedged item in average credit period taken or known financial difficulties of a customer, is recognised through profit or loss. Any ineffective portion of the hedge in addition to observable changes in national or local economic conditions is recognised in the Consolidated Income Statement. When the hedged in the country of the customer, are considered indicators that the trade firm commitment or forecasted transaction occurs and results in the receivable balance may be impaired. The carrying amount of the asset recognition of an asset or liability, the amounts previously recognised in is reduced through the use of a loss allowance account and the amount the hedge reserve, within other comprehensive income are reclassified of the loss is recognised in the Consolidated Income Statement. When a through profit or loss in the periods when the hedged item is impacting the trade receivable is uncollectable, it is written off against the loss allowance Consolidated Income Statement. account for trade receivables. Subsequent recoveries of amounts
previously written off are credited to ‘other external charges’ in the When a hedging instrument expires, or is sold or terminated, or when Consolidated Income Statement. a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss and deferred cost of hedging in equity For all other financial assets, objective evidence of impairment could at that time remains in equity until the forecast transaction occurs, include: resulting in the recognition of a non-financial asset, such as inventory. - significant financial difficulty of the counterparty, indicated When the forecast transaction is no longer expected to occur, the through unusual or increasingly delayed payments or increase in cumulative gain or loss and deferred cost of hedging that were reported average credit period taken; in equity are immediately reclassified to profit or loss. - evidence that the counterparty is entering bankruptcy or financial re-organisation; and - observable changes in local or economic conditions.
152 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 153
Kerry Group Annual Report 2018 Annual Report Group Kerry
revised as circumstances change. Details of the assumptions used as circumstances revised these 12 to outlined note in are of estimation involved sources and key statements. financial consolidated O Inc S Inc Busine A D Busine Other areas where accounting estimates and judgements are required, required, estimates are and judgements accounting where Other areas is not financial statements though the impact on the consolidated non-trading are as significant as those mentioned above, considered assets 11), intangible plant and equipment (note 5), property, (note items 13), assets classified (note 12), held as asset financial (note investments (note and other receivables included in trade 18), rebates salefor (note 25) (note and provisions 23 (notes 19), financial instruments and 24), 26). (note benefits obligation retirement financial statements. in many operates as the Group charge tax the income determining with is uncertain items of many treatment jurisdictions and the tax Furthermore, interpretation. different being open legislation to tax in audits including tax uncertainties, can also be subject to the Group are their nature, which by of the jurisdictions in which it operates, any The Group conclude. to years several and can require often complex income of its positions in the recognition tax these uncertain considers policy, assets tax or liabilities. accounting In line with its tax/deferred authority bases of a tax assessment its the Group on the probability all information to regard having treatment general its accepting the reflects and when it is not probable matter on the tax available assets or liabilities. tax When tax/deferred in income uncertainty generally Group end the the year policy at accounting applying its and reflected separately treatment tax each uncertain considered tax assets or tax/deferred in the income of the uncertainty the effect predicts as this better approach value liabilities using an expected determined Such estimates are of the uncertainty. the resolution tax based of the relevant on management judgement, interpretation authorities tax and external with the relevant correspondence laws, the final authorities. of the tax Where past practices and advisors tax were that the amounts from is different of these matters tax outcome tax tax and deferred will impact the income such differences recorded, is made. in the period in which such determination charge respectively. financial statements, the consolidated and 17 to When acquiring a business, the Group is required to bring acquired assets bring acquired to is required a business,When acquiring the Group the Balance value, the Consolidated and liabilities their fair Sheet at on to of estimation. a significant degree of which requires determination assets as intangible while some of which qualify recognition for Group, IFRS of and requirements meetother such benefits do not the recognition in the assessment is required part of goodwill. Estimation form therefore assets acquired, intangible of these assets. intangible For and valuation This methodcash flows. future on expected bases valuations the Group of value using the present cash flow analysis a discounted employs the from be generated to expected cash flows after-tax the estimated revenue rates, discount asset intangible risk adjusted using purchased The period of as appropriate. attrition customer and estimated forecasts of the intangible life useful is based flows on the expected cash expected asset acquired. and possibly be associated with uncertainty may values fair provisional IFRS 3 ‘Business subsequently as allowed by adjusted Combinations’. ther areas assets tax andliabilities andincome/deferred charge ome tax in ofestimation isrequired ignificant judgementandahighdegree 7 disclosed innotes assets tax andliabilities are anddeferred ome taxes ss combinations the into being benefits brought inintangible alsoresult may cquisitions determined oftheassets andliabilities acquired, epending onthenature theconsolidated 30to disclosed innote are ss combinations
(continued)
(continued) (continued) s odwill and intangible assetsodwill and intangible , information about significant areas of estimation that about significant areas , information counting estimates and judgements Impairment of go E In particular Critical ac T He F Financial instrument have the most significant effect on the amounts recognised in the recognised on the amounts the most significant effect have described below and in the are financial statements consolidated financial statements. the consolidated to notes respective or impaired assetsDetermining whether goodwill are and intangible than on assets (other impairment of intangible of an whether a reversal in use of the value comparison requires goodwill) should be recorded the net assets attributable to of CGUs) groups CGUs (or the relevant for is based on an estimate in use calculation those CGUs. The value to the CGUs and these are arise from to expected cash flows of future The rate. discount using an appropriate value net present to discounted estimates, in particular in relation dependent on management’s are tests applied to rates the discount cash flows, of future the forecasting to of the applicable rate growth long term the expected those cash flows, change subject to businesses Such estimates are values. and terminal cash future As conditions. forecasting of changing economic as a result base of its leveraging successfully is dependent uponflows the Group in relation required estimates are the long term, assets over intangible These which will support estimates the asset cashflows value. future to be need to and may events of future depend upon the outcome may basis. Changes in accounting estimates may be necessary if there are are be necessary estimates may basis. Changes if there in accounting based or was on which the estimate changes in the circumstances Such changes are experience. or more of new information as a result is revised. in the period in which the estimate recognised Preparation of the consolidated financial statements requires requires financial statements of the consolidated Preparation estimations, assumptions and judgements certain make management to assets and liabilities. profits, reported the affect that Certain derivatives which comply with the Group’s financial risk with the Group’s which comply derivatives Certain using hedge accounting. for not accounted management policies are a hedge against foreign provide (a) the derivatives; This arises where or (b) hedge apply accounting; to without having borrowings currency In apply hedge accounting. decided not to management have where with value fair independently at these cases the instrument is reported Statement. Income in the Consolidated In all changes recognised any is applied. hedge accounting value cash flow or fair other instances, ceases to exist. The fair value adjustment to the carrying amount of the adjustment to exist. to ceases value The fair the the hedged is amortised risk over arising from the hedged item the Consolidated through of the hedgeditem maturity remaining date. that from Statement Income Where fixed to floating interest rate swaps are used, they are treated treated are used, they are swaps rate interest floating to fixed Where met. hedges when the qualifying are value conditions as fair Changes hedges value as fair designated are that of derivatives value in the fair Statement, Income in the Consolidated together directly recognised are hedged of the asset that or liability value changes in the fair with any the hedged risk. to attributable are Cash flow hedges (continued) Cash flow forward exchange foreign is applied to Cash flow hedge accounting value of offset to fair the changes in expected are which contracts cash flow and maintain achieve to In order cash flows. future expected at it is necessary determine, to management hedge accounting, for is transaction forecast and on an ongoing basis, whether a inception highly probable. S
on-going onan reviewed andunderlyingassumptionsstimates are
derivatives rading thehedging when relationship isderecognised dge accounting hedges air value
1. accounting of policies tatement 1. Statement of accounting policies (continued) New standards and interpretations Certain new and revised accounting standards and new International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations have been issued. The Group intends to adopt the relevant new and revised standards when they become effective and the Group’s assessment of the impact of these standards and interpretations is set out below:
The following Standards and Interpretations are effective for the Group in 2018 but do not have a material effect on the results Effective Date or financial position of the Group: - IFRS 2 (amendment) Classification and Measurement of Share-Based Payment Transactions 1 January 2018 - IFRS 4 (amendment) Insurance Contracts 1 January 2018 - IFRS 9 Financial Instruments 1 January 2018 IFRS 9, published in July 2014, replaced IAS 39 ‘Financial Instruments: Recognition and Measurement’. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets of held-to-maturity, loans and receivables and available-for-sale. Under IFRS 9, on initial recognition, a financial asset is classified as measured at amortised cost or fair value through other comprehensive income (FVOCI), or fair value through profit or loss (FVPL). The classification is dependent on the business model for managing the financial assets and on whether the cash flows represent solely the payment of principal and interest. The Group has quantified the impact on its consolidated financial statements resulting from the application of IFRS 9. The vast majority of financial assets held are trade receivables and cash, which continue to be accounted for at amortised cost. The majority of financial asset investments will continue to be accounted for at fair value through profit or loss with the exception of certain equity instruments which were previously classified as available-for-sale (AFS). Under IFRS 9, the Group will continue to measure these instruments at FVOCI. The AFS reserve has become the FVOCI reserve. On this basis, the classification and measurement changes do not have a material impact on the Group’s consolidated financial statements. Given historic loss rates, normal receivable ageing and the significant portion of trade receivables that are within agreed terms, the move from an incurred loss model to an expected loss model has not had a material impact. For trade receivables, the Group applies the IFRS 9 simplified approach to measure expected credit losses which uses a lifetime expected loss allowance. The Group has elected to adopt the new general hedge accounting model in IFRS 9. The new hedging requirements of IFRS 9 aligns hedge accounting more closely to the Group’s risk management policies, as well as making more hedging relationships eligible for hedge accounting. Current hedging arrangements continue to be appropriate under IFRS. Under IFRS 9 when designating a cross currency swap contract as a hedging instrument the currency basis spread can be excluded and accounted for separately through other comprehensive income as a cost of hedging, being recognised in the income statement at the same time as the hedged item affects profit or loss. Accounting for the cost of hedging, which is not material, has been applied prospectively, without restating comparatives. The impact of adopting IFRS 9 on the consolidated financial statements was not material for the Group and there was no adjustment to retained earnings on application at 1 January 2018. In line with the transition guidance in IFRS 9 the Group has not restated the 2017 prior year on adoption. - IFRS 15 Revenue from Contracts with Customers 1 January 2018 IFRS 15 was issued to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. The Group has adopted IFRS 15 from 1 January 2018, using the modified retrospective approach and has not restated the 2017 prior year on adoption. At the date of adoption, the Group assessed the impact on its consolidated financial statements resulting from the application of IFRS 15. Kerry do not supply services and generally legal title of goods sold is transferred on shipment. In general, there is one performance obligation in each of our sale contracts. In certain parts of the Group’s business, the performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment (cost plus a margin) for performance completed to date. In these circumstances, revenue is recorded over time rather than at a point in time. Based on the Group’s contractual and trading relationships, the impact of adopting IFRS 15 on the consolidated financial statements was not material for the Group and there was no adjustment to retained earnings on application at 1 January 2018. - IAS 40 (amendment) Investment Property 1 July 2018 - IFRIC 22 Foreign Currency Transactions and Advance Consideration 1 January 2018
154 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 155 Effective Date Effective 1 January 2021 1 January 2019 1 January 2019 Kerry Group Annual Report 2018 Annual Report Group Kerry
(continued) Leases the IFRS 16 eliminates 17 ‘Leases’. in IAS guidance existing the replaces published 2016, in January IFRS 16, a single lessee model, leases. leasesclassification accounting It introduces or finance of leases as either operating than 12 months and assets of more and liabilities all leases for with a term a lessee recognise to which requires statement. on lease liabilities in the income interest from of lease assets separately depreciation recognise to apply the will The Group of 1 January 2019. date adoption mandatory its from apply the standard will The Group adoption. Right- first prior to the year for amounts comparative and will not restate approach simplified transition been applied. All as if the new rules always had on transition leases will be measured property of-use assets for date, on adoption. As liability the amount of the lease the reporting at at assetsother right-of-use will bemeasured approximately Of these commitments, non-cancellable has of €83.1m. lease commitments the Group operating basis on a straight-line leases which will be recognised low value are leases and €0.1m short-term to relate €0.3m €92.4m 1 on assets right-of-use of approximately recognise to expects or loss. The Group in profit as expense and leases into which includes the impact of new leases entered and lease liabilities of €103.1m, January 2019 from non-lease components separate not to has also elected The Group in 2018. new acquisitions through acquired as a non-lease components associated and any each lease component for account and instead lease components, the Group date, As the reporting at 1 January 2019. at the lease liability further increasing single lease component state. an advanced at was project implementation Contracts Insurance Treatments Tax Income over Uncertainty (continued) and interpretations standards New a material expectedto have not and are the Group for effective yet not which are and Interpretations Standards The following resultseffect on the of the Group: financial or position - IFRS 16 - IFRS 17 - IFRIC 23 S
1. accounting of policies tatement 2. Analysis of results The Group has determined it has two reportable segments: Taste & Nutrition and Consumer Foods. The Taste & Nutrition segment manufactures and distributes an innovative portfolio of taste & nutrition solutions and functional ingredients & actives for the global food, beverage and pharmaceutical industries. The Consumer Foods segment manufactures and supplies added value branded and consumer branded chilled food products to the Irish, UK and selected international markets. Group Group Eliminations Eliminations Taste & Consumer and Taste & Consumer and Nutrition Foods Unallocated Total Nutrition Foods Unallocated Total 2018 2018 2018 2018 2017 2017 2017 2017 €’m €’m €’m €’m €’m €’m €’m €’m External revenue 5,272.4 1,335.2 - 6,607.6 5,080.5 1,327.4 - 6,407.9 Inter-segment revenue 78.2 3.8 (82.0) - 78.3 3.6 (81.9) - Revenue 5,350.6 1,339.0 (82.0) 6,607.6 5,158.8 1,331.0 (81.9) 6,407.9
Trading profit 805.3 100.1 (99.8) 805.6 767.2 107.8 (93.7) 781.3
Intangible asset amortisation (53.8) (47.9) Non-trading items (66.9) (54.5)
Operating profit 684.9 678.9
Finance income 0.5 0.1 Finance costs (67.5) (65.7)
Profit before taxation 617.9 613.3 Income taxes (77.4) (24.8) Profit after taxation attributable to owners of the parent 540.5 588.5
Segment assets and liabilities Segment assets 5,492.1 938.1 1,893.5 8,323.7 4,671.6 944.2 1,784.4 7,400.2 Segment liabilities (1,201.1) (348.2) (2,740.0) (4,289.3) (1,150.5) (351.8) (2,324.7) (3,827.0)
Net assets 4,291.0 589.9 (846.5) 4,034.4 3,521.1 592.4 (540.3) 3,573.2
Other segmental information Property, plant and equipment additions 259.1 23.6 1.0 283.7 246.4 28.8 0.9 276.1 Depreciation (net) 115.0 18.5 0.6 134.1 108.5 18.1 7.3 133.9 Intangible asset additions 0.3 2.1 28.0 30.4 1.0 1.4 21.2 23.6 Intangible asset amortisation 17.1 6.6 30.1 53.8 17.2 6.2 24.5 47.9
Information about geographical areas Europe Americas APMEA* Total Europe Americas APMEA* Total 2018 2018 2018 2018 2017** 2017 2017** 2017 €’m €’m €’m €’m €’m €’m €’m €’m Revenue by location of external customers 2,757.0 2,745.3 1,105.3 6,607.6 2,725.4 2,678.3 1,004.2 6,407.9 Segment assets by location 4,173.7 3,160.3 989.7 8,323.7 4,210.1 2,451.0 739.3 7,400.2 Property, plant and equipment additions 87.9 142.1 53.7 283.7 100.6 122.4 53.1 276.1 Intangible asset additions 30.1 0.3 - 30.4 22.6 1.0 - 23.6 *Asia Pacific, Middle East & Africa ** The 2017 segmental analysis has been re-presented to reflect the change in management responsibility whereby the revenues of external customers located in the Middle East & Africa are now reported as part of APMEA (formerly APAC) instead of Europe (formerly EMEA).
156 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 157 1.1 13.7 €’m 47.9 54.5 (2.2) 2017 781.3 136.2 325.6 268.7 678.9 436.8 1,196.1 (43.4) (29.0) 3,591.7 6,407.9
Operations Continuing 8.5 6.2 0.3 €’m 53.8 66.9 (2.3) 2018 445.1 136.4 274.6 363.6 805.6 684.9 (34.4) 1,185.3 6,607.6 3,693.3 (2017: €447.8m). €447.8m). (2017: €456.9m Kerry Group Annual Report 2018 Annual Report Group Kerry Continuing Operations 5 11 12 21 19 14
Notes (2017: €2,091.2m) in the USA. in €2,091.2m) The non-current assets (2017: €2,189.5m in the UK and €1,550.1m) (2017: €1,560.8m (continued)
And is stated after charging: And is stated costs and development Research Operating profit Operating Non-trading items Non-trading Intangible assetIntangible amortisation Trading profit Trading Share of associate and joint ventures loss after tax and joint ventures of associate Share Change in inventories of finished goods Change in inventories Foreign exchange losses/(gains) exchange Foreign Loss allowances on trade receivables on trade allowances Loss Other charges operating Capital grants amortisation grants Capital Depreciation (including impairment) Depreciation Staff costs Staff Other external charges Other external Less operating costs: operating Less and consumables Raw materials Revenue Op Ther K R Information about geographical areas (continued) about geographical Information (2017: €906.1m). (2017: €1,000.3m are The non-current of Ireland the Republic in assets located Op Analy Policies. of Accounting policies as outlined in the Statement accounting the same as the Group’s are segments policies of the reportable The accounting a point at in time. is primarily recognised revenue with Customers’ Contracts from Under IFRS 15 ‘Revenue (2017: €1,483.9m). Revenue in respect of Europe includes revenue for Taste & Taste for includes revenue of Europe in respect Revenue €1,483.9m). (2017: €1,924.8m are and in the USA €669.9m) (2017: €668.9m in the UK are €1,327.4m). of €1,335.2m and Consumer Foods (2017: €1,398.0m) Nutrition of €1,421.8m (2017:
3. profit erating costs: operating thefollowing after at charging/(crediting) hasbeen arrived thefinancialyear for profit erating Segments’. underIFRS 8‘Operating disclosure warrant whichwould onindividualcustomers dependencies orconcentrations nomaterial e are were ofIreland Republic inthe customers external from andtherevenues ofIreland plcisdomiciled theRepublic in erry Group include customers external from evenues 2. sis ofresults 3. Operating profit (continued) Auditors’ remuneration PwC PwC PwC PwC PwC PwC Ireland Other Worldwide Ireland Other Worldwide 2018 2018 2018 2017 2017 2017 €’m €’m €’m €’m €’m €’m Statutory disclosure: Group audit 1.1 1.6 2.7 1.3 1.3 2.6 Other assurance services 0.1 - 0.1 - - - Total assurance services 1.2 1.6 2.8 1.3 1.3 2.6
Tax advisory services - 0.1 0.1 - - - Other non-audit services - - - 0.1 - 0.1 Total non-audit services - 0.1 0.1 0.1 - 0.1
Total auditors’ remuneration 1.2 1.7 2.9 1.4 1.3 2.7
Assurance services 97% 96% Non-audit services 3% 4% 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 (2017: €4,720) which are due to the Group’s auditor in respect of the Parent Company. Reimbursement of auditors’ expenses amounted to €0.3m (2017: €0.2m).
4. Total staff numbers and costs The average number of people employed by the Group was:
Taste & Consumer Taste & Consumer Nutrition Foods Total Nutrition Foods Total 2018 2018 2018 2017* 2017 2017 Number Number Number Number Number Number Europe 5,570 7,003 12,573 5,522 7,124 12,646 Americas 8,214 - 8,214 7,438 - 7,438 APMEA 4,468 - 4,468 3,885 - 3,885 18,252 7,003 25,255 16,845 7,124 23,969
The aggregate payroll costs of employees (including Executive Directors) was: Taste & Consumer Taste & Consumer Nutrition Foods Total Nutrition Foods Total 2018 2018 2018 2017* 2017 2017 €’m €’m €’m €’m €’m €’m Europe 353.3 240.4 593.7 320.6 282.1 602.7 Americas 465.8 - 465.8 472.3 - 472.3 APMEA 125.8 - 125.8 121.1 - 121.1 944.9 240.4 1,185.3 914.0 282.1 1,196.1 *The 2017 staff numbers and costs has been re-presented to reflect the change in management responsibility whereby the staff located in the Middle East & Africa are now reported as part of APMEA (formerly APAC) instead of Europe (formerly EMEA).
Social welfare costs of €90.2m (2017: €83.3m) and share-based payment expense of €12.2m (2017: €12.8m) are included in payroll costs. Pension costs included in the payroll costs are disclosed in note 26. Included in the above payroll costs disclosure is €8.3m (2017: €6.8m) which has been capitalised as part of computer software in intangible assets.
158 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 159
11.9 €’m 10.2 52.8 64.7 2017 2017 (6.8) (11.7) (54.5) (36.0)
- 11.8 11.8 €’m (5.4) 2018 (17.3) (55.1) (66.9) (44.2) Kerry Group Annual Report 2018 Annual Report Group Kerry (i) (ii) (iii) (iv) Notes (i)-(iii) (2017: €36.0m) primarily related to costs of integrating acquisitions into the into acquisitions of integrating costs to primarily related €36.0m) €44.2m (2017:
sets held for sale held for sets (2017: a tax credit of €0.1m) arose on the disposal of assets and businesses. arose €0.1m) of credit a tax (2017: €0.5m (2017: €1.0m). (2017: ear, acquisition integration and restructuring costs of costs and restructuring integration acquisition ear, Tax credit due to change in tax rates in tax change due to credit Tax Tax on above Tax Loss on disposal of businessesLoss and assets* Consumer Foods Brexit Currency Mitigation Programme Mitigation Currency Brexit Consumer Foods Acquisition integration and restructuring costs and restructuring integration Acquisition Group’s operations and transaction expenses incurred in completing current year acquisitions. These costs reflect the closure of factories, relocation of relocation of factories, the closure reflect Thesecosts acquisitions. year current in completing incurred expenses and transaction operations Group’s ended 31 model. In the year operating Kerry businesses the existing into the acquired integrate to in order of operations and the restructuring resources costs. and restructuring integration on acquisition deductions available tax due to arose €10.8m) (2017: €10.1m of credit a tax December 2018, *including impairment of as Ther (iv On 2 In 20 A t (ii) C (i) A During the y to sell by €nil sell by to 35% from reduced was tax income corporate of US federal of the Act, As rate perspective. a result tax the statutory an individual and corporate both from tax liabilities. US deferred Kerry’s of revaluation required to 21% rate tax income corporate reduction in the US The 1 January 2018. from 21% with effect to of item €52.8m. as a non-trading Statement Income in the Consolidated reported which is in a one-offThis resulted in 2017, tax credit deferred property, plant and equipment resulting in a loss of €1.5m. and equipment plant resulting property, During the year, certain sourcing and production activities have been relocated and other activities restructured as a consequence of Brexit in order in order of Brexit as a consequence and other activities restructured been relocated activities have and production sourcing certain During the year, is credit tax and the associated €11.7m) (2017: is €17.3m this in 2018 to relating The charge exposure. transaction sterling the Group’s reduce to €1.0m). €2.2m (2017: and assets businesses on disposal of (iii) Loss in a resulting of €10.6m a consideration US for and the Malaysia plant and equipment primarily in Italy, disposed of property, the Group During the year, in a loss 29 of €4.4m . Please see resulting note €1.1m of consideration a combined in associates for also disposed of investments . The Group loss of €1.0m of loss and cash impact on disposal of businesses a reconciliation for and assets. Non-tr
rates changeintax credit dueto ) Tax system, theUStax changes about fundamental to brought ThisAct (“the andJobsAct Cuts Act”) law. into enacted was theUSTax 2 December 2017, of ax charge less costs value theirfair to impaired assets classified sale asheldfor were In2018, intheyear. sale ofassets noimpairments heldfor recorded e were inaloss of€4.3m resulting andalsodisposed ofunused of€30.1m disposed 22.5% ofits aconsideration for theGroup Foods inAddo shareholding 17,
Programme Mitigation Currency onsumer Foods Brexit costs andrestructuring cquisition integration
5. ading items
6. Finance income and costs 2018 2017 Note €’m €’m Finance income: Interest income on deposits 0.5 0.1
Finance costs: Interest payable (66.3) (58.1) Interest rate derivative 0.2 0.6 (66.1) (57.5) Net interest cost on retirement benefits obligation 26 (1.4) (8.2) Finance costs (67.5) (65.7)
7. Income taxes 2018 2017 Notes €’m €’m Recognition in the Consolidated Income Statement Current tax expense in the financial year 61.5 81.9 Adjustments in respect of prior years (2.7) (0.7) 58.8 81.2 Deferred tax in the financial year 17 18.6 (56.4) Income tax expense 77.4 24.8
Included in the above is the following tax credit on non-trading items: Current tax (2.8) (1.2) Deferred tax (9.0) (10.7) One-off deferred tax credit due to the US Tax Cuts and Jobs Act - (52.8) 5 (11.8) (64.7)
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: 2018 2017 €’m €’m Profit before taxation 617.9 613.3
Taxed at Irish Standard Rate of Tax (12.5%) 77.2 76.7 Adjustments to current tax and deferred tax in respect of prior years (1.1) (0.2) Net effect of differing tax rates 8.1 11.1 Changes in standard rates of taxes (2.9) (52.8) Income not subject to tax (1.3) (1.9) Utilisation of unprovided deferred tax assets (1.4) (6.9) Other adjusting items (1.2) (1.2) Income tax expense 77.4 24.8
An increase in the Group’s applicable tax rate of 1% would reduce profit after tax by €6.2m (2017: €6.1m). Factors that may affect the Group’s future tax charge include the effects of restructuring, acquisitions and disposals, changes in tax legislation and rates and the use of brought forward losses.
160 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 161
0.2 m’s €’m €’m 33.2 69.0 2017 2017 2017 2017 2017 176.6 176.2 176.4 102.2 588.5 588.5
cent EPS 333.6 333.2 €’m 77.4 37.0 2018 114.4
Kerry Group Annual Report 2018 Annual Report Group Kerry 0.1 m’s €’m 2018 2018 176.7 176.3 176.8 540.5 540.5
EPS cent 305.7 305.9
27 Note cent per A ordinary share paid 18 May 2018 paid 18 May share per A ordinary cent
2018 paid 16 November share per A ordinary cent dividend of 21.00 2018 Interim 2017) paid 10 November share per A ordinary cent dividend of 18.80 2017 (Interim (Final 2016 dividend of 39.20 cent per A ordinary share paid 19 May 2017) paid 19 May share per A ordinary cent dividend of 39.20 (Final 2016 Group and Company: Group in the financial year shareholders equity recognised to as distributions Amounts dividend of 43.90Final 2017
Basic weighted average number of shares Basic average weighted options outstanding Impact of share number of shares average weighted Diluted 31 December in issue as at number of shares Actual Basic earnings per share of the parent owners to attributable after taxation Profit earningsDiluted per share of the parent owners to attributable after taxation Profit Number of Shares date payment The €86.7m. to which amounts share cent per A ordinary dividend of 49.20 a final 2018 has proposed end the Board the financial year Since do not financial statements The consolidated 12 April 2019. as at date the record on registered shareholders to 2019 the final dividend will be 10 May for this dividend. reflect In accordance with section 304 (2) of the Companies Act, 2014, the Company is availing of the exemption from presenting its individual income statement statement individual income its presenting from of the exemption with section 304 (2) of the Companies is availing Act, the Company In accordance 2014, €107.9m). (2017: €158.9m is the financial year for profit Companies. of The Company’s the Registrar filing it with the Annual General Meeting and from to Dividends Pr E
10. 9. share perarnings Aordinary
8. plc Group Kerry to ofit attributable 11. Property, plant and equipment Plant, Machinery Land and and Construction Motor Buildings Equipment in Progress Vehicles Total Notes €’m €’m €’m €’m €’m Group:
Cost At 1 January 2017 1,043.9 1,812.0 153.6 14.9 3,024.4 Businesses acquired 19.0 17.0 0.9 0.3 37.2 Additions 17.2 70.0 187.6 1.3 276.1 Transfer from construction in progress 53.1 65.9 (119.0) - - Disposals (10.0) (24.7) - (1.2) (35.9) Transfer to held for sale (14.5) (19.9) - - (34.4) Exchange translation adjustment (57.2) (98.1) (11.6) (0.6) (167.5) At 31 December 2017 1,051.5 1,822.2 211.5 14.7 3,099.9
Businesses acquired 30 19.3 53.1 7.4 - 79.8 Additions 22.0 54.1 207.0 0.6 283.7 Transfer from construction in progress 53.7 89.7 (143.4) - - Disposals 5 (8.1) (38.6) - (0.5) (47.2) Transfer to held for sale - - - - - Exchange translation adjustment 12.0 19.2 3.5 (0.2) 34.5 At 31 December 2018 1,150.4 1,999.7 286.0 14.6 3,450.7
Accumulated depreciation and impairment At 1 January 2017 377.8 1,182.6 - 12.1 1,572.5 Charge during the financial year 3 31.7 103.4 - 1.0 136.1 Impairments 3 3.8 1.2 - - 5.0 Disposals (1.3) (24.7) - (1.1) (27.1) Transfer to held for sale (9.3) (19.9) - - (29.2) Exchange translation adjustment (18.8) (67.8) - (0.4) (87.0) At 31 December 2017 383.9 1,174.8 - 11.6 1,570.3
Charge during the financial year 3 31.2 104.3 - 0.9 136.4 Impairments 3 0.9 2.5 - - 3.4 Disposals 5 (7.2) (34.3) - (0.5) (42.0) Transfer to held for sale - - - - - Exchange translation adjustment 4.1 11.6 - (0.1) 15.6 At 31 December 2018 412.9 1,258.9 - 11.9 1,683.7
Carrying value At 31 December 2017 667.6 647.4 211.5 3.1 1,529.6 At 31 December 2018 737.5 740.8 286.0 2.7 1,767.0
Included in the impairments above is €3.4m (2017: €4.9m) charged to non-trading items.
162 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 163
4.1 0.1 4.7 4.3 0.2 0.4 4.7 0.3 4.4 €’m Total Land and Buildings Kerry Group Annual Report 2018 Annual Report Group Kerry (continued) (continued) At 31 December 2018 At At 31 December 2017 and 2018 At depreciation Accumulated 1 January 2017 At during the financial year Charge December 2017 31 At year during the financial Charge 31 December 2018 At Carrying value December 2017 31 At Company: Cost 1 January 2017 At Pr
11. plantandequipment operty, 12. Intangible assets
Brand Related Computer Goodwill Intangibles Software Total Notes €’m €’m €’m €’m Cost At 1 January 2017 2,219.3 1,357.2 212.4 3,788.9 Businesses acquired 125.3 252.3 0.1 377.7 Additions - - 23.6 23.6 Purchase adjustment (0.2) - - (0.2) Disposals - - (0.1) (0.1) Exchange translation adjustment (115.1) (56.6) (1.4) (173.1) At 31 December 2017 2,229.3 1,552.9 234.6 4,016.8
Businesses acquired 30 133.7 314.5 - 448.2 Additions - - 30.4 30.4 Purchase adjustment 5.8 - - 5.8 Disposals - - (3.8) (3.8) Exchange translation adjustment 8.6 12.7 0.4 21.7 At 31 December 2018 2,377.4 1,880.1 261.6 4,519.1
Accumulated amortisation and impairment At 1 January 2017 22.6 197.7 124.3 344.6 Charge during the financial year 3 - 23.6 24.3 47.9 Disposals - - - - Exchange translation adjustment (4.1) (17.0) (1.3) (22.4) At 31 December 2017 18.5 204.3 147.3 370.1
Charge during the financial year 3 - 28.8 25.0 53.8 Disposals - - (3.8) (3.8) Exchange translation adjustment 0.2 2.8 0.4 3.4 At 31 December 2018 18.7 235.9 168.9 423.5
Carrying value At 31 December 2017 2,210.8 1,348.6 87.3 3,646.7 At 31 December 2018 2,358.7 1,644.2 92.7 4,095.6
Allocation of the purchase price in a business combination affects the results of the Group as finite life intangible assets are amortised, whereas indefinite life intangible assets, including goodwill, are not amortised. This could result in differing amortisation charges based on the allocation to finite life and indefinite life intangible assets.
Included in the cost of brand related intangibles are intangibles of €1,175.9m (2017: €1,062.9m) which have indefinite lives.
Approximately €11.4m (2017: €8.0m) of computer software additions during the year were internally generated. Included in this are payroll costs of €8.3m (2017: €6.8m). The Group has not capitalised product development expenditure in 2018 (2017: €nil).
The Group has no separate individual intangible asset that is material, as all intangibles acquired are integrated and developed within the existing business.
164 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 165
€’m 5.1% 55.5 46.2 2.4% 2017 2017 2.0% 2.0% 106.1 855.1 Rates Rates 1,062.9 Growth Growth Intangibles Indefinite Life Life Indefinite
€’m 51.6 1.9% 1.9% 46.0 2.4% 2018 2018 4.9% 974.3 104.0 Rates 1,175.9 Growth Growth Kerry Group Annual Report 2018 Annual Report Group Kerry Intangibles Indefinite Life Life Indefinite
€’m 7.5% 7.4% 7.2% 2017 2017 118.6 9.0% 529.5 407.2 Rates Rates 1,155.5 2,210.8 Goodwill Discount Discount
€’m 9.7% 6.7% 171.2 2018 2018 6.8% 6.8% 497.1 Rates 404.3 1,286.1 2,358.7 Goodwill Discount (continued) cation of the carrying value of goodwill and indefinite life intangible assets by CGU, is as follows: is as follows: CGU, assets by intangible life of goodwill and indefinite of the carrying value cation
as recognised in 2018 or 2017 as a result of the impairment testing which identified significant headroom in the recoverable amount of in the recoverable which identified significant headroom of the impairment testing as a result or 2017 in 2018 as recognised
orecasts employed for the value in use calculations are for a five year period approved by management and a terminal value which is applied to which is applied to value management and a terminal by period approved year a five for are calculations in use the value for employed orecasts 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. specific to and the risks of capital cost average weighted with the Group’s consistent using pre-tax rates rates discount Management estimate markets. stable more is applied to while a lower rate higher risk markets, is applied to rate A higher discount are rates lower growth Generally, rates. industry growth in line with long-term broadly and are data market based on external are rates growth term Long markets. used in emerging are rates while higher growth markets used in mature and working requirements expenditure capital profitability, CGU include future each management in estimatingThe assumptions for cash flows used by past management’s performance, based on historical determined generally investment.capital are in use calculations included in the value The cash flows expenditure in the business. and initiatives Capital the industry and other developments affecting trends of future expectation management’s experience, investment assume historic that plans and broadly strategic based on the Group’s are and profitability the CGUs performance maintain to requirements in line with activity. move to forecast are requirements capital Working will be maintained. patterns Consumer Foods Europe Consumer Foods Europe APMEA APMEA Americas Americas Taste & Nutrition Taste Europe Taste & Nutrition Taste Europe Forecasts are generally derived from a combination of internal and external factors based on historical experience and take account of expected growth growth of expected account and take experience based on historical factors and external of internal a combination from derived generally are Forecasts cash flows. and rate growth rate, the discount to those relating are in use calculations value assumptions calculating for The key region. in the relevant each CGU: for value used in the terminal rates growth long term average and weighted rates discount below average outlinesThe table the weighted A summary of the allo Cash flow f No impairment w Imp 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 average which is based on the weighted five year beyond of the cash flows value the discounted reflects value The terminal cash flows. five the year each CGU. for rates growth term Goodwill and indefinite life intangibles are subject to impairment testing on an annual basis, or more frequently if there are indicators of impairment. of indicators are if there frequently more on an annual basis, or impairment testing subject to Goodwill intangibles are life and indefinite in use on value is determined CGUs each of the four amount of The recoverable (CGUs). units generating of cash groups to allocated These assets are the business rather acquisition, benefit from to expected are CGUs that to allocated in a business are combination assets acquired Intangible calculations. owned. the assets are than where Key assumptions Key Int the related CGUs as compared to their carrying value. In 2018, there was no specific impairment charge (2017: €nil) in relation to goodwill recorded in goodwill recorded to €nil) in relation (2017: no specific was impairment charge there In 2018, their carrying value. to CGUs as compared the related the classification of a business due to sale. as held for Statement Income in the Consolidated items non-trading
12. assets angible airment testing 12. Intangible assets (continued) Sensitivity analysis Sensitivity analysis has been performed across the four CGUs. If the discount rate was 1% higher than management’s estimates, there would have been no requirement for the Group to recognise any impairment charge in 2018 or 2017. Further, a 5% increase would not have resulted in an impairment charge in 2018 or 2017 as there is headroom in the discounted cash flows. If the estimated growth rate was 1% lower than management’s estimates, there would have been no requirement for the Group to recognise any impairment charge in 2018 or 2017. If the estimated cash flows were 5% lower than management’s estimates, again there would have been no requirement for the Group to recognise any impairment charge in 2018 or 2017. Management believes that no reasonable change, in normal circumstances, in any of the above key assumptions would cause the carrying value of any CGU to exceed its recoverable amount.
13. Financial asset investments FVOCI/AFS Other Investments Investments Total €’m €’m €’m At 1 January 2017 4.1 35.2 39.3
Additions - 6.4 6.4 Fair value movements 3.5 - 3.5 Exchange translation adjustment (0.4) (4.2) (4.6) At 31 December 2017 7.2 37.4 44.6
Additions - 4.1 4.1 Disposals - (12.7) (12.7) Fair value movements (1.9) (0.6) (2.5) Exchange translation adjustment - 1.8 1.8 At 31 December 2018 5.3 30.0 35.3
Investments held at fair value through other comprehensive income/available-for-sale These represent investments in equity securities. These investments have no fixed maturity or coupon rate. A fair value assessment was performed in 2018 which resulted in a decrease to the carrying value of these assets of €1.9m (2017: uplift of €3.5m) through other comprehensive income.
Other investments The Group maintains Rabbi Trusts in respect of non-qualified deferred compensation plans in the USA. The assets of the trusts primarily consist of equities, bonds and cash which are restricted for use. The equities and bonds are fair valued through profit or loss at each financial year end using quoted market prices. The corresponding liability is recognised within other non-current liabilities (note 22).
14. Investments in associates and joint ventures 2018 2017 Notes €’m €’m At 1 January 5.8 40.7 Acquisition 15.6 0.6 Disposal 5 (5.5) (34.4) Share of loss after tax during the financial year 3 (0.3) (1.1) Income received from associates and joint ventures - - At 31 December 15.6 5.8
In 2018, the Group entered into a joint venture through the purchase of a 55% shareholding in Proparent B.V. for a total consideration of €15.6m. Proparent B.V. owns Ojah B.V., an alternative protein and extrusion business based in The Netherlands. The amounts included in these Group consolidated financial statements in respect of the post-acquisition profits or losses of this joint venture are taken for the year ended 31 December 2018. The Group has a call option to acquire the remaining 45% interest under an agreed valuation methodology in 2022. The Group is satisfied that the fair value attached to this call option is nominal.
During the year, the Group disposed of its 42.8% shareholding in The Bodychef Limited and its 28.6% shareholding in Everdine Holding S.a.r.l. from the investment in associates line in the Consolidated Balance Sheet for a combined consideration of €1.1m resulting in a loss of €4.4m.
In 2017, the Group disposed of its 22.5% shareholding in Addo Foods for a consideration of €30.1m resulting in a loss of €4.3m. The amounts included in these financial statements in respect of the post-acquisition profits or losses of these associates are taken from their latest financial statements prepared up to their financial year end, together with management accounts for the intervening periods to the Group’s year end.
166 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 167
- 2.3 6.5 €’m €’m 47.2 €’m 32.5 64.1 18.6 20.8 2017 2017 2017 2017 318.5 195.5 637.7 797.5 637.7 194.5 Total Total 446.5 (10.6) 287.0 (56.4)
8.1 1.3 0.6 0.7 0.2 19.1 €’m (1.7)
(2.0) (59.8) (34.0) (33.5) €’m €’m 76.7 29.8 367.1 2018 2018 2018 2018 637.7 877.8 714.4 480.9 and Other Temporary Temporary Short Term Short Term Differences Differences Differences
- - Kerry Group Annual Report 2018 Annual Report Group Kerry 7.3 2.4 6.3 16.9 €’m 20.2 (9.2) (0.4) (61.9) (22.4) Benefits Benefits Obligation Obligation Retirement Retirement
- - - 1.0
0.7 €’m (4.7) (2.5) (1.0) (21.2) (15.0) (21.5) and NOLs and NOLs Tax Credits Credits Tax
- - 1.6 2.5 51.5 €’m 59.5 231.9 205.3 (14.4) (63.7) 268.9 Assets Assets Intangible Intangible
- - 2.1 0.2 3.9 8.5 €’m 67.8 99.3 (7.7) 82.3 (2017: 1.2%) of raw materials and consumables in the Consolidated 1.2%) in the Consolidated and consumables materials of raw (2017: (24.0) Property, Property, Plant and 0.9% Equipment 7 7 Note
At 31 December At
In 2018, the Company increased its investment in Kerry Holding Co. in the US in order to fund acquisitions. to in the US in order Holding Co. in Kerry investment its increased the Company In 2018, Expense inventories At 31 December At Finished goods resale and goods for Additions Raw materials and consumables Raw materials Company: 1 January At Write-downs of inventories recognised as an expense approximates to to approximates as an expense Write-downs recognised of inventories the Group: by recognised liabilities/(assets) tax of deferred in the major categories of the movement is an analysis The following The short term temporary differences and other temporary differences recognised in other comprehensive income comprise fair value movements on movements value fair comprise income comprehensive in other recognised differences temporary and other differences temporary The short term Losses. Net Operating to NOLs refers table, In the above €0.6m). (2017: cash flow hedges of €0.2m D Inventories In At 1 January 2017 At movement Statement Income Consolidated Income Statement.Income Consolidated Income Statement movement Statement Income Consolidated Exchange translation adjustment translation Exchange December 2017 31 At Recognised in other comprehensive income during during income in other comprehensive Recognised the financial year Related to businesses to acquired/(disposed) Related Recognised in other comprehensive income during during income in other comprehensive Recognised the financial year Related to businesses to acquired/(disposed) Related At 31 December 2018 At Exchange translation adjustment translation Exchange
17. andliabilities assets tax eferred
16.
15. insubsidiaries vestments 17. Deferred tax assets and liabilities (continued) The following is an analysis of the deferred tax balances (after offset) for balance sheet purposes: 2018 2017 €’m €’m Deferred tax assets (37.1) (46.4) Deferred tax liabilities 324.1 241.9 287.0 195.5
The total deductible temporary differences for which deferred tax assets have not been recognised is€22.9m (2017: €10.7m). The Group does not have any unrecognised losses which have an expiry date.
Deferred tax has not been recognised in respect of withholding taxes and other taxes that would be payable on the unremitted earnings of foreign subsidiaries, as the Group is in a position to control the timing of reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. The deferred tax liabilities which have not been recognised in respect of these temporary differences are not material as the Group can rely on the availability of participation exemptions and tax credits in the context of the Group’s investments in subsidiaries.
An increase of 1% in the tax rates at which deferred tax is calculated would increase the net deferred tax balance of the Group by €13.3m (2017: €9.2m).
18. Assets classified as held for sale 2018 2017 €’m €’m Property, plant and equipment (net of grants) 2.0 8.3 2.0 8.3
In 2018, the Group held certain property, plant and equipment classified as held for sale in the Taste & Nutrition segment in Europe (2017: Europe and APMEA).
168 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 169
------1.6 4.2 13.7 €’m €’m €’m 14.9 23.4 29.0 (1.9) 2017 2017 2017 2017 115.9 115.9 2017 2017 (6.2) 771.7 108.1 642.9 Company Company
------1.7 8.5 6.3 €’m €’m €’m 31.5 94.1 94.1 29.0 24.7 (5.7) (0.3) 2018 2018 2018 2018 108.2 874.9 734.0 Company Company Kerry Group Annual Report 2018 Annual Report Group Kerry
- 3.8 €’m 57.6 60.0 2017 2017 771.7 893.1 800.7 (29.0) Group Group
- 0.4 €’m 53.6 38.9 2018 967.8 874.9 (31.5) 906.4 Group Group
(2017: €3.8m) outlined above. All receivable balances are within terms with the exception of with the exception within terms are balances All receivable outlined above. €3.8m) (2017: €0.4m for except 1 year due within are balances All receivable below. detailed past due and are which are receivables trade certain be when an past due is deemed to where accounts, past due and within terms split between receivables of trade an analysis shows table The following of trade: terms the agreed exceeds account Receivables due after 1 year Receivables VAT receivable VAT Trade receivables (net) receivables Trade Amounts due from subsidiaries due from Amounts Past due more than 3 months due more Past At end of financial year At Other receivables and prepayments Other receivables Past due more than 2 months but less than 3 months due more Past Exchange translation adjustment translation Exchange Trade receivables due within 1 year receivables Trade Past due more than 1 month but less than 2 months due more Past Utilised or reversed during the financial year Utilised or reversed Loss allowances allowances Loss Increase in loss allowance charged to the Consolidated Income Statement Income Consolidated the to charged in loss allowance Increase Past due not more than 1 month due not more Past Trade receivables Trade At beginning of financial year At Within terms internationally dispersed customers. Further disclosures on currency risk are provided in note 24 to the financial statements. to 24 in note provided are risk on currency disclosures Further dispersed customers. internationally as their carrying value approximates of these less receivables amortised cost at value loss The fair allowances. stated are and other receivables Trade of each class of receivable. is the carrying value date the reporting risk at credit to maximum exposure the hence, in nature; short term these are all trade for loss losses allowance which uses expected credit a lifetime measuring expected to applies the IFRS 9 simplified approach The Group past and the days risk characteristics credit based on shared been grouped have receivables losses, trade credit the expected measure To receivables. loss rates The historical loss experience. credit historical of sales profiles and the corresponding based on the payment are loss rates due. The expected goods in which it sells its including the GDP of the countries factors, on macroeconomic information and forward-looking current reflect to adjusted are receivables. to settle of customers the ability affect that and services, limits assess and defines to quality customer’s credit the potential credit system scoring uses a credit the Group new customer, any accepting Before of trade in respect collateral does require not typically The Group the financial year. throughout regularly reviewed are limits These credit customer. by receivables. number of has a large as the Group receivables, trade to with respect risk currency risk or transaction of credit is no significant concentration There in loss allowances: summarises table the movement The following T
19. andotherreceivables rade 20. Trade and other payables Group Group Company Company 2018 2017 2018 2017 €’m €’m €’m €’m Trade payables 1,285.9 1,200.7 - - Other payables and accruals 177.6 186.2 0.5 2.4 Deferred payments on acquisition of businesses 10.1 13.8 5.8 5.8 PAYE 2.9 3.8 - - Social security costs 5.6 6.0 - - 1,482.1 1,410.5 6.3 8.2
Trade and other payables are stated at amortised cost, which approximates to fair value given the short term nature of these liabilities. The above balances are all due within 1 year.
21. Deferred income Group Group Company Company 2018 2017 2018 2017 Note €’m €’m €’m €’m Capital grants At beginning of the financial year 24.1 27.1 0.1 0.1 Grants received during the financial year 0.6 0.1 - - Amortised during the financial year 3 (2.3) (2.2) - - Disposal (0.1) (0.5) - - Exchange translation adjustment 0.1 (0.4) - - At end of the financial year 22.4 24.1 0.1 0.1
Analysed as: Current liabilities 1.2 1.2 - - Non-current liabilities 21.2 22.9 0.1 0.1 22.4 24.1 0.1 0.1
There are no material unfulfilled conditions or other contingencies attaching to any government grants received.
22. Other non-current liabilities Group Group Company Company 2018 2017 2018 2017 €’m €’m €’m €’m Other payables and accruals 82.6 92.7 - - Deferred payments on acquisition of businesses - 4.0 - - 82.6 96.7 - -
All of the above balances are due within 2 to 5 years except for €0.2m (2017: €0.3m) which is not due until after 5 years.
170 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 171
€’m 10.0 35.3 96.2 (5.5) (9.9) (11.1) 2018 101.7 137.0 413.8 413.8 Total Total 967.8 1,391.6 1,528.6 1,528.6 (355.4) (2,133.5) (2,133.5) (1,623.5) (3,714.8) (2,186.2) (1,768.2) (3,714.8) (1,564.7) (1,506.9) (2,207.9)
------5.3 5.3 5.3 5.3 5.3 €’m 2018 for-sale for-sale Assets/ Investments Investments Kerry Group Annual Report 2018 Annual Report Group Kerry (Liabilities) at at (Liabilities) FVOCI/Available-
------95.1 €’m 10.0 10.0 111.7 111.7 96.2 96.2 (5.6) (5.5) (11.1) 2018 101.7 101.7 (11.0) (16.6) (16.6) Hedging Derivatives Derivatives Instruments Instruments Designated as
------€’m 16.8 30.0 30.0 30.0 30.0 2018 (13.2) (13.2) (13.2) (13.2) (13.2) (13.2) (13.2) or Loss or Loss Assets/ (Liabilities) at Fair Value Fair at through Profit Profit through
------€’m (9.9) 2018 413.8 413.8 967.8 1,381.6 1,381.6 1,381.6 (355.4) (2,189.1) (2,120.3) (1,755.0) (2,120.3) (1,706.5) (1,564.7) (1,495.9) (3,685.0) (3,685.0) (2,303.4) (Liabilities) at at (Liabilities) Amortised Cost Financial Assets/ 13 19 20/22 Notes 24 (i.i) 24 24 (i.i) 24 24 (ii.ii) 24 24 (iii.i) 24 24 (iii.i) 24 24 (ii.ii) 24
sheet date: the balance at outlines table assets the financial the Group The following and liabilities held by Analy Included in the above table are the following components of net debt: components the following are table Included in the above category net debt by of total Analysis Bank overdrafts Non-current liabilities net financial (liabilities)/assets Total Group: Financial asset investments Bank loans Forward foreign exchange contracts exchange foreign Forward Senior notes Interest rate swaps rate Interest Borrowings and overdrafts Borrowings swaps rate Interest Trade and other receivables and other receivables Trade Cash at bank and in hand Cash at Cash at bank and in hand Cash at Total net debt Total Total financial assets Total Current assets Current Non-current assets Borrowings and overdrafts Borrowings Forward foreign exchange contracts exchange foreign Forward Interest rate swaps rate Interest Trade and other payables Trade Total financial liabilities Total Current liabilities Current
23. category by instruments sis offinancial 23. Analysis of financial instruments by category (continued) All Group borrowings are guaranteed by Kerry Group plc. No assets of the Group have been pledged to secure the borrowings.
Part of the Group’s debt portfolio includes US$750m of senior notes issued in 2013 and US$408m (2017: US$408m) of senior notes issued in 2010. At the time of issuance, US$250m of the 2013 senior notes and US$500m of the 2010 US$600m senior notes were swapped, using cross currency swaps, to euro. US$192m of the 2010 senior notes were repaid in January 2017 and the related swaps matured at that date. In addition, the Group holds €750m of senior notes issued in 2015, of which €175m were swapped, using cross currency swaps, to US dollar.
The adjustment to senior notes classified under liabilities at fair value through profit or loss of €13.2m (2017: €20.0m) represents the part adjustment to the carrying value of debt from applying fair value hedge accounting for interest rate risk. This amount is primarily offset by the fair value adjustment on the corresponding hedge items being the underlying cross currency interest rate swaps. Assets/ Assets/ (Liabilities) Derivatives (Liabilities) at Financial Assets/ at Fair Value Designated as FVOCI/Available- (Liabilities) at through Profit Hedging for-sale Amortised Cost or Loss Instruments Investments Total 2017 2017 2017 2017 2017 Notes €’m €’m €’m €’m €’m Group:
Financial asset investments 13 - 37.4 - 7.2 44.6 Forward foreign exchange contracts 24 (i.i) - - 20.3 - 20.3 Interest rate swaps 24 (ii.ii) - - 95.4 - 95.4 Trade and other receivables 19 893.1 - - - 893.1 Cash at bank and in hand 24 (iii.i) 312.5 - - - 312.5 Total financial assets 1,205.6 37.4 115.7 7.2 1,365.9
Current assets 1,205.6 - 20.3 - 1,225.9 Non-current assets - 37.4 95.4 7.2 140.0 1,205.6 37.4 115.7 7.2 1,365.9
Borrowings and overdrafts 24 (iii.i) (1,721.7) (20.0) - - (1,741.7) Forward foreign exchange contracts 24 (i.i) - - (9.1) - (9.1) Interest rate swaps 24 (ii.ii) - - (7.9) - (7.9) Trade and other payables 20/22 (1,507.2) - - - (1,507.2) Total financial liabilities (3,228.9) (20.0) (17.0) - (3,265.9)
Current liabilities (1,423.8) - (9.1) - (1,432.9) Non-current liabilities (1,805.1) (20.0) (7.9) - (1,833.0) (3,228.9) (20.0) (17.0) - (3,265.9) Total net financial (liabilities)/assets (2,023.3) 17.4 98.7 7.2 (1,900.0)
Included in the above table are the following components of net debt:
Analysis of total net debt by category Bank overdrafts (6.9) - - - (6.9) Bank loans (6.4) - - - (6.4) Senior notes (1,708.4) (20.0) - - (1,728.4) Borrowings and overdrafts (1,721.7) (20.0) - - (1,741.7)
Interest rate swaps - - 87.5 - 87.5 Cash at bank and in hand 312.5 - - - 312.5 Total net debt (1,409.2) (20.0) 87.5 - (1,341.7)
172 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 173
- - 17.8 €’m €’m 2017 2017 2017 (8.2) (8.2) 115.9 115.9 107.7 1,341.7 3,573.2 4,932.7
- -
10.1 €’m €’m 94.1 94.1 87.8 (6.3) (6.3) 2018 2018 1,623.5 5,668.0 4,034.4 Kerry Group Annual Report 2018 Annual Report Group Kerry
19 23 20 20/22 Notes Notes
(continued)
s al structure of the Group consists of debt related financial liabilities, cash and cash equivalents, deferred payments on acquisitions of businesses on acquisitions payments deferred financial liabilities, cash and cash equivalents, of debt related consists of the Group al structure Total financial liabilities - all current Total net financial assets Total Total financial assets - all current financial assets Total cost amortised Financial liabilities at and overdrafts Borrowings Trade and other payables Trade of businesses on acquisition payments Deferred Company: cost amortised at Financial assets bank and in hand Cash at and other receivables Trade of the parent owners to attributable Issued and reserves capital net debt Total end debt levels. year 25% above can be up to that seasonal fluctuations Net debt is subject to The capit targets should be reversible within 12 to 18 months; otherwise consideration would be given to issuing in the Group. additional equity to would be given 18 months; otherwise consideration within 12 to should be reversible targets had The Group in April 2015. into entered agreement facility credit revolving option on the €1.1bn extension the second exercised the Group During 2017 in April 2022. matures The facility option during 2016. extension the first exercised previously and Moody’s. & Poor’s Standard by rated are The senior notes asset (net), intangible amortisation and depreciation taxes, income and costs, income finance earnings before setting net debt to is managed by Capital these from variation expected opportunities. Any significant acquisition accommodate to while allowing flexibility targets (EBITDA) items non-trading and equity attributable to owners of the parent, comprising issued capital, reserves and retained earnings as disclosed in the Consolidated Statement of Statement earnings as disclosed in the Consolidated and retained of the parent, owners issued to reserves comprising capital, attributable and equity below: in the table represented as Changes in Equity, Capital management of opportunities that advantage take to while allowing the Group value optimise shareholder to is managed order in of the Group The financing structure fund policy is to enhancing and the Group’s value are opportunities that and investment acquisition targets the business. The Group grow might arise to debt status. grade investment its while maintaining cash flow or borrowings these from transactions The following table outlines the financial assets and liabilities held by the Company at the balance sheet date: the balance outlines at table assets the financial the Company The following and liabilities held by Financial instrument Analy
24. 23. category by instruments sis offinancial 24. Financial instruments (continued) Capital management (continued) Except for public bonds, the majority of Group borrowings are subject to financial covenants calculated in accordance with lenders’ facility agreements. Principal among these are: - the ratio of net debt to EBITDA of a maximum of 3.5 times; and - EBITDA to net interest charge of a minimum of 4.75 times.
At 31 December these ratios were as follows: 2018 2017 Times Times Net debt: EBITDA* 1.7 1.4 EBITDA: Net interest* 14.7 16.2
*Calculated in accordance with lenders’ facility agreements which take account of adjustments as outlined on page 205.
Financial risk management objectives The Group has a clearly defined Financial Risk Management Programme, which is approved by the Board of Directors and is subject to regular monitoring by the Finance Committee and Group Internal Audit. The Group operates a centralised treasury function, which manages the principal financial risks of the Group and Company.
The principal objectives of the Group’s Financial Risk Management Programme are: - to manage the Group’s exposure to foreign exchange rate risk; - to manage the Group’s exposure to interest rate risk; - to ensure that the Group has sufficient credit facilities available to manage liquidity risk; and - to ensure that counterparty credit risk is monitored and managed.
Residual exposures not managed commercially are hedged using approved financial instruments. The use of financial derivatives is governed by the Group’s policies and procedures. The Group does not engage in speculative trading.
The principal objectives of the Group’s Financial Risk Management Programme are further discussed across the following categories: (i) Foreign exchange rate risk management - key foreign exchange exposure of the Group and the disclosures on forward foreign exchange contracts. (ii) Interest rate risk management - key interest rate exposures of the Group and the disclosures on interest rate derivatives. (iii) Liquidity risk management - key banking facilities available to the Group and the maturity profile of the Group’s debt. (iv) Credit risk management - details in relation to the management of credit risk within the Group. (v) Price risk management - key price risk exposures of the Group. (vi) Fair value of financial instruments - disclosures in relation to the fair value of financial instruments. (vii) Offsetting financial instruments - disclosures in relation to the potential offsetting values in financial instruments.
(i) Foreign exchange rate risk management The Group is exposed to transactional foreign currency risk on trading activities conducted by subsidiaries in currencies other than their functional currency. Group policy is to manage foreign currency exposures commercially and through netting of exposures wherever possible. Any residual exposures arising on foreign exchange transactions are hedged in accordance with Group policy using approved financial instruments, which consist primarily of spot and forward exchange contracts and currency swaps.
As at 31 December, the Group had an exposure to US dollar (liability)/asset of (€12.3m) (2017: €6.3m) and a sterling asset/(liability) of €4.8m (2017: (€4.3m)). Based on these net positions, as at 31 December 2018, a weakening of 5% of the US dollar and sterling against all other key operational currencies, and holding all other items constant, would have increased/(decreased) the profit after tax of the Group for the financial year by €0.4m (2017: (€0.1m)).
The Group’s gain or loss on the retranslation of the net assets of foreign currency subsidiaries is taken directly to the translation reserve. As at 31 December 2018 a 5% strengthening of the euro against the US dollar and sterling, holding all other items constant, would have resulted in an additional translation reserve loss of €21.5m (2017: €15.7m) and €21.7m (2017: €17.8m) respectively.
174 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 175
- 11.2 11.2 11.2 11.2 €’m €’m €’m €’m 65.2 2017 2017 2017 2017 (8.4) 2017 2017 (2.8) Total (11.2) 1,951.2 2,016.4
- €’m €’m (9.1) (9.1) (9.1) 2017 2017
Notional Principal 1.1 Liability 4.5 €’m €’m (1.1) 25.9 (3.4) 2018 2018 2,031.6 2,005.7
- Kerry Group Annual Report 2018 Annual Report Group Kerry €’m €’m 20.3 20.3 20.3 2017 2017 Asset (2017: 3 months) of 3 months) 6 months (2017:
- 11.2 11.2 €’m 2017 2017
€’m €’m (1.1) (1.1) (0.1) (1.0) 2018 Total
€’m €’m €’m (1.1) (0.1) (0.1) (1.0) (11.1) (11.1) 2018 2018 (11.0) Liability Fair Value (Liability)/Asset Value Fair
- €’m €’m 10.0 10.0 10.0 2018 Asset (a)
Note
(continued) s 2 1 air 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 than twelve is more of the hedged item is classified maturity as a non-current asset if the remaining of a hedging derivative liability or air value (a) Forward foreign exchange contracts - cash flow hedges - cash flow contracts exchange foreign (a) Forward (i.i) Forward foreign exchange contracts exchange foreign (i.i) Forward Other non-current financial instruments Other current financial instruments Other current Amount reclassified from OCI to profit or loss OCI profit to from Amount reclassified Retained earnings and other reserves: Retained Cash flow hedging reserve Forward foreign exchange contracts - cash flow hedges contracts exchange foreign Forward The following table details the impact of forward foreign exchange contracts - cash flow hedges Balance December: on the Consolidated 31 Sheet as at contracts exchange foreign the impact of forward details table The following Forward foreign exchange contracts - cash flow hedges - cash flow contracts exchange foreign Forward 1 - 2 years Forward foreign exchange contracts contracts exchange foreign Forward less than 1 year Designated in a hedging relationship: - cash flow hedges contracts exchange foreign Forward - current - non-current Forward foreign exchange contracts exchange foreign Forward The f The Gr The full f The Gr The f
The following table details the foreign exchange contracts classified December: as cash flow hedges 31 at contracts exchange the foreign details table The following months and as a current asset or liability if the maturity of the hedged item is less than twelve months. is less of the hedged item than twelve asset if the maturity or liability months and as a current exchange foreign forward and the (hedged item) transactions forecasted highly probable the underlying between relationship is an economic there assessment assessment of effectiveness, a qualitative the prospective is performed. for match As the critical terms (hedged instruments). contracts the hedged risk identical to are contract exchange currency foreign in the forward as the underlying risks has established a 1:1 hedge ratio The Group which to the hedged item changes occur where In instances relationship. hedging of the origination at the Hedge effectiveness is determined components. assess method to effectiveness. derivative uses hypothetical the the Group no longer matching, in the critical terms result * Location of line item in the Consolidated Balance in the Consolidated Sheet of line item * Location 1 2 (continued) risk management rate exchange (i) Foreign sales primarily in US dollar trading, international to in relation rates exchange currency of changes risks in foreign it to activities expose The Group’s hedge these to contracts exchange sales and in US dollar in APMEA. foreign purchases and uses forward The Group out of the Eurozone and sterling Balance value. Consolidated held in the fair their Sheet at are financial instruments Derivative highly probable. are All such exposures exposures. the balance sheet date. All forward contracts relate to sales revenue and purchases made in their respective currencies and forward foreign exchange exchange foreign and forward currencies their respective made in and purchases sales to revenue relate contracts All forward sheet date. the balance lending. ‘within Group’ from receivables currency a hedge against foreign provide that contracts Financial instrument Financial
within Statement Income theConsolidated to willprimarilybe released included thehedging in reserve air value hedges. classified value asfair contracts exchange foreign forward oup does notholdany when hedge relationships into enters TheGroup ofIFRS 9‘FinancialInstruments’. requirements adoptthehedge accounting to oup haselected
sheet date: thebalance at contracts* exchange foreign offorward theportfolio details table ollowing
24. 24. Financial instruments (continued) (i) Foreign exchange rate risk management (continued) (i.i) Forward foreign exchange contracts (continued) (a) Forward foreign exchange contracts - cash flow hedges (continued) The following table details the impact of forward foreign exchange contracts* - cash flow hedges on the Consolidated Income Statement and Consolidated Statement of Comprehensive Income during the financial year: 2018 2017 €’m €’m Movements recognised in the Consolidated Statement of Comprehensive Income Total hedging gain recognised in OCI in the year 2.7 3.8 Amount reclassified from OCI to profit or loss (2.1) (29.9) 0.6 (26.1)
Movements Recognised in the Consolidated Income Statement Income reclassified from OCI to profit or loss 1 2.1 29.9 Ineffectiveness recognised in profit or loss1 - - 2.1 29.9
* Location of line item in the Consolidated Income Statement 1 Other operating charges
There were no transactions during 2018 or 2017 which were designated as hedges that did not occur, nor are there hedges on forecast transactions that are no longer expected to occur.
(ii) Interest rate risk management The Group is exposed to interest rate risk as the Group holds borrowings on both a fixed and floating basis. This exposure to interest rate risk is managed by optimising the mix of fixed and floating rate borrowings and by using interest rate swaps, cross currency swaps and forward rate agreements to hedge these exposures, in accordance with Group policy as approved by the Board of Directors. The Group reviews the mix of fixed and floating rate borrowings on an ongoing basis and adjusts where necessary to comply with Group policy. Derivative financial instruments are held in the Consolidated Balance Sheet at their fair value.
(ii.i) Interest rate profile of financial liabilities excluding related derivatives fair value The Group’s exposure to interest rates on financial assets and liabilities are detailed in the table below including the impact of cross currency swaps (CCS) on the currency profile of net debt: Total Impact Total Floating Fixed Pre CCS of CCS after CCS Rate Debt Rate Debt €’m €’m €’m €’m €’m Euro (1,016.2) (399.8) (1,416.0) (622.6) (793.4) Sterling 51.0 - 51.0 51.0 - US Dollar (805.5) 399.8 (405.7) (187.3) (218.4) Others 64.2 - 64.2 64.2 - At 31 December 2018 (1,706.5) - (1,706.5) (694.7) (1,011.8)
Euro (682.6) (373.9) (1,056.5) (272.9) (783.6) Sterling 123.7 - 123.7 123.7 - US Dollar (916.9) 373.9 (543.0) (334.4) (208.6) Others 66.6 - 66.6 66.6 - At 31 December 2017 (1,409.2) - (1,409.2) (417.0) (992.2)
The currency profile of debt highlights the impact of the US$658m (2017: US$658m) of cross currency swaps entered into at the time of issuance of senior notes. For the 2013 senior notes, US$250m were swapped from US dollar fixed to euro fixed and are accounted for as cash flow hedges. For the 2010 senior notes, US$408m were swapped from US dollar fixed to euro floating and are accounted for as fair value hedges. The retranslation of the foreign currency debt of US$658m (2017: US$658m) to the balance sheet rate resulted in a foreign currency loss of €105.1m (2017: €79.3m) which is directly offset by a gain of €105.1m (2017: €79.3m) on the application of hedge accounting on the cross currency swaps.
In addition, the Group holds €750m of senior notes issued in 2015, of which €175m were swapped, using cross currency swaps, from euro fixed to US dollar floating and are accounted for as fair value hedges of the related debt. The fair value of the related derivative includes an asset of €4.8m (2017: €12.4m asset) for movement in exchange rates since the date of execution which is directly offset by a loss of€4.8m (2017: €12.4m loss) on the application of hedge accounting on the cross currency swaps.
The weighted average interest rate for fixed borrowings as at 31 December 2018 is 2.54% (2017: 2.55%) and the weighted average period for which the rate is fixed is 5.7 years (2017: 6.7 years).
176 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 177
- - €’m €’m 87.5 92.0 92.0 (4.5) (4.5) 2017 2017 Total
- - €’m €’m (7.9) (3.4) (3.4) (4.5) (4.5) 2017 2017 Liability
- - - - Kerry Group Annual Report 2018 Annual Report Group Kerry €’m €’m 95.4 95.4 95.4 2017 2017 Asset (2017: 30%) of net debt and 30%) of (2017:
- - 5.2 5.2 €’m €’m 91.0 91.0 96.2 2018 Total
- - - - €’m €’m (5.5) (5.5) (5.5) 2018 Liability
- - 5.2 5.2 €’m €’m 96.5 96.5 2018 101.7 Asset (a) (b) Notes
(continued) s 2 2
1 1 air 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 than twelve is more of the hedged item is classified maturity as a non-current asset if the remaining of a hedging derivative or liability air value ting rate financial liabilities are at rates which fluctuate mainly based upon LIBOR or EURIBOR and comprise of bank borrowings and other and other based mainly upon LIBOR of bank borrowings or EURIBOR which fluctuate and comprise rates at financial liabilities are ting rate - curr - non- - curr - non- (a) Interest rate swap contracts - cash flow hedges - cash flow contracts swap rate (a) Interest (ii.ii) Interest rate swap contracts swap rate (ii.ii) Interest (continued) value fair derivatives related of financial liabilities excluding profile rate (ii.i) Interest Other current financial instruments Other current Other non-current financial instruments * L Designated in a hedging relationship: - cash flow hedges contracts swap rate Interest Interest rate swap contracts - fair value hedges value - fair contracts swap rate Interest Interest rate swap contracts swap rate Interest
The full f C The Gr I swaps currency cross swaps, debt. rate long-term uses to interest The Group in relation rates of changes risks in interest it to activities expose The Group’s Balance values. in the Consolidated held their fair Sheet at are financial instruments Derivative hedge these exposures. to agreements rate and forward The Gr The f The floa Under interest rate swap contracts, including cross currency interest rate swaps, the Group agrees to exchange the difference between the fixed and the fixed between the difference exchange to agrees the Group swaps, rate interest currency including cross contracts, swap rate Under interest notional principal amounts. on the agreed calculated amounts interest rate floating 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 profile months. The classification is less of the maturity of the hedged item than twelve asset if the maturity or liability months and as a current below. (b) to set out in the tables (a) are contracts derivative rate interest interest rate swaps which is not matched by the loan. the by which is not matched swaps rate interest and both qualitative assess terms match, method to as while the critical swaps for such effectiveness derivative uses the hypothetical The Group not present are that contracts swap rate interest currency in cross characteristics remains as there be performed to required assessmentsquantitative are contracts swap rate interest currency in the cross as the underlying risks has established a 1:1 hedge ratio The Group being basis risks. in the hedged item, reporting date. at each and relationship of the hedging origination at the Hedge effectiveness is determined the hedged risk components. identical to are 2 swap rate and the interest the identified notional amount of the underlying debt instrument (hedged between item) relationship is an economic there (hedged instrument). contract assessment has assessment a 1:1 hedge established of effectiveness, a qualitative The Group the prospective is performed. for match As the critical terms at the Hedge effectiveness is determined the hedged risk components. identical to are contracts swap rate in the interest as the underlying risks ratio the matching, no longer in the critical terms which result the hedged item changes to occur where In instances of the hedging relationship. origination value adjustment on the credit/debit assess to the method to occur due may effectiveness. Hedge ineffectiveness derivative uses the hypothetical Group ent � current ent current (continued) risk management rate (ii) Interest end 41% the year 6 months. At 1 to from periods ranging for in advance fixed rates financial liabilities bearing interest (2017: 42%) of gross debt was held at floating rates. If the interest rates applicable to floating rate net debt were to rise by 1% holding all other items all other items 1% holding rise by to net debt were rate floating applicable to rates If the interest rates. floating held at debt was 42%) of gross 52% (2017: 0.6%). 1% (2017: by decrease could Statement Income in the Consolidated items and non-trading taxation before constant,Group of the profit the Financial instrument Financial
swap rate interest currency ross swap rate nterest when hedge relationships into enters TheGroup ofIFRS 9‘FinancialInstruments’. requirements adoptthehedge accounting to oup haselected Balance intheConsolidated Sheet ocation oflineitem sheet date: thebalance at contracts* derivative rate ofinterest theportfolio details table ollowing risk. credit allowfor to derivatives rate interest valuing to approach price’ an‘exit oup adopts
24.
24. Financial instruments (continued) (ii) Interest rate risk management (continued) (ii.ii) Interest rate swap contracts (continued) (a) Interest rate swap contracts - cash flow hedges (continued) The following table details the notional principal amounts and remaining terms of the cash flow hedges, where the Group receives a floating or a fixed interest rate and pays fixed interest rate on swaps as at 31 December: Average Contracted Fair Value Fixed Interest Rate Asset/(Liability) Notional Principal 2018 2017 2018 2017 2018 2017 % % €’m €’m €’m €’m Interest rate swap contracts less than 1 year ------1 - 2 years ------2 - 5 years 2.58 - 5.2 - 218.4 - > 5 years - 2.58 - (4.5) - 208.6 Interest rate swap contracts - cash flow hedges 5.2 (4.5) 218.4 208.6
The following table details the impact of interest rate swap contracts - cash flow hedges on the Consolidated Balance Sheet as at 31 December:
2018 2017 €’m €’m Interest rate swap contracts - cash flow hedges 5.2 (4.5)
Fixed rate borrowings: Amount reclassified from hedge reserve to profit or loss re: foreign exchange rate fluctuations (23.0) (13.2)
Retained earnings and other reserves: Cash flow hedging reserve 18.9 18.0 Cost of hedging reserve (1.6) - Accumulated hedge ineffectiveness 0.5 (0.3) (5.2) 4.5
Of the fair value asset/(liability) of €5.2m (2017: (€4.5m)), a gain of €23.0m (2017: €13.2m) is attributed to foreign exchange rate fluctuations.
The following table details the impact of interest rate swap contracts - cash flow hedges on the Consolidated Statement of Comprehensive Income during the financial year: 2018 2017 €’m €’m Total hedging gain/(loss) recognised in cash flow hedging reserve 10.3 (29.4) Total hedging loss recognised in cost of hedging reserve (1.6) - Amount reclassified from hedge reserve to profit or loss re: foreign exchange rate fluctuations (9.8) 28.3 Amount reclassified from OCI to profit or loss re: interest rate fluctuations (0.4) 0.7 Ineffectiveness recognised in profit or loss 0.8 (1.8) Net impact (0.7) (2.2)
The following table details the income/(expense) impact of interest rate swap contracts* - cash flow hedges and the hedged item on the Consolidated Income Statement during the financial year: 2018 2017 €’m €’m Interest rate swap contracts - cash flow hedges: Foreign exchange rate fluctuations 1 9.8 (28.3) Amount reclassified from OCI to profit or loss re: interest rate fluctuations 2 0.4 (0.7) Ineffectiveness recognised in profit or loss2 (0.8) 1.8
Fixed rate borrowings: Foreign exchange rate fluctuations 1 (9.8) 28.3 Net impact (0.4) 1.1 * Location of line item in the Consolidated Income Statement. 1 Other operating charges 2 Finance costs
178 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 179
- - 6.5 €’m €’m 92.0 2017 2017 2017 2017 277.8 446.1 723.9 (66.1) (12.4) (20.0) (92.0)
€’m
181.7 Notional Principal 2018 327.6 749.8 240.5 3.6 5.5 €’m 91.0 (4.8) 2018 (82.1) (13.2) (91.0)
- Kerry Group Annual Report 2018 Annual Report Group Kerry €’m 29.8 62.2 92.0 2017 2017
Fair Value Asset Value Fair €’m 91.0 22.8 25.4 42.8 2018 - % 3.14 4.78 2017 % 3.11 3.78 4.83 2018
Fixed Interest Rate Interest Fixed Contracted Average
(2017: (€25.4m)) on the expiry of interest rate swap swap rate of interest on the expiry (€25.4m)) includes amount of €nil (2017: an (€53.7m)) (2017: €9.8m
1 2 (continued) s
1 erest rate swap contracts including cross currency interest rate swaps, the Group agrees to exchange the difference between the floating and the floating between the difference exchange to agrees the Group swaps, rate interest currency including cross contracts swap rate erest ent year foreign exchange movement of movement exchange foreign ent year (b) Interest rate swap contracts - fair value hedges value - fair contracts swap rate Interest (b) (ii.ii) Interest rate swap contracts (continued) contracts swap rate (ii.ii) Interest hedges (continued) - cash flow contracts swap rate (a) Interest Borrowings and overdrafts Borrowings 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. a US dollar entity to entity a Euro and subsequently on-lent from US dollars to Euro from swapped were issuance senior notes €175m of the 2015 Receivables: Fixed rate borrowings: rate Fixed fluctuations rate exchange Foreign Cost of hedging reserve Interest rate movements rate Interest Receivables: fluctuations rate exchange Foreign Interest rate swap contracts - fair value hedges value - fair contracts swap rate Interest Retained earnings and other reserves: Retained Hedge ineffectiveness Interest rate swap contracts swap rate Interest 1 - 2 years 2 - 5 years > 5 years hedges value - fair contracts swap rate Interest * L The f The int The int Under int The f The curr pays a floating interest rate on swaps as at 31 December: 31 as at on swaps rate interest a floating pays are settled on a net basis. are notional principal amounts. on the agreed calculated amounts interest fixed (continued) risk management rate (ii) Interest the year. during contracts � 2 All hedges are highly effective on a prospective and retrospective basis. retrospective and on a prospective highly effective All hedges are Financial instrument Financial as at 31 December: 31 as at
Balance intheConsolidated Sheet ocation oflineitem Balance hedges ontheConsolidated Sheet andthehedged items value -fair contracts* swap rate theimpact ofinterest details ollowing table isbased on6monthEURIBOR orLIBOR. theGroup paidby rate interest settleona6monthlyorannualbasis.Thefloating swaps rate erest and rate interest afixed receives theGroup hedges, where value ofthefair terms andremaining thenotionalprincipalamounts details table ollowing
to be paid rate fixed andthe received to be due rate orfixed rate thefloating between ona6monthlybasis,thedifference settle swaps rate erest
24. 24. Financial instruments (continued) (ii) Interest rate risk management (continued) (ii.ii) Interest rate swap contracts (continued) (b) Interest rate swap contracts - fair value hedges (continued) The following table details the impact of interest rate swap contracts - fair value hedges on the Consolidated Statement of Comprehensive Income during the financial year: 2018 2017 €’m €’m Amounts recognised in the cost of hedging reserve 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: 2018 2017 €’m €’m Interest rate swap contracts - fair value hedges: Foreign exchange rate fluctuations 1 8.4 (24.3) Interest rate movements 2 (6.8) (8.4) Ineffectiveness recognised in profit or loss2 1.0 (1.2)
Fixed rate borrowings: Foreign exchange rate fluctuations 1 (16.0) 46.4 Interest rate movements 2 6.8 8.4
Receivables: Foreign exchange rate fluctuations 3 7.6 (22.1) Net impact 1.0 (1.2)
* Location of line item in the Consolidated Income Statement ** Location of line item in the Consolidated Balance Sheet 1 Other operating charges 2 Finance costs 3 Receivables: €175m of the 2015 senior notes issuance were swapped from Euro to US dollars and subsequently on-lent from a Euro entity to a US dollar entity within the Group.
(iii) Liquidity risk management Liquidity risk considers the risk that the Group could encounter difficulties in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. There is no significant concentration of liquidity risk.
Group funding and liquidity is managed by ensuring that sufficient facilities are available from diverse funding sources with an appropriate spread of debt maturities to match the underlying assets. The Group uses cash flow forecasts to constantly monitor the funding requirements of the Group.
Group businesses are funded from cash generated from operations, borrowings from banks and senior notes from capital markets. It is Group policy to ensure that: - sufficient acilitiesf are available to cover its gross forecast debt by at least 1.25 times; and - at least 75% of total facilities available are committed.
Both targets were met at 31 December 2018 and 2017.
Funding is sourced from banks via syndicated and bilateral arrangements and from institutional investors.
All Group credit facilities are arranged and managed by Group Treasury and approved by the Board of Directors. Where possible, facilities have common security, financial covenants and terms and conditions.
At 31 December 2018, the Group had undrawn committed bank facilities of €750m (2017: €1,100m), and a portfolio of undrawn standby facilities amounting to €320m (2017: €323m). The undrawn committed facilities comprise primarily of a revolving credit facility maturing between 3 - 4 years (2017: between 4 - 5 years).
180 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 181
€’m 87.5 €’m 96.2 (6.9) (6.4) 312.5 (9.9) Total Total (17.8) (10.1) 413.8 Total Total (13.2) (20.0) (257.1) (303.0) (355.4) (1,721.7) (1,721.7) (1,741.7) (1,341.7) (1,739.5) (1,708.4) (2,133.5) (1,623.5) (2,042.5) (2,120.3) (2,120.3) (1,755.0) (2,130.4) (2,387.5)
------€’m 25.3 €’m 25.4 (8.7) (12.7) (59.9) (33.6) (811.2) (811.2) (811.2) (811.2) (823.9) (798.5) (844.8) (1,414.0) (1,439.3) (1,430.6) (1,430.6) (1,430.6) (1,430.6) (1,490.5) > 5 years > 5 years > 5 years > 5 years Kerry Group Annual Report 2018 Annual Report Group Kerry
------1.3 €’m €’m 62.2 2 - 5 (2.7) 28.0 2 - 5 (11.3) years years years years (118.1) (134.1) (289.1) (414.6) (277.8) (277.8) (277.8) (762.1) (226.9) (280.5) (1,112.1) (1,112.1) (1,112.1) (350.0) (1,110.8) (1,230.2) (1,082.8)
------€’m €’m (1.3) (1.3) (1.5) (1.8) 42.8 Up to Up to (55.8) Up to Up to (54.5) (48.8) (181.7) 2 years 2 years (183.2) (183.2) (183.2) (185.0) (142.2) (232.0) 2 years 2 years ------€’m €’m (6.9) (6.4) (3.9) 312.5 (9.9) (27.1) 299.2 (10.1) (13.3) 413.8 (13.3) (13.3) (13.8) (81.6) (13.8) (13.8) (13.8) (54.5) 400.0 (23.9) (56.6) (80.5) 1 year to 1 year to On demand & up On demand & up
(continued) s (iii.i) Contractual maturity profile of non-derivative financial instruments of non-derivative profile maturity (iii.i) Contractual Bank overdrafts Total net debt as at 31 December net debt as at 2018 Total
Cash at bank and in hand bank and Cash at Total net debt as at 31 December 2017 31 net debt as at Total Interest rate swaps rate Interest Cash at bank and in hand Cash at Borrowings - reported Borrowings Interest rate swaps rate Interest Senior notes - fair value adjustment value Senior - fair notes Borrowings - reported Borrowings Reconciliation to net debt position: to Reconciliation and overdrafts Borrowings Senior notes - fair value adjustment value Senior - fair notes At 31 December 2018 At Reconciliation to net debt position: to Reconciliation and overdrafts Borrowings Interest commitments Interest At 31 December 2017 31 At commitments Interest Deferred payments on acquisition of businesses on acquisition payments Deferred Borrowings and overdrafts Borrowings Deferred payments on acquisition of businesses on acquisition payments Deferred Senior notes Borrowings and overdrafts Borrowings Bank loans Senior notes Bank overdrafts
Bank loans (continued) risk management (iii) Liquidity (note and other payables trade non-derivative of its excluding instruments financial maturity contractual remaining the Group’s details table The following 2 and 5 years between €96.4m) €82.4m (2017: within 1 year, payable is €1,410.5m) (2017: non-current20) and other 22), liabilities (note of which €1,482.1m the liabilities of financial flows cash to based up on the undiscounted has been drawn This information after 5 years. is payable €0.3m) (2017: and €0.2m that the extent To principal cash flows. and commitments includesanalysis The both interest repay. to can be required the Group on which earliest date based change subject to and as such, are date of the reporting the end at yield curves rate interest from used is derived the rate floating, are rates interest movements. on market Financial instrument Financial
24. 24. Financial instruments (continued) (iii) Liquidity risk management (continued) (iii.ii) Contractual maturity profile of derivative financial instruments The following table details the Group’s remaining contractual maturity of its derivative financial instruments. The table has been drawn up based on the undiscounted net cash inflows and outflows on derivative instruments that settle on a net basis. To the extent that the amounts payable or receivable are not fixed, the rate used is derived from interest rate yield curves at the end of the reporting date and as such are subject to change based on market movements. On demand & Up to 2 - 5 up to 1 year 2 years years > 5 years Total €’m €’m €’m €’m €’m Interest rate swaps inflow 35.6 69.2 108.1 26.3 239.2 Interest rate swaps outflow (24.9) (23.0) (56.6) (6.3) (110.8) Net interest rate swaps inflow 10.7 46.2 51.5 20.0 128.4 Forward foreign exchange contracts outflow (1.0) (0.1) - - (1.1) At 31 December 2018 9.7 46.1 51.5 20.0 127.3
On demand & Up to 2 - 5 up to 1 year 2 years years > 5 years Total €’m €’m €’m €’m €’m Interest rate swaps inflow 34.2 34.2 127.0 59.2 254.6 Interest rate swaps outflow (20.4) (21.6) (61.6) (23.9) (127.5) Net interest rate swaps inflow 13.8 12.6 65.4 35.3 127.1 Forward foreign exchange contracts inflow 11.2 - - - 11.2 At 31 December 2017 25.0 12.6 65.4 35.3 138.3
Included in the interest rate swaps inflow and outflow is the foreign currency differential on final maturity of the cross currency interest rate swaps as follows:
Swaps inflow - 1 - 2 years - swaps inflow of €41.9m (2017: €nil) - 2 - 5 years - swaps inflow of €48.1m (2017: €53.9m) - Greater than 5 years - swaps inflow of €19.9m (2017: €37.8m)
(iii.iii) Summary of borrowing arrangements (a) Bank loans Bank loans comprise committed term loan facilities, committed revolving credit facilities, bilateral term loans and other uncommitted facilities: - Demand facilities; - Syndicate revolving credit facilities of €1.1bn maturing April 2022; and - Bilateral term loans with maturities ranging up to 1 year.
(b) 2015 Euro senior notes The Group issued a debut 10 year euro bond of €750m at an interest rate of 2.375% with a maturity date on 10 September 2025.
(c) 2013 US dollar senior notes The Group issued a debut 10 year USA public bond of US$750m at an interest rate of 3.2% with a maturity date on 9 April 2023.
(d) 2010 Senior notes The Group placed US$600m of senior notes with USA institutional investors in four tranches with maturity as follows: - Tranche A of US$192m - matured and repaid on 20 January 2017 - Tranche B of US$208m - maturing on 20 January 2020 - Tranche C of US$125m - maturing on 20 January 2022 - Tranche D of US$75m - maturing on 20 January 2025
The interest rates listed above are before the effects of related interest rate swaps.
Both the committed syndicate facilities and the 2010 senior notes have financial covenants attached to them. The Group was in full compliance with these covenants for the financial years 2018 and 2017.
(iv) Credit risk management Cash deposits and other financial assets give rise to credit risk on the amounts due from counterparties.
The Group controls and monitors the distribution of this exposure by ensuring that all financial instruments are held with reputable and financially secure institutions and that exposure to credit risk is distributed across a number of institutions. At 31 December 2018 and 2017 all cash, short-term deposits and other liquid investments had a maturity of less than 3 months.
182 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 183
7.2 €’m €’m Fair 37.4 (9.1) 20.3 95.4 (7.9) 2017 2017 2017
Value (354.9) (1,761.9) (1,407.0)
5.3 €’m €’m 10.0 2017 30.0 (5.5) (11.1) 2018 101.7
(340.4) Amount (1,708.4) (1,368.0) Carrying Kerry Group Annual Report 2018 Annual Report Group Kerry
€’m Fair 2018 Value Level 1 Level Level 2 Level Level 2 Level Level 2 Level Level 2 Level Level 3 Level (358.8) (1,377.0) (1,735.8) Hierarchy Fair Value Value Fair €’m 2018 (356.4) Amount (1,755.0) (1,398.6) Carrying
Level 2 Level Level 2 Level Hierarchy Fair Value Value Fair
Fair value through other comprehensive income/available-for-sale other comprehensive through value Fair Fair value through profit or loss profit through value Fair
(continued) s
volving inputs other than quoted prices included in Level 1 that are observable for the assets or liabilities, either directly (as prices) or prices) (as the assets or liabilities, for either directly observable are 1 that prices included in Level other than quoted inputs volving 3). (Level inputs) (unobservable data market not based on observable the assets or liabilities for inputs are that volving ed prices in active markets for identical assets or liabilities (Level 1); identical assets or liabilities for (Level markets ed in active prices
indirectly (derived from prices) (Level 2); and (Level prices) from (derived indirectly those in quot those in
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. during the current levels between been no transfers have There 13. in note 3 assets is provided of Level The reconciliation Forward foreign exchange contracts exchange foreign Forward Financial liabilities swaps rate Interest Financial asset investments: Financial asset investments: Senior - Private notes Forward foreign exchange contracts exchange foreign Forward Financial liabilities Senior - Public notes Financial assets swaps rate Interest (b Ex - ( - - In r ( The Gr T The Gr Cr 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 of securities held versus be low as the level to securities risk, equity price to held, is considered financial asset investments due to exposure The Group’s net assets is not material. the Group’s value fair carried at of financial instruments value (a) Fair those based on: between analysed are value fair at recognised Financial instruments which are primarily interest rate swaps and foreign exchange contracts. exchange and foreign swaps rate interest primarily which are applied in are These levels based on CDS levels. limits exposure credit setting appropriate and (CDS) swaps default the credit monitoring through derivative into enters the Group with which institutions controlling and for counterparties with placed are surplus funds that of material the level controlling contracts. counterparties. on a monthly basis. least at unit level operating at receivable of accounts financial condition (iv) Credit risk management (continued) risk management Credit (iv) the financial for rates swap default based credit on levels tolerance approved and calculates of the Group EBITDA takes that risk calculation at a value institutions the controlling and for with counterparties placed are that surplus funds of material the level appliedin controlling are These levels institutions. rating independent credit as published by are those financial institutions for swaps default Credit contracts. derivative into enters Group with which the basis. on an ongoing and reviewed updated agencies and are in the financial statements approximate their fair values. their fair approximate in the financial statements Financial instrument Financial
amortised carried at offinancialinstruments cost value ) Fair amortised cost at offinancialassets thecarryingamounts that andfinancialliabilities recognised itisconsidered table, inthefollowing asdetailed cept
offinancialinstruments value vi) Fair Price riskmanagement v) ofinstitutions theportfolio managed across riskisactively credit theGroup appropriate, where financialinstruments, riskonderivative credit to elation 23) 23), (note 19),cashdeposits assets andotherfinancial (note (note receivables trade ofgross riskconsists credit to exposure maximum oup’s onthe isperformed evaluation Ongoingcredit areas. geographical diverse across spread number ofcustomers, large ofa consist receivables rade amongstapproved isspread into entered oftransactions value aggregate andthe monitored iscontinuously counterparties its to exposure oup’s based on limits exposure credit appropriate setting by ofinstitutions theportfolio managed across actively is institutions financial to edit riskexposure 24. 24. Financial instruments (continued) (vi) Fair value of financial instruments (continued) (c) Valuation principles The fair value of financial assets and liabilities are determined as follows: - assets and liabilities with standard terms and conditions which are traded on active liquid markets are determined with reference to quoted market prices. This includes equity investments; - other financial assets and liabilities (excluding derivatives) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments. This includes interest rate swaps and forward foreign exchange contracts which are determined by discounting the estimated future cash flows; - the fair values of financial instruments that are not based on observable market data (unobservable inputs) requires entity specific valuation techniques. Disclosures are set out in note 13; and - derivative financial instruments are calculated using quoted prices. Where such prices are not available, a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instruments. Forward foreign exchange contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates adjusted for counterparty credit risk, which is calculated based on credit default swaps of the respective counterparties. Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates adjusted for counterparty credit risk which is calculated based on credit default swaps of the respective counterparties.
(vii) Offsetting financial instruments The Group enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements. The ISDA agreements do not meet the criteria for offsetting in the Consolidated Balance Sheet. This is because the Group does not have any current legally enforceable right to offset recognised amounts, because the right to offset is enforceable only on the occurrence of future events such as a default on the bank loans or other credit events. No collateral is paid or received.
The following table sets out the carrying amounts of recognised financial instruments that are subject to the above agreements.
The table also sets out where the Group has offset bank overdrafts against cash at bank and in hand based on a legal right of offset as set out in the banking agreements. Gross amounts of Gross amounts of Amounts of financial financial assets in financial liabilities instruments presented Related financial the Consolidated in the Consolidated in the Consolidated instruments that Balance Sheet Balance Sheet Balance Sheet are not offset Net amount €’m €’m €’m €’m €’m At 31 December 2018 Financial assets Cash at bank and in hand 413.8 - 413.8 - 413.8 Forward foreign exchange contracts 10.0 - 10.0 (8.5) 1.5 Interest rate swaps 101.7 - 101.7 (5.5) 96.2 525.5 - 525.5 (14.0) 511.5
Financial liabilities Bank overdrafts - (9.9) (9.9) - (9.9) Forward foreign exchange contracts - (11.1) (11.1) 8.5 (2.6) Interest rate swaps - (5.5) (5.5) 5.5 - - (26.5) (26.5) 14.0 (12.5)
At 31 December 2017 Financial assets Cash at bank and in hand 312.5 - 312.5 - 312.5 Forward foreign exchange contracts 20.3 - 20.3 (8.1) 12.2 Interest rate swaps 95.4 - 95.4 (5.7) 89.7 428.2 - 428.2 (13.8) 414.4
Financial liabilities Bank overdrafts - (6.9) (6.9) - (6.9) Forward foreign exchange contracts - (9.1) (9.1) 8.1 (1.0) Interest rate swaps - (7.9) (7.9) 5.7 (2.2) - (23.9) (23.9) 13.8 (10.1)
184 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 185
1.1 4.8 37.1 71.2 €’m 25.3 €’m 62.4 62.4 (9.7) 52.4 2017 2017 (3.0) (0.9) (5.5) (5.4) (0.2) Total Total
- - - 1.5 7.2 11.1 4.4 12.4 32.1 €’m €’m 20.3 (2.7) 52.4 (3.0) (5.4) 2018
Kerry Group Annual Report 2018 Annual Report Group Kerry Non-Trading Items Items Non-Trading - - 0.4 51.3 €’m 58.8 45.2 (7.0) (0.9) (5.5) (0.2) (0.4) Insurance
d benefit plans expose the Group to risks such as interest rate risk, risk, rate investment such as interest risk. risks risk and mortality to inflation the Group d benefit plans expose Non-current liabilities Analysed as: Analysed liabilities Current At 31 December 2018 At Exchange translation adjustment translation Exchange Transferred to payables and accruals payables to Transferred Utilised during the financial year (Released)/provided during the financial year (Released)/provided At 31 December 2017 31 At Exchange translation adjustment translation Exchange Transferred to payables and accruals payables to Transferred Utilised during the financial year Provided during the financial year Provided Group: 2017 1 January At The define A D The v Non-tr The Gr independent and professionally qualified actuaries to incorporate the requirements of IAS 19 ‘Employee Benefits’ in order to assess to Benefits’ the liabilities of the in order 19 ‘Employee of IAS the requirements incorporate qualified actuaries to independent and professionally the at value their fair at been measured method. All assets in the schemes have unit credit using the projected December schemes 2018 31 as at various The actuarial pension plans in line with local requirements. the Group’s carried out for funding purposes for are valuations actuarial Full sheet date. balance public inspection. for not available are reports primarily the review period. In 2018, year a five American and Asian entities over our European, out across is being rolled and this programme it operates 5 April 2018 from accrual future the defined close benefit scheme to made to a decision was with employees, consultation UK and following on the focused in a numberresulted of benefit changes including review the scheme. In 2017, contribution in the defined to employees being offered service with future in a multi-employer to employees being offered service with future January 2017, the defined close benefit schemesa decision to in the Netherlands from scheme. the defined contribution to benefits their past service transfer to of an opportunity avail to continued members scheme, while in Ireland the UK and the USA (included in Rest of World). These defined benefit plans comprise final salary pension plans, career average salary pension plans and average These final salary defined benefit pension plans comprise plans, career of World). (included in Rest the UK and the USA Defined benefit employees. a number of USA primarily to relate the Group by medical plans operated medical plans. The post-retirement post-retirement of the of representatives comprise generally of Trustees The Boards of Trustees. Boards by the UK, administered schemes in Ireland, are and the USA of the plans including compliance the management and governance for responsible and independent are These trustees. Boards the employer employees, and regulations. laws with all relevant The Group operates post-retirement benefit plans in a number of its businesses throughout the world. These plans are structured to accord with local accord to structured benefit businesses plans in a number the world. These of its plans are throughout post-retirement operates The Group and defined benefit plans. The assets both in and can include defined contribution of the schemes operate they in each country and practices conditions funds. administered trustee in separate relevant, held, where are These costs are expected to be paid within 24 months. be paid within 24 to expected are These costs Insurance these for self-insured The provision appropriate. it remains ensure basis to on a regular is reviewed The amount of self-insurance levels. insurance in data and historical valuation actuarial industry information, consultants, insurance from based on advice provided amounts represents exposures is periodically The methodology of estimating the provision loss reserves. and outstanding not reported but classified as incurred are of claims that respect is dependent on the timing of settlement of the The utilisation of the provision be appropriate. to the assumptions that made continue ensure to reviewed claim date. from 4 years 2 to from claims ranges settlement of outstanding time for the average Historically, claims. outstanding items Non-trading R Provisions
countries inwhich the across to employees thebenefit offering andintegrate harmonise,standardise to continues theGroup strategy s partofthe1Kerry theindividualschemes’ by been updated andhave valuations actuarial based onthemostrecent are financialstatements alues used intheGroup’s andtheNetherlands(Eurozone), primarilyinIreland operates, inanumber inwhichtheGroup ofcountries schemes exist efined benefit post-retirement etirement benefits obligation benefits 26. etirement in2013. amountincurred witharesidual together and2017 in2018 incurred provisions integration andacquisition restructuring to relate ading items pre-determined upto exposures self- insurance certain retains theGroup Underthese arrangements, ofself-insurance. alevel oup operates
25. 26. Retirement benefits obligation (continued) Interest rate risk The calculation of the present value of the defined benefit obligation is sensitive to the discount rate which is derived from the interest yield on high quality corporate bonds at the balance sheet date. Market conditions in recent years have resulted in volatility in discount rates which has significantly impacted the present value of the defined benefit obligation. Such changes lead to volatility in the Group’s Consolidated Balance Sheet, Consolidated Income Statement and Consolidated Statement of Comprehensive Income. Interest rates also impact on the funding requirements for the plans.
Investment risk The net deficit recognised in the Consolidated Balance Sheet represents the present value of the defined benefit obligation less the fair value of the plan assets. When assets generate a rate of return less than the discount rate this results in an increase in the net deficit. Currently the plans have a diversified portfolio of investments in equities, bonds and other types of asset classes. External investment consultants periodically conduct an investment review and advise on the most appropriate asset allocation taking account of asset valuations, funding requirements, liability duration and the achievement of an appropriate return on assets.
Inflation risk A significant proportion of the defined benefit obligation is linked to inflation, therefore an increase in inflation rates will increase the defined benefit obligation. However, a portion of the plan assets are inflation-linked debt securities which will mitigate some of the effects of inflation movements.
Mortality risk The present value of the defined benefit obligation is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the defined benefit obligation.
(i) Recognition in the Consolidated Income Statement and Consolidated Statement of Comprehensive Income The following amounts have been recognised in the Consolidated Income Statement and the Consolidated Statement of Comprehensive Income in relation to defined contribution and defined benefit post-retirement plans: 2018 2017 €’m €’m Service cost: - Costs relating to defined contribution schemes 57.9 54.8 - Current service cost relating to defined benefit schemes 6.9 13.8 - Past service and settlements (23.1) (23.6) Net interest cost 1.4 8.2 Recognised in the Consolidated Income Statement 43.1 53.2
Re-measurements of the net defined benefit liability: - Return on plan assets (excluding amounts included in net interest cost) 99.7 (85.3) - Experience gains on schemes’ liabilities (26.8) (5.2) - Actuarial gains arising from changes in demographic assumptions (19.4) (38.8) - Actuarial gains arising from changes in financial assumptions (88.0) (0.8) Recognised in the Consolidated Statement of Comprehensive Income (34.5) (130.1) Total 8.6 (76.9)
The total service cost is included in total staff numbers and costs (note 4) and the net interest cost is included in finance income and costs (note 6).
(ii) Recognition in the Consolidated Balance Sheet The Group’s net defined benefit post-retirement schemes’ deficit at 31 December, which has been recognised in the Consolidated Balance Sheet, was as follows: 31 December 31 December 2018 2017 €’m €’m Present value of defined benefit obligation (1,280.4) (1,477.3) Fair value of plan assets 1,227.2 1,353.0 Net recognised deficit in plans before deferred tax (53.2) (124.3) Net related deferred tax asset 9.2 22.3 Net recognised deficit in plans after deferred tax (44.0) (102.0)
186 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 187
- % 2.50 3.00 Years World World World 21 - 22 22 - 24 23 - 24 24 - 25 24 Rest of Rest Rest of Rest 3.20- 3.50
% 21 23 23 25
UK UK 3.10 2.60 3.00 Years 2017 2017 2.10 - 3.10 2.10
% Kerry Group Annual Report 2018 Annual Report Group Kerry 1.70 1.70 N/A* Years 21 - 22 25 - 27 23 - 25 23 - 24 Eurozone Eurozone Eurozone 2.00 - 2.10 2.00 Impact on schemes’ liabilities Decrease/increase of 10.8% Decrease/increase Increase/decrease of 7.5% of 7.5% Increase/decrease Increase/decrease of 0.0% of 0.0% Increase/decrease Increase/decrease of 4.6% of 4.6% Increase/decrease Increase/decrease of 3.4% of 3.4% Increase/decrease
- %
2.50 3.00 Years World World World 21 - 22 23 - 24 22 - 24 24 - 25 24 Rest of of Rest Rest of Rest
3.75 - 4.25 3.75
% 21
23 22 24 UK UK 3.10 3.00 N/A* Years 2018 2018 2.10 - 2.90 2.10
% 22 1.60 2.20 N/A* Years 23 - 25 23 - 24 25 - 26 Eurozone Eurozone Eurozone 1.55 - 1.60 1.55
Change in assumption Increase/decrease of 0.50% Increase/decrease Increase/decrease of 0.50% Increase/decrease Increase/decrease of 0.50% Increase/decrease Increase/decrease of 0.50% Increase/decrease Increase/decrease in life expectancy of 1 year expectancy in life Increase/decrease
(continued) sumptions used by the Group’s actuaries in order to calculate the defined benefit obligation at 31 December, some of which December, 31 defined the at benefit obligation calculate to actuaries order in Group’s the sumptions used by o closure of the Irish, Netherlands and UK defined benefit plans to future accrual during 2016 to 2018. to during 2016 accrual future and UK defined of the Irish, Netherlands benefit plans to o closure Female - retiring in 20 years’ time in 20 years’ - retiring Female Rate used to discount schemes’ liabilities discount used to Rate Male - retiring in 20 years’ time in 20 years’ Male - retiring Rate of increase for pensions in payment and deferred pensions and deferred pensions in payment for of increase Rate Rate of increase in salaries of increase Rate Inflation assumptionInflation Female - retiring now - retiring Female Male - retiring now Male - retiring *Not applicable due t The principal financial as The principal The t Assumption Assumption the pension schemes’ actuaries from based on advice assumptions used are The mortality assumption is mortality. The most significant demographic time, some of which have now and in 20 years’ December age 65, at 31 at of a member retiring expectancy The life population. each scheme’s and reflect assumptionsfollows: the differing in each scheme, is as reflect to format been shown in range (iii) Financial and demographic assumptions demographic and Financial (iii) follows: as assumptions the differing scheme, were in each reflect to format been shown in range have salary increases and pensions in payment and deferred pension increases) and the principal demographic actuarial assumption (mortality) on the schemes’ assumption actuarial (mortality) and the principal demographic pension increases) and deferred and pensions in payment salary increases method. The impact on the defined benefit unit credit using the projected of the defined benefit has been obligation calculated value liabilities. The present unchanged. Theonly one assumption on the basis that is changed with all other assumptions is calculated remaining December 2018 31 at obligation be as assumptions in isolation not occur may as a change in one assumption be limited may assessment therefore below could analysis of the sensitivity analysis. the sensitivity in the methods and assumptions used in preparing year the previous been no changes from have There correlated. the from differ The assumptions may Group. the by assumptions adopted and demographic the financial surrounding uncertainties inherent are There of post- value within each scheme. The present experience as well as the actual conditions of changes and market in economic as a result data actual which is the measure, driven is based on a market As rate the discount rate. benefit schemes’ dependent on the discount liabilities is heavily retirement benefit schemes’ liabilities can fluctuate of post-retirement value the present sheet date, the balance bonds at corporate yield on high quality interest the schemes’ impacts of inflation of the calculation liabilities is the basis for inflation in that rate The expected valuation. to valuation significantly from expectations assumptions, differing demographic to applicable. In relation in each scheme where increases salary and revaluation the assumed future impact a significant on the schemes’ liabilities. can have rates changes in mortality and future current regarding R Discount rate rate Discount Inflation rate rate Inflation Salary increases Pensions in payment and deferred pensions increases and deferred in payment Pensions Mortality Mortality
26. obligation benefits etirement rate, inflation rate, assumptions theimpact of indication ofachangeintheprincipalfinancialactuarial (discount anapproximate able below gives
26. Retirement benefits obligation (continued) (iv) Reconciliations for defined benefit plans The movements in the defined benefit schemes’ obligation during the financial year were: 2018 2017 €’m €’m Present value of the defined benefit obligation at beginning of the financial year (1,477.3) (1,718.4) Current service cost (6.9) (13.8) Past service and settlements 23.1 23.6 Interest expense (35.0) (40.2) Contributions by employees (1.1) (2.9) Benefits paid 79.8 48.2 Re-measurements: - experience gains on schemes’ liabilities 26.8 5.2 - actuarial gains arising from changes in demographic assumptions 19.4 38.8 - actuarial gains/losses arising from changes in financial assumptions 88.0 0.8 Decrease arising on settlement 0.4 139.9 Other movements - (5.9) Exchange translation adjustment 2.4 47.4 Present value of the defined benefit obligation at end of the financial year (1,280.4) (1,477.3) Present value of the defined benefit obligation at end of the financial year that relates to: Wholly unfunded plans (19.3) (30.4) Wholly or partly funded plans (1,261.1) (1,446.9) (1,280.4) (1,477.3)
The weighted average duration of the defined benefit obligation at 31 December 2018 is approximately 21 years (2017: approximately 21 years).
The movements in the schemes’ assets during the financial year were:
2018 2017 €’m €’m Fair value of plan assets at beginning of the financial year 1,353.0 1,365.6 Interest income 33.6 32.0 Contributions by employer 23.8 85.5 Contributions by employees 1.1 2.9 Benefits paid (79.8) (48.2) Re-measurements: - return on plan assets (excluding amounts included in net interest cost) (99.7) 85.3 Decrease arising on settlement (0.4) (139.9) Other movements - 5.9 Exchange translation adjustment (4.4) (36.1) Fair value of plan assets at end of the financial year 1,227.2 1,353.0
The fair values of each of the categories of the pension schemes’ assets at 31 December were as follows:
2018 2017 €’m €’m Equities - Global Equities 567.1 681.1 - Emerging Market Equities 57.1 70.4 - Global Small Cap Equities 3.1 65.0 Government Fixed Income 96.6 311.7 Other Fixed Income 349.0 122.9 Multi-asset Funds - Diversified Growth Funds 148.2 95.7 - Hedge Funds 0.1 - Cash and other 6.0 6.2 Total fair value of pension schemes’ assets 1,227.2 1,353.0
188 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 189
- €’m 35.0 22.0 22.0 2017 2017
- €’m 22.0 35.0 22.0 2018 Kerry Group Annual Report 2018 Annual Report Group Kerry
(2017: 176,182,405). (2017:
176,298,416 176,298,416
(2017: €nil) is based on the latest market bid price for the underlying investments, whichunderlying investments, the for bid price market €nil) is based on the latest (€204.3m) (2017: (continued)
(2017: 171,574) A ordinary shares, each with a nominal value of 12.50 value each with a nominal under the Long shares, cent, per share issued A ordinary nominal value at were 171,574) (2017: 116,011
A ordinary shares of 12.50 shares each A ordinary cent ear, the UK scheme invested in a pooled Liability Driven Investment (LDI) fund. The primary goal of this asset class is to mitigate volatility and volatility (LDI) fund. The primary goal of this asset mitigate class Investment is to Driven in a pooled Liability UK scheme invested the ear, y of equity securities and bonds have quoted prices in active markets. The schemes’ assets are invested with professional investment managers. investment with professional invested The schemes’ assets are markets. prices in active quoted securitiesy of equity and bonds have 18 a total of 18 a total At end of the financial year At Shares issued year during the financial Shares Allotted, called-up and fully paid (A ordinary shares of 12.50 shares cent each) Allotted, called-up and fully paid (A ordinary beginning of the financial year At Group and Company: Group Authorised 280,000,000 A The C During 20 The t F During the y ( The Gr The majorit are traded daily on liquid markets. traded are plans. benefit actuarial eliminate to It is the aim of the Group Trustees. the relevant and the Group between the pension schemes’ been actuaries advised and agreed by have and in Ireland years three carried out every public inspection, are for not available which are valuations, Actuarial eight years. to seven over on average deficits, its to €16.6m of approximately contributions make to expects the Group in the USA. year the UK; December 2019, ending 31 and every the financial year During defined enable better matching of investment returns with the cash outflows required to pay benefits. The pooled LDI solution invests in various levered and unlevered and unlevered levered various in pooled The benefits. LDI solution invests pay to required with the cash outflows returns of investment matching enable better December of the LDI assets 2018 31 at and the value gilts in place arrangements funding a number of different As a result, are there specific the country. for in place framework and the regulatory practices conditions, requirements. and actuarial regulatory specific with the local legislative, accord that (iv) Reconciliations for defined for Reconciliations benefit plans (continued) (iv) amount of the The actual concerned. managers of the investment the discretion solely at are if any, own financial instruments, in the Group’s Investments the pension schemes was held by property No not material. were 2017 and the pension schemes 2018 during held by own financial instruments Group’s or 2017. during 2018 pensions other schemes’ the Group assets any used by nor were the Group by occupied Share buy back programme Share under this programme. purchased were no shares and 2017, Shares issued issued Shares Term and Short Term Incentive Plans. Incentive and Short Term Term Shar R
In2018 capital. ownissued ofits 5% share upto purchase to authorisingtheCompany passed aresolution AnnualGeneral Meeting, shareholders t the2018 was December inissue 2018 31 at number ofshares otal
income. fixed whichcarries norightto share hasoneclass ofordinary ompany 27. e capital applicable.These fundingarrangements where employees, subsidiaries andfrom theGroup’s from contributions cash eachplaniscarried outby unding for inlinewithlocal legislation, be operated to anumber ofdefined benefit plansinanumber andeachplanisrequired ofcountries oup operates defined for benefit plans Funding v)
26. obligation benefits etirement 28. Share-based payments The Group operates two equity-settled share-based payment plans. The first plan is the Group’s Long Term Incentive Plan and the second is the element of the Group’s Short Term Incentive Plan that is settled in shares/share options after a 2 year deferral period. Details on each of these plans are outlined below.
The Group recognised an expense of €12.2m (2017: €12.8m) related to equity-settled share-based payment transactions in the Consolidated Income Statement during the financial year. The expectation of meeting performance criteria was taken into account when calculating this expense.
(i) Long Term Incentive Plan Long Term Incentive Plan The Group operates an equity-settled Long Term Incentive Plan (LTIP) under which an invitation to participate was made to Executive Directors and senior executives. The proportion of each invitation which vests will depend on the Adjusted Earnings Per Share (EPS) performance, Total Shareholder Return (TSR) and Return on Average Capital Employed (ROACE) of the Group during a three year period (‘the performance period’). The invitations made in 2016, 2017 and 2018 will potentially vest in 2019, 2020 and in 2021 respectively. 50% of the award will be issued at the date of vesting, with 50% being issued after a 2 year deferral period.
Up to 50% of the shares/share options subject to an invitation will vest according to the Group’s Adjusted EPS growth calculated on a constant currency basis compared with target during the performance period. Up to 30% of the shares/share options subject to an invitation will vest according to the Group’s TSR performance during the performance period measured against the TSR performance of a peer group of listed companies. The remaining 20% of the shares/ share options will vest according to the Group’s ROACE versus predetermined targets. An invitation may lapse if a participant ceases to be employed within the Group before the vesting date.
Under the Long Term Incentive Plan (LTIP), the Group introduced career shares awards, under which an invitation to participate was made to a limited number of senior executives. The proportion of each invitation which vests will depend on personal objectives during a three year period (‘the performance period’) and the senior executives remaining within the Group for a four year period (‘the retention period’). The invitations made in 2014, 2015, 2017 and 2018 will potentially vest in 2020, 2021/2022, 2023 and 2024 respectively. An invitation may lapse if a participant ceases to be employed within the Group before the vesting date.
A summary of the status of the LTIP as at 31 December and the changes during the financial year are presented below:
Number of Number of Conditional Conditional Awards Awards 2018 2017 Outstanding at beginning of the financial year 1,107,335 1,055,768 Forfeited (124,867) (54,860) Shares vested (90,547) (56,751) Share options vested (110,180) (77,122) Relinquished (121,467) (227,871) New conditional awards 483,391 468,171 Outstanding at end of the financial year 1,143,665 1,107,335
Number of Number of Share Options Share Options 2018 2017 Share options arising under the LTIP Outstanding at beginning of the financial year 141,517 230,762 Options released at vesting date 59,266 40,149 Options released from deferral 22,385 3,230 Exercised (42,553) (129,596) Lapsed - (3,028) Outstanding and exercisable at end of the financial year 180,615 141,517
Share options under the LTIP scheme have an exercise price of 12.50 cent. The remaining weighted average life for share options outstanding is 4.1 years (2017: 4.2 years). The weighted average share price at the date of exercise was €87.64 (2017: €77.60). 50,914 share options (2017: 36,973 share options) which vested in the financial year are deferred and therefore are not exercisable at year end.
190 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 191
5.0% 0.8% 0.0% 2015 18.4% €0.125 €64.92 Pricing Award at Award 3/5/7 years March 2015 March Grant Date Grant Monte CarloMonte Conditional €52.96/€61.74 2018/2020/2021
0.7% 5.0% 2019 19.1% 2016 (0.5%) €0.125 €68.72 €79.80 Pricing 3 years Award at Award Grant Date Grant March 2016 March Kerry Group Annual Report 2018 Annual Report Group Kerry Monte CarloMonte Conditional
0.7% 5.0% 2017 20.7% €0.125 (0.8%) €74.52 Pricing 3/7 years Award at Award 2020/2023 March 2017 March Grant Date Grant Monte CarloMonte Conditional €61.64/€70.94
0.7% 5.0% 2018 19.8% (0.5%) €0.125 €81.95 Pricing 3/7 years Award at Award 2021/2024 Grant Date Grant March 2018 March Monte CarloMonte Conditional €66.52/€77.96
(continued) Valuation model Valuation Weighted average fair value at grant date grant at value fair average Weighted Expected forfeiture rate forfeiture Expected Expected dividend yield Expected Risk free rate Risk free Expected life Expected Expected volatility Expected Exercise price per share/share options per share/share price Exercise Share price at grant date grant at price Share Year of potential vesting of potential Year Conditional Award Invitation date Invitation Conditional Award Ther A shar Exp LTIP Scheme LTIP (i) Long Term Incentive Plan (continued) Plan Incentive Term (i) Long as follows: assumptions and the are used in the calculations award per conditional value fair the date, grant the invitation At of shares/share options. The issuance of shares/share options under the Short Term Incentive Plan, which relate to the 2015 and 2016 financial years were were financial years and 2016 the 2015 to Plan, which relate Incentive options under the Short Term The issuance of shares/share options. of shares/share financial years and 2018 the 2017 to which related options under the STIP of shares/share The issuance respectively. and 2018 in 2017 deferral from released respectively. and 2020 in 2019 deferral from will be released (ii) Short Term Incentive Plan Incentive (ii) Short Term bonus a share-based with 25% element of the total payment incorporate amended was to Directors Executive for Plan Incentive Short Term the Group’s In 2013 a deferral once after date as part of this scheme will be issued the vesting 2 years options awarded options. The shares/share be settled in shares/share to period. options during the deferral the shares/share to relating conditions no further performance are period has elapsed. There conditions, such as the TSR condition, have been taken into account in establishing the fair value of equity instruments granted. The TSR performance The TSR granted. instruments of equity value in establishing the fair account into been taken have condition, TSR such as the conditions, such as the EPS conditions, based performance Non-market companies. of listed of a peer group performance against the TSR the period is measured over instruments the number of equity however granted, instruments of equity value in establishing the fair account into not taken were conditions, and ROACE vest. eventually that instruments is based on the number of equity the amount recognised so that is adjusted of the transaction included in the measurement Shar
28. e-based payments way be paidby ofthebonus to thecashvalue reflect theschemeto for Statement Income intheConsolidated e-based isrecognised expense payment theSTIP. to inrelation andexercisable outstanding options) 3,289 share options(2017: share 5,172 e are
based vesting Market years. three theprevious over price share oftheGroup’s volatility thehistorical calculating by determined was volatility ected 29. Cash flow components (i) Cash flow analysis Group Group Company Company 2018 2017 2018 2017 Notes €’m €’m €’m €’m Profit before taxation 617.9 613.3 154.9 106.2
Intangible asset amortisation 12 53.8 47.9 - - Non-trading items 5 66.9 54.5 - - Finance income 6 (0.5) (0.1) - - Finance costs 6 67.5 65.7 - - Trading profit 805.6 781.3 154.9 106.2
Change in working capital Increase in inventories (50.1) (77.7) - - (Increase)/decrease in trade and other receivables (44.0) (48.7) 21.7 (16.5) Increase/(decrease) in trade and other payables 23.8 107.9 2.2 (0.5) (Decrease)/increase in non-current liabilities (20.7) 14.8 - - Share-based payment expense 28 12.2 12.8 12.2 12.8 (78.8) 9.1 36.1 (4.2)
Purchase of assets Purchase of property, plant and equipment (274.3) (271.3) - - Purchase of intangible assets 12 (30.4) (23.6) - - Sale/(purchase) of financial assets 13 8.6 (6.4) - - (296.1) (301.3) - -
Cash and cash equivalents Cash at bank and in hand 23 413.8 312.5 - - Bank overdrafts 23 (9.9) (6.9) - - 403.9 305.6 - -
(ii) Disposal of businesses and assets reconciliation Group Group 2018 2017 Notes €’m €’m Assets and businesses Property, plant and equipment 11 (5.2) (4.3) Investments in associates 14 (5.5) (34.4) Assets classified as held for sale (6.3) (0.4) Net assets and businesses disposed (17.0) (39.1)
Consideration Cash received 11.6 33.3 Total consideration received 11.6 33.3
Loss on disposal of assets and businesses 5 (5.4) (5.8)
Net cash inflow on disposal: Total Total 2018 2017 €’m €’m Cash 11.6 33.3 Less: cash at bank and in hand balance disposed of - - 11.6 33.3
192 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 193
2.8 75.2 €’m (2.6) (27.1) Total (96.0) (252.1) (1,341.7) (1,323.7) (1,623.5)
77.7 61.9 €’m (1.0) (10.7) (27.9) (352.7) (1,728.4) (2,119.7) (1,867.0) after 1 year 1 after Borrowings due Borrowings Kerry Group Annual Report 2018 Annual Report Group Kerry
- - - 2.5 11.8 €’m (6.4) (3.9) 170.7 (188.9)
within 1 year Borrowings due Borrowings
- - 0.1 0.8 €’m (3.6) (3.4) (6.9) (9.9) (3.8) Liabilities from financing activities Liabilities from within 1 year Overdrafts due Overdrafts
- 8.1 0.9 0.6 87.5 €’m 171.1 96.2 (59.1) (25.4) Swaps Interest Rate Interest
- - €’m 312.5 (0.6) 101.9 564.7 (15.3) 413.8 (236.9) Other assets and in hand Cash at bankCash at
23 23 Note (continued)
Net debt as at 31 DecemberNet debt as at 2018 Other non-cash movements Foreign exchange adjustments exchange Foreign Cash flows Net debt as at 31 December 2017 31 Net debt as at Other non-cash movements Foreign exchange adjustments exchange Foreign Cash flows Net debt as at 1 January 2017 Net debt as at (iii) Net debt reconciliation debt Net (iii) Cash flo Cash
29. w components 30. Business combinations During 2018, the Group completed a total of ten acquisitions, all of which are 100% owned by the Group unless otherwise stated. Total 2018 Notes €’m Recognised amounts of identifiable assets acquired and liabilities assumed: Non-current assets Property, plant and equipment 11 79.8 Brand related intangibles 12 314.5 Computer software 12 - Current assets Cash at bank and in hand 6.7 Inventories 26.4 Trade and other receivables 42.1 Current liabilities Trade and other payables (27.9) Non-current liabilities Deferred tax liabilities (65.7) Other non-current liabilities (7.4) Total identifiable assets 368.5 Goodwill 12 133.7 Total consideration 502.2
Satisfied by: Cash 498.6 Deferred payment 3.6 502.2
2018 Net cash outflow on acquisition: €’m Cash 498.6 Less: cash and cash equivalents acquired (6.7) Less: prepayments made in 2017 in relation to 2018 acquisitions (15.1) 476.8
The acquisition method has been used to account for businesses acquired in the Group’s financial statements. Given that the valuation of the fair value of assets and liabilities recently acquired is still in progress, the above values are determined provisionally. The valuation of the fair value of assets and liabilities will be completed within the measurement period. For the acquisitions completed in 2017, there have been no material revisions of the provisional fair value adjustments since the initial values were established. No individual acquisition completed during 2018 exceeded the Group’s quantitative materiality thresholds or met the qualitative materiality considerations. Therefore, no individual acquisition warranted separate disclosure in the above table.
The goodwill is attributable to the expected profitability, revenue growth, future market development and assembled workforce of the acquired businesses and the synergies expected to arise within the Group after the acquisition. €8.0m of goodwill recognised is expected to be deductible for income tax purposes.
Transaction expenses related to these acquisitions of €4.7m were charged in the Group’s Consolidated Income Statement during the financial year. The fair value of the financial assets includes trade and other receivables with a fair value of €42.1m and a gross contractual value of €42.4m.
From the date of acquisition, the acquired businesses have contributed €34.0m of revenue and €0.2m of profit after taxation attributable to owners of the parent to the Group. If the acquisition dates had been on the first day of the financial year, the acquired businesses would have contributed €206.9m of revenue and €10.1m of profit after taxation attributable to owners of the parent to the Group.
194 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 195
€’m 2017 2017 1,721.7
€’m 2018 2,120.3 Kerry Group Annual Report 2018 Annual Report Group Kerry
Aromateca is a company dedicated to the production of flavours with operations of flavours the production to dedicated is a company Aromateca and El Salvador. in both Guatemala Fleischmann’s is a market leader and all natural producer of specialty ingredients ingredients of specialty producer all natural leader and is a market Fleischmann’s end-use applications. based in the USA, and beverage of food serving a range AATCO is an Omani headquartered producer of sauce and condiments sold to of sauce and condiments producer is an Omani headquartered AATCO Africa. in Asia, and the Middle East and industrial customers foodservice Flavor Source is a meat coatings and seasonings supplier based and seasonings supplier in the USA. coatings is a meat Source Flavor RTI is a browning and smoke technology business technology based in Canada which serves and smoke is a browning RTI markets. both American and European North Ricap is a Mexico based Dairy Taste supplier. based Dairy Taste Ricap is a Mexico Foremost Farms is a producer of pharma lactose, based in the USA. pharma lactose, of is a producer Farms Foremost SIAS is a leading China based supplier of culinary and fruit ingredients and is a leading China based supplier of culinary and fruit ingredients SIAS industries. manufacturing and food the foodservice to systems Season to Season is a leading South African supplier of taste ingredients and ingredients Season Season South is a leading to of taste supplier African sectors. snack and food the African to systems Hangman is a China based sweet and savoury flavour and natural extract extract and natural flavour and savoury China basedHangman is a sweet primarily the Chinese serves that market. manufacturer Principal activity
November November November September August July May March February January Acquired
(continued)
For the purposes of Section 357 of the Companies Act, 2014, the Company has undertaken by Board resolution to indemnify the creditors of its indemnify the creditors to resolution Board the purposes of Section by For 357 of the Companies has undertaken the Company Act, 2014, in the statutory shown as liabilities all amounts of or commitments in respect 36, as set out in note of Ireland, in the Republic subsidiaries incorporated amended or any December 2018 ending on 31 in Section of the Companies to the financial year 357 for Act, (1) (b) 2014 referred as financial statements has given The Company of Section with in this regard. been complied 357 have All other provisions the said financial year. financial period incorporating law of 19 of the Luxembourg 70 (Article Luxembourg Code), 264 subsidiaries its in Germany to of the Commercial (section similar indemnities in relation as amended)December and the Netherlands (Article 2:403 2002 has also availed In addition, the Company 36. as set out in note Civil Code), of the Dutch Guarantees in respect of borrowings of subsidiaries of borrowings in respect Guarantees of the exemption from filing subsidiary financial statements in Luxembourg, Germany, the Netherlands and Ireland. the Netherlands and Ireland. Germany, in Luxembourg, financial statements filing subsidiary from of the exemption *The Group has an 80% equity shareholding in AATCO Food Industries LLC. It is consolidated in the Group financial statements as a 100% owned subsidiary on financial statements in the Group It is consolidated Industries LLC. Food in AATCO *The shareholding has an 80% equity Group arrangements. the basis of contractual Aromateca, S.A. de C.V. S.A.Aromateca, de C.V. Fleischmann’s Vinegar Company Inc. Vinegar Company Fleischmann’s AATCO Food Industries LLC* Food AATCO Flavor Source Flavor RTI Ricap S.A. de C.V. Foremost Farms Pharma Lactose Farms Foremost SIAS (Dachang) Food Co., Ltd Co., (Dachang)SIAS Food Season to Season Flavour Manufacturers (Pty) Limited (Pty) Manufacturers Season Season Flavour to (ii) Zhejiang Hangman Food Technologies Co. Ltd Co. Technologies Food Zhejiang Hangman Company: (i) The C The following acquisitions were completed by the Group during 2018: the Group by completed were acquisitions The following Acquisition C Busine
be negligible. to value theirfair andconsiders these guarantees arise from loss to material any doesompany notexpect 31. ontingent liabilities 30. ss combinations 32. Other financial commitments (i) C ommitments 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: 2018 2017 €’m €’m Group: Commitments in respect of contracts placed 104.6 108.4 Expenditure authorised by the Directors but not contracted for at the financial year end 113.7 145.9 218.3 254.3
(ii) At the balance sheet date the Group had commitments under non-cancellable operating leases which fall due as follows: 2018 2017 €’m €’m Within 1 year 27.7 21.9 Within 2 to 5 years 46.1 41.5 After 5 years 9.3 11.8 83.1 75.2
The operating lease charges during 2018 amounted to €29.9m (2017: €27.8m).
The Group leases various buildings, plant and machinery, and motor vehicles under non-cancellable lease arrangements. The Group has a number of leases but none of these leases are individually material. The leases have various terms, escalation clauses and renewal rights. These leases range from less than 1 year to 96 years.
33. Related party transactions (i) Trading with Directors In their ordinary course of business as farmers, certain Directors have traded on standard commercial terms with the Group’s Agribusiness division. Aggregate purchases from, and sales to, these Directors amounted to €0.2m (2017: €0.3m) and €0.1m (2017: €0.1m) respectively. The trading balance outstanding to the Group at the financial year end was €0.1m (2017: €nil).
All transactions with Directors were on standard commercial terms. The amounts outstanding are unsecured and will be settled in cash. No expense has been recognised in the financial year for bad or doubtful debts in respect of amounts owed by Directors.
(ii) Trading between Parent Company and subsidiaries Transactions in the financial year between the Parent Company and its subsidiaries included dividends received of €177.5m (2017: €120.0m), cost recharges of €19.6m (2017: €11.5m), and trade and other receivables of €94.1m (2017: €115.8m). The Parent Company has also provided a guarantee in respect of borrowings of subsidiaries which is disclosed in note 31.
(iii) Trading with associates and joint ventures Details of transactions and balances outstanding with associates and joint ventures are as follows: Amounts receivable Rendering of services Sale of goods at 31 December 2018 2017 2018 2017 2018 2017 €’m €’m €’m €’m €’m €’m Associates - - (0.3) (0.8) - 0.1 Joint ventures ------
These trading transactions are undertaken and settled at normal trading terms. No loans were advanced in 2018 and 2017 and no interest was received.
(iv) Trading with other related parties As detailed in the Directors’ Report, Kerry Co-operative Creameries Limited is considered to be a related party of the Group as a result of its significant shareholding in the Parent Company. During 2018, dividends of €15.6m (2017: €13.9m) were paid to Kerry Co-operative Creameries Limited based on its shareholding. A subsidiary of Kerry Group plc traded product to the value of €0.1m (2017: €0.2m) on behalf of Kerry Co-operative Creameries Limited.
(v) Transactions with key management personnel The Board of Directors are deemed to be key management personnel of Kerry Group plc as they are responsible for planning, directing and controlling the activities of the Group.
In addition to their salaries and short-term benefits, the Group also contributes to post-retirement defined benefit, defined contribution and saving plans on behalf of the Executive Directors (note 26). The Directors also participate in the Group’s Long Term Incentive Plan (LTIP) (note 28).
196 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 197
- - 2.9 0.8 8.0 11.7 €’m 2017 2017
- -
(2017: €0.1m) €0.1m) (2017: €0.1m
9.7 6.7 0.6 2.4 €’m 2018
Kerry Group Annual Report 2018 Annual Report Group Kerry (2017: (2017: of €0.5m and charges 2 directors) (2017: director 1 (2017: €4.6m). Dividends totalling Dividends €4.6m). (2017: €1.1m
directors (2017: 5 directors). The LTIP accounting charge above is determined in accordance in accordance is determined above charge accounting The LTIP 5 directors). (2017: directors
3
(continued)
per A ordinary share (note 10). (note share per A ordinary
(continued) (2017: €0.3m) arise under a defined benefit scheme relating to to arise under a defined benefit scheme relating €0.3m) (2017:
49.20 cent 49.20
€0.1m €0.1m
; and ;
egate amount of gains accruing to Executive Directors on the exercise of share options is of share on the exercise Directors Executive to amount of gains accruing egate e-based payment reserve relates to invitations made to employees to participate in the Group’s Long Term Incentive Plan and the element of the Incentive Term Long in the Group’s participate to employees made to invitations to e-based relates reserve payment oposed of a final dividend c these is for acquisitions consideration The combined U.S.A., of Ariake acquisition announced Inc. of 2019. quarter based in the US in the second €325m be to expected pr
Total Termination benefits Termination Other benefits long-term LTIP accounting charge accounting LTIP Post-retirement benefits Post-retirement Short-term benefits (salaries, fees and other short-term benefits) fees and other short-term benefits (salaries, Short-term P The aggr R R The c R Ex H The he Shar The shar T C Capit O O Ther F The f - - (v) Transactions with key management personnel personnel management key with Transactions (v) Cost of hedging reserve hedging of Cost earnings basis spreads. being currency in the hedged item, not present are that contracts swap rate interest currency in the cross characteristics are basis risk as there Retained presentation currency (euro) are recognised directly in other comprehensive income and accumulated in the translation reserve. in the translation and accumulated income in other comprehensive directly recognised are (euro) currency presentation or loss profit to gain or loss on the hedging instrument is reclassified deferred or loss. The cumulative is not impacting profit the underlying hedged transaction or loss. profit the affects only when the hedged transaction euro conversion in 2002. conversion euro 28. this share-based is set out in note to payment in relation information options. Further is settled Plan that in shares/share Incentive Short Term Group’s held at fair value through other comprehensive income by the Group. The available-for-sale reserve under IAS 39 ‘Financial Instruments: Recognition and Recognition ‘Financial Instruments: 39 under IAS The available-for-sale reserve the Group. by income other comprehensive through value fair held at 1 January 2018. under IFRS at 9 ‘Financial Instruments’ (FVOCI) reserve other comprehensive through Measurement’ value becomes the fair
has: end, the Group the financial year Since with the Group’s accounting policy for share-based policy for payments. accounting with the Group’s basis. cost service on a current determined are report remuneration in the table remuneration the company. of in the shares based on their personal interests financial year, management personnel during the key by also received were R R E €0.5m) arise under a defined contribution scheme relating to to relating scheme arise under a defined contribution €0.5m)
Directors’ intheExecutive ofpension contributions inrespect andlistingrules disclosure andthestatutory table benefitsintheabove ost-retirement of benefit charges etirement
isasfollows: personnel management ofkey cost emuneration 33. transactions party elated asdividends. shareholders to thandistributed rather theGroup by whichisretained portion the ofnetincome, to earningsrefers etained have swaps rate interest currency Suchcross swaps. rate interest currency cross into hasentered theGroup where arises from ost ofhedging reserve edging reserve edging for which ofcashflowhedge theapplication accounting ofgainsandlossesportion theeffective from onhedging instruments represents dging reserve ranslation reserve ranslation to theGroup’s theirfunctional currencies from operations currency foreign sheetsoftheGroup’s ofthebalance to thetranslation relating change differences e-based payment reserve payment e-based ther undenominated capital undenominated ther the dueto Company oftheParent capital theshare ofrenominalising asaresult reserves to theamounttransferred represents capital ther undenominated apital redemption reserve redemption apital in2007. shares ofthecancelled thenominalcost represents reserve al redemption (AFS) reserve (FVOCI)/Available-for-sale income reserve comprehensive other through air value andlosses gains onthefinancialassets theunrealised represents reserve reserve/available-for-sale income othercomprehensive through air value 31 2018. December since ofbusiness, course theGroup affecting theordinary outside been noothersignificantevents, e have 35. eserves
34. thebalance sheet after date vents thepreviously complete to ofthebusiness theacquisition alsoexpects ompleted andassets Mills,Inc. ofSoutheastern TheGroup based intheUS.
36. Group entities Principal subsidiaries, associates and joint venture undertakings Country Company Name Nature of Business Registered Office Ireland Accommodation Tralee Limited Investment 1 Ballyfree Farms Limited Consumer Foods 1 Breeo Brands Limited Consumer Foods 1 Breeo Foods Limited Consumer Foods 1 Carteret Investments Investment 1 Cuarto Limited Taste & Nutrition 1 Dawn Dairies Limited Consumer Foods 1 Denny Foods Limited Investment 1 Duffy Meats Limited Consumer Foods 1 Dynaboo Limited Consumer Foods 1 Fambee Limited Consumer Foods 1 Glenealy Farms (Turkeys) Limited Consumer Foods 1 Golden Vale Clare Limited Investment 1 Golden Vale Dairies Limited Agribusiness 1 Golden Vale Holdings Limited Investment 1 Golden Vale Investments Limited Investment 1 Golden Vale Limited Investment 1 Helios Limited Investment 1 Henry Denny & Sons (Ireland) Limited Consumer Foods 1 Ichor Management Limited Investment 1 Ivernia Pig Developments Limited Consumer Foods 1 Kerry Agribusiness Holdings Limited Investment 1 Kerry Agribusiness Trading Limited Agribusiness 1 Kerry Creameries Limited Agribusiness 1 Kerry Food Ingredients (Cork) Limited Taste & Nutrition 1 Kerry Foods Limited Consumer Foods 1 Kerry Group Business Services Limited Services 1 Kerry Group Financial Services Services 1 Kerry Group Finance International Limited Services 1 Kerry Group Services International Limited Services 1 Kerry Group Services Limited Services 1 Kerry Health and Nutrition Institute Limited Taste & Nutrition 1 Kerry Holdings (Ireland) Limited Investment 1 Kerry Ingredients & Flavours Limited Taste & Nutrition 1 Kerry Ingredients (Ireland) Limited Taste & Nutrition 1 Kerry Ingredients Holdings (Ireland) Limited Investment 1 Kerry Treasury Services Limited Services 1 Kerrykreem Limited Consumer Foods 1 Lifesource Foods Research Limited Consumer Foods 1 Maddens Milk Limited Investment 1 National Food Ingredients Limited Taste & Nutrition 1 Newmarket Co-operative Creameries Limited Taste & Nutrition 1 Pixundo Limited Consumer Foods 1 Plassey Holdings Limited Investment 1 Platters Food Company Limited Consumer Foods 1 Princemark Holdings Designated Activity Company Services 1 Putaxy Limited Investment 1 Quandu Limited Consumer Foods 1 Rye Developments Limited Services 1 Rye Investments Limited Consumer Foods 1 Rye Valley Foods Limited Consumer Foods 1 Selamor Limited Consumer Foods 1 Tacna Investments Limited Investment 1
198 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 199 1 1 1 2 2 2 2 2 2 2 7 7 3 3 3 3 3 3 3 3 3 5 8 4 4 6 4 4 9 4 4 11 17 21 15 12 12 18 13 13 16 19 14 10 10 10 22 23 24 20 20 Registered Office Registered Kerry Group Annual Report 2018 Annual Report Group Kerry
Taste & Nutrition Taste & Nutrition Taste & Nutrition Taste & Nutrition Taste Services Nature of Business Nature Consumer Foods Services & Nutrition Taste & Nutrition Taste & Nutrition Taste Taste & Nutrition Taste Taste & Nutrition Taste 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 Taste & Nutrition Taste Taste & Nutrition Taste Investment Taste & Nutrition Taste Taste & Nutrition Taste Taste & Nutrition Taste & Nutrition Taste & Nutrition Taste Investment Taste & Nutrition Taste & Nutrition Taste & Nutrition Taste Investment Taste & Nutrition Taste Taste & Nutrition Taste Taste & Nutrition Taste Taste & Nutrition Taste Taste & Nutrition Taste Taste & Nutrition Taste Taste & Nutrition Taste Taste & Nutrition Taste
(continued) Kerry Polska Sp. z.o.o. Sp. Polska Kerry Cremo Ingredients A/S Ingredients Cremo S.p.A. Italia & Flavours Ingredients Kerry Hungaria KFT. Kerry S.a.r.l. Luxembourg Kerry Company Name Company Trundu Limited Trundu Kerry LLC Kerry Limited South (Proprietary) Africa Ingredients Kerry Zenbury International Limited S.a.r.l. Limited International Zenbury Kerry Romania s.r.l. Romania Kerry William Blake Limited William Blake Season to Season Flavour Manufacturers (Pty) Limited (Pty) Manufacturers Season Season Flavour to Zenbury International Limited International Zenbury Henry Denny & Sons (NI) Limited Dairy Produce Packers Limited Packers Dairy Produce Golden Cow Dairies Limited Golden Vale (NI) Limited Golden Vale Leckpatrick Dairies Limited Leckpatrick Leckpatrick Holdings Limited Leckpatrick RVF (UK) Limited RVF Kerry Foods Limited Foods Kerry Kerry Holdings (U.K.) Limited Holdings (U.K.) Kerry Kerry Savoury Foods Limited Foods Savoury Kerry Noon Group Limited Noon Group Noon Products Limited Noon Products Oakhouse Foods Limited Oakhouse Foods Rollover Holdings Limited Rollover Rollover Group Limited Group Rollover Rollover Limited Rollover EBI Foods Limited EBI Foods Gordon Jopling (Foods) Limited Jopling (Foods) Gordon Kerry Ingredients (U.K.) Limited (U.K.) Ingredients Kerry Kerry Ingredients Holdings (U.K.) Limited Holdings (U.K.) Ingredients Kerry Titusfield Limited Titusfield Kerry Flavours UK Limited Flavours Kerry Kerry Holdings Belgium NV Kerry (NL) B.V. Kerry Spicemanns Limited Spicemanns Kerry Group B.V. Group Kerry Kerry Ingredients & Flavours s.r.o. & Flavours Ingredients Kerry S.A.S. France Ingredients Kerry Proparent B.V. (55% shareholding) B.V. Proparent Kerry Ingredients Holdings France S.A.S. Holdings France Ingredients Kerry Kerry Savoury Ingredients France S.A.S. France Ingredients Savoury Kerry Kerry Flavours France S.A.S. France Flavours Kerry Kerry Food GmbH Food Kerry Kerry Ingredients GmbH Ingredients Kerry SuCrest GmbH SuCrest Vicos Nahrungsmittel GmbH Nahrungsmittel Vicos Red Arrow Handels GmbH Arrow Red Unitary Manufacturing Enterprise “Vitella” Enterprise Manufacturing Unitary Poland Denmark Italy Hungary Luxembourg (continued) undertakings venture and joint Principal subsidiaries, associates Country Ireland Gr Russia South Africa Romania UK Belgium Netherlands Czech Republic Czech France Germany Belarus
36. oup entities 36. Group entities (continued) Principal subsidiaries, associates and joint venture undertakings (continued) Country Company Name Nature of Business Registered Office Spain Vendin S.L. Taste & Nutrition 25 Harinas y Sémolas del Noroeste, S.A. (Hasenosa) Taste & Nutrition 26 Slovakia Dera SK s.r.o. Taste & Nutrition 27 Sweden Tarber AB Taste & Nutrition 28 Ukraine Kerry Ukraine Limited Taste & Nutrition 29 USA Kerry Holding Co. Investment 30 Kerry, Inc. Taste & Nutrition 30 Ganeden Biotech, Inc. Taste & Nutrition 31 Insight Beverages, Inc. Taste & Nutrition 32 Fleischmann’s Vinegar Company Inc. Taste & Nutrition 33 Canada Kerry (Canada) Inc. Taste & Nutrition 34 Mexico Kerry Ingredients (de Mexico) S.A. de C.V. Taste & Nutrition 35 Brazil Ben Alimentos Ltda. Taste & Nutrition 36 Kerry do Brasil Ltda. Taste & Nutrition 37 Kerry da Amazonia Ingredientes e Aromas Ltda. Taste & Nutrition 38 Costa Rica Baltimore Spice Central America S.A. Taste & Nutrition 39 Chile Kerry Chile Ingredientes, Sabores Y Aromas Ltda. Taste & Nutrition 40 Colombia Kerry Ingredients & Flavours Colombia S.A.S. Taste & Nutrition 41 Panama Baltimore Spice Panamá S.A. Taste & Nutrition 42 Guatemala Baltimore Spice Guatemala S.A. Taste & Nutrition 43 El Salvador Baltimore Spice de El Salvador S.A. de C.V. Taste & Nutrition 44 Thailand Kerry Ingredients (Thailand) Limited Taste & Nutrition 45 Philippines Kerry Food Ingredients (Philippines), Inc. Taste & Nutrition 46 Kerry Manufacturing (Philippines), Inc. Taste & Nutrition 47 Singapore Kerry Ingredients (S) PTE Limited Taste & Nutrition 48 Malaysia Kerry Ingredients (M) Sdn. Bhd. Taste & Nutrition 49 Kerry Group Business Services (ASPAC) Sdn. Bhd. Taste & Nutrition 49 Japan Kerry Japan Kabushiki Kaisha Taste & Nutrition 50 China Kerry Food Ingredients (Hangzhou) Company Limited Taste & Nutrition 51 Kerry Ingredients Trading (Shanghai) Company Limited Taste & Nutrition 52 Kerry Food (Nantong) Company Limited Taste & Nutrition 53 Tianning Flavour & Fragrance (Jiangsu) Co., Ltd Taste & Nutrition 54 Zhejiang Hangman Food Technologies Co. Ltd Taste & Nutrition 55 SIAS (Dachang) Food Co., Ltd Taste & Nutrition 56 Indonesia PT Kerry Ingredients Indonesia Taste & Nutrition 57 India Kerry Ingredients India Private Limited Taste & Nutrition 58 Australia Kerry Ingredients Australia Pty Limited Taste & Nutrition 59 New Zealand Kerry Ingredients (NZ) Limited Taste & Nutrition 60 South Korea Kerry Ingredients Korea LLC Taste & Nutrition 61 Jungjin Food Co. Limited Taste & Nutrition 62 Oman AATCO Food Industries LLC (80% shareholding) Taste & Nutrition 63
Notes (a) All group entities are wholly owned subsidiaries unless otherwise stated. ) (b Country represents country of incorporation and operation. Ireland refers to the Republic of Ireland. (c) With the exception of the USA, Canadian and Mexican subsidiaries, where the holding is in the form of common stock, all holdings are in the form of ordinary shares.
200 Kerry Group Annual Report 2018 Strategic Report Directors’ Report Financial Statements 201 Kerry Group Annual Report 2018 Annual Report Group Kerry
(continued)
Prince’s Street, Tralee, Co. Kerry, Ireland. Kerry, Co. Street, Tralee, Prince’s 1QZ, BT52 Kingdom. United Northern Ireland Coleraine, Millburn Road, England. TW20 8HY, Surrey Egham, Road, Thorpe Lea Manor, Thorpe Lea Dock, BS20 Portbury Bristol 7NZ, Royal Road, England. Bradley Glasgow G52 4LR, Hillington, Scotland. Avenue, 59 Kelvin Bus 204, 1000 Brussels, Belgium. 86C, Havenlaan 3542 2a, Maarssenbroeksedijk DN Utrecht, The Netherlands. 9c,Cuneraweg Ochten, 4051 CE, The Netherlands. Republic. 1, Czech 110 00 Praha Město, Nové Jindřišská 937/16, 62575 Blendecques, France. Pasteur, 43Louis rue CEDEX, Grasse, 06131 France. Industrielle du Plan, BP 82067, Zone D-63924 Kleinheubach, Germany. 22-26, Hauptstrasse 65239 Hochheim/Main, Germany. 9, Neckarstraße Germany. Bremen, 28199, 25, Hanna-Kunath-Strasse Vitebsk, 44 210039 Belarus. Str., Brovki P. Denmark. Glamsbjerg, DK-5620, 3, Toftegardsvej Italy. Bergamo, Mozzo, 24030 12/16, Di Mozzo Via Capitani Poland. Kielce, 25-558 97a, Ul. Zagnanska Kielce, krt. Hungary. Budapest, 13, 1093 Vámház Luxembourg. of Luxembourg, Grand-Duchy Luxembourg, Jans, L-1820 Antoine 17 Rue Sectorul 2, Bucureşti Romania. HERĂSTRĂU, GARA Strada C, CORP 4D, Nr. 5, NR.5, Etaj BIROUL District, Russia. , Krasnogorskiy 26 km BaltiyaRigaLand Business Highway 143421, Centre, Moscow, South Africa. Hillcrest, Drive, 4-6 Durban, Kwazulu-Natal, Block 3, Lucas 372,Stand Angus Cresent, Northlands Business Park, Northriding, 2164, South Africa. Madrid, Spain. 28320 de Doñana,Calle Coto 15, Pinto, Spain. Pontevedra, O Porrino, Industrial de las Gándaras de Budino, Polígono Slovakia. Bratislava, 9, Križkova Sweden. 114 79 Stockholm, 13, - Frejgatan 1420 Box Ukraine. Kiev, str., 4 Korolenkivska Beloit3400 Road, WI 53511, Millington States. United States. United OH 44124, Heights Mayfield 300, Suite Drive, 5800 Landerbrook States. United IL 60047, 635 Zurich Lake Oakwood Road, States. United # A, 90703, CA Cerritos, Way 12604 Hiddencreek ON N4S 8A4, Canada. Woodstock Avenue Jack Ross 615 Mexico. Salamanca Km 11.2, Panamericana, Guanajuato, Carr. Irapuato, 36660 Urbana, Brazil. Genipapo, Zona saída Sul, Fazenda s/n, of Goiás, of Rialma, State Acesso City at BR-153, Brazil. 13054-750, Campinas, Sao Industrial, Paolo, Distrito Benz 460, Mercedes Avenida Brazil. Manaus, 69036-520, Agostinho, Santo 188, Hidra Rua San Rica. José, Costa Zip Code 200 Oeste, 1035-1200, 100 Norte Del de Pavas Liceo Chile. Santiago, Quilicura, 9901, Las Condes, Suc. Of 1205, Portezuelo Cerro 4280, No. El Trovador C.M. Bogota, Colombia. A Piso 5, 7 No 71-52,Carrera Torre Panama. 0819-01869, Lefevre Parque Corregimiento, 88. Lote y 3ra Principal Calle Avenida del Este Industrial Costa Parque 12, zona Guatemala. 52-20 Petapa Avenida El Salvador. San Salvador, El Hipodromo, Boulevard Col. San Benito. Of 401 Plaza Gran Condominio Edificio Sub District, Thailand. Moo 4, Bangpoo Praksa Muang District,No 618, Industrial Estate, Province, Samutprakarn Cebu, Philippines. 1, Lapulapu City, Zone Economic Mactan GF/SFB#1, Manila, Philippines. Metro Bgc, Taguig, 5th Ave Registered Office Registered 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 Gr
36. oup entities 36. Group entities (continued) Registered Office(continued) 48 8 Biomedical Grove, #02-01/04 Neuros, Singapore 138665, Singapore. 49 Suite 1301, 13th Floor, City Plaza, Jalan Tebrau, 80300 Johor Bahru, Johor, Malaysia. 50 Kamiyacho Sankei Building. 2F, 1-7-2, Azabudai 1-chome, Minato-ku, Tokyo 106-0041, Japan. 51 Renhne Industry Zone, Jiulong Village, Hangzhou, China. 52 Room 248, Ximmao Building, 2 Tai Zhong Road South, Waigaoqiao Free Trade Zone, Shanghai, China. 53 North side of Xiang, Jiang Road, RuDong County, Nantong, China. 54 Dujiashan, Huayang, Jurong, Jiangsu Province, China. 55 26 Tai Ping Qiao Industry Park, Xin’an, Deqing Country, Zheijiang Province, China. 56 North side of XinYe Road, West side of LiDaXian, DaChang Industrial District, LangFang City, HeBei Province, China. 57 JL Industri Utama Blok SS No. 6, Jababeka II Mekarmukti, Cikarang Utara, Bekasi 17520, Indonesia. 58 Unit No. 302, 3rd Floor, Ecospace Campus 3B, Marathahalli – Sarjapur Outer Ring Road, Bellandur, Bangalore – 560103, Karnataka, India. 59 No 8 Holker Street, Newington, NSW 2127, Australia. 60 11-13 Bell Avenue, Otahuhu, Auckland, New Zealand. 61 9th Fl., Sheenbang Bldg, 1366-18, Seocho-dong, Seocho-Gu, Seoul, 137-863, Republic of Korea. 62 #82 Yuolgum-5gil, Sunghwan-eup, Cheonan-si, Choongchungnam-do, Republic of Korea. 63 Ghoua Industrial Area, Bousher, Muscat, Sultanate of Oman.
202 Kerry Group Annual Report 2018 SUPPLEMENTARY FINANCIAL INFORMATION DEFINITIONS (NOT COVERED BY INDEPENDENT AUDITORS’ REPORT)
FINANCIAL DEFINITIONS
1. Revenue Volume growth This represents the sales growth year-on-year, excluding pass-through pricing on raw material costs, currency impacts, acquisitions (net of disposals) and rationalisation volumes.
Volume growth is an important metric as it is seen as the key driver of top-line business improvement. This is used as the key revenue metric, as Kerry operates a pass-through pricing model with its customers to cater for raw material price fluctuations. Pricing therefore impacts like-for-like revenue growth positively or negatively depending on whether raw material prices move up or down. A full reconciliation to reported revenue growth is detailed in the revenue reconciliation below.
Revenue Reconciliation Reported Volume Transaction Acquisitions/ Translation revenue 2018 growth Price currency Disposals currency growth Taste & Nutrition 4.1% (0.5%) (0.1%) 4.2% (4.0%) 3.7% Consumer Foods 1.1% (0.4%) (0.3%) 0.8% (0.6%) 0.6% Group 3.5% (0.5%) (0.1%) 3.6% (3.4%) 3.1%
2017 Taste & Nutrition 4.7% 2.0% 0.0% 0.9% (1.9%) 5.7% Consumer Foods 2.4% 2.0% (0.9%) 0.2% (3.8%) (0.1%) Group 4.3% 2.0% (0.2%) 0.8% (2.4%) 4.5%
2.A EBITD EBITDA represents profit before finance income and costs, income taxes, depreciation (including impairment), intangible asset amortisation and non- trading items. 2018 2017 €’m €’m Profit after taxation attributable to owners of the parent 540.5 588.5 Finance income (0.5) (0.1) Finance costs 67.5 65.7 Income taxes 77.4 24.8 Non-trading items 66.9 54.5 Intangible asset amortisation 53.8 47.9 Depreciation (including impairment) 136.4 136.2 EBITDA 942.0 917.5
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. 2018 2017 €’m €’m Operating profit 684.9 678.9 Intangible asset amortisation 53.8 47.9 Non-trading items 66.9 54.5 Trading profit 805.6 781.3
Kerry Group Annual Report 2018 203 4. Trading Margin Trading margin represents trading profit, expressed as a percentage of revenue. 2018 2017 €’m €’m Trading profit 805.6 781.3 Revenue 6,607.6 6,407.9 Trading margin 12.2% 12.2%
5. Operating Profit Operating profit is profit before income taxes, finance income and finance costs. 2018 2017 €’m €’m Profit before tax 617.9 613.3 Finance income (0.5) (0.1) Finance costs 67.5 65.7 Operating profit 684.9 678.9
6. Adjusted Earnings Per Share and Growth in Adjusted Earnings Per Share on a Constant Currency Basis The growth in adjusted earnings per share on a constant currency basis is provided as it is considered more reflective of the Group’s underlying trading performance. Adjusted earnings is profit after taxation attributable to owners of the parent before brand related intangible asset amortisation and non- trading items (net of related tax). These items are excluded in order to assist in the understanding of underlying earnings. A full reconciliation of adjusted earnings per share to basic earnings is provided below. Constant currency eliminates the translational effect that arises from changes in foreign currency year-on-year. The growth in adjusted earnings per share on a constant currency basis is calculated by comparing current year adjusted earnings per share, to the prior year adjusted earnings per share retranslated at current year average exchange rates.
2018 2017 EPS EPS cent cent Basic earnings per share 305.9 333.6 Brand related intangible asset amortisation 16.3 13.4 Non-trading items (net of related tax) 31.2 (5.8) Adjusted earnings per share 353.4 341.2 Impact of retranslating prior year adjusted earnings per share at current year average exchange rates - (15.8) Adjusted earnings per share on a constant currency basis 353.4 325.4 Growth in adjusted earnings per share on a constant currency basis 8.6% 9.4%
7. Free Cash Flow Free cash flow is trading profit plus depreciation, movement in average working capital, capital expenditure, pensions costs less pension expense, finance costs paid (net) and income taxes paid.
Free cash flow is seen as an important indicator of the strength and quality of the business and of the availability to the Group of funds for reinvestment or for return to shareholders. Movement in average working capital is used when calculating free cash flow as management believes this provides a more accurate measure of the increase or decrease in working capital needed to support the business over the course of the year rather than at two distinct points in time and more accurately reflects fluctuations caused by seasonality and other timing factors. Average working capital is the sum of each month’s working capital over 12 months. Below is a reconciliation of free cash flow to the nearest IFRS measure, which is ‘Net cash from operating activities’.
2018 2017 €’m €’m Net cash from operating activities 651.0 671.4 Difference between movement in monthly average working capital and movement in the financial year end working capital 21.7 84.4 Expenditure on acquisition integration and restructuring costs 59.8 34.0 Purchase of assets (296.1) (301.3) Proceeds from the sale of property, plant and equipment 10.6 3.1 Capital grants received - 0.9 Exchange translation adjustment (0.5) 8.8 Free cash flow 446.5 501.3
204 Kerry Group Annual Report 2018 8. Cash Conversion Cash conversion is defined as free cash flow, expressed as a percentage of adjusted earnings after tax.
2018 2017 €’m €’m Free cash flow 446.5 501.3 Adjusted earnings after tax 624.4 601.9 Cash Conversion 72% 83%
9. Financial Ratios The Net debt: EBITDA and EBITDA: Net interest ratios disclosed are calculated in accordance with lenders’ facility agreements using an adjusted EBITDA, adjusted finance costs (net of finance income) and an adjusted net debt value to adjust for the impact of non-trading items, acquisitions net of disposals and deferred payments in relation to acquisitions. As outlined on page 174, these ratios are calculated in accordance with lenders’ facility agreements and these agreements specifically require these adjustments in the calculation.
2018 2017 Covenant Times Times Net debt: EBITDA Maximum 3.5 1.7 1.4 EBITDA: Net interest Minimum 4.75 14.7 16.2
10. Average Capital Employed Average capital employed is calculated by taking an average of the shareholders’ funds and net debt over the last three reported balance sheets plus an additional €527.8m relating to goodwill written off to reserves pre conversion to IFRS.
2018 H1 2018 2017 H1 2017 2016 €’m €’m €’m €’m €’m Shareholders’ funds 4,034.4 3,773.6 3,573.2 3,250.4 3,094.0 Goodwill amortised (pre conversion to IFRS) 527.8 527.8 527.8 527.8 527.8 Adjusted equity 4,562.2 4,301.4 4,101.0 3,778.2 3,621.8 Net debt 1,623.5 1,403.3 1,341.7 1,221.7 1,323.7 Total 6,185.7 5,704.7 5,442.7 4,999.9 4,945.5 Average capital employed 5,777.7 5,129.4
11. Return on Average Capital Employed (ROACE) This measure is defined as profit after tax attributable to owners of the parent before non-trading items (net of related tax), brand related intangible asset amortisation and finance income and costs expressed as a percentage of average capital employed.
2018 2017 €’m €’m Profit after tax attributable to owners of the parent 540.5 588.5 Non-trading items (net of tax) 55.1 (10.2) Brand related intangible asset amortisation 28.8 23.6 Net finance costs 67.0 65.6 Adjusted profit 691.4 667.5 Average capital employed 5,777.7 5,129.4 Return on average capital employed 12.0% 13.0%
Kerry Group Annual Report 2018 205 12. Total Shareholder Return Total shareholder return represents the change in the capital value of Kerry Group plc shares plus dividends reinvested in the year.
2018 2017 Share price (1 January) €93.50 €67.90 Interim dividend (cent) 21.0 18.8 Dividend paid (cent) 43.9 39.2 Share price (31 December) €86.50 €93.50 Total shareholder return (6.8%) 38.6%
13. Market Capitalisation Market capitalisation is calculated as the share price times the number of shares issued.
2018 2017 Share price (31 December) €86.50 €93.50 Shares in issue (‘000) 176,298.4 176,182.4 Market capitalisation (€’m) 15,249.8 16,473.1
14. Enterprise Value Enterprise value is calculated as per external market sources. It is market capitalisation plus reported borrowings less total cash and cash equivalents.
15. Net Debt Net debt comprises borrowings and overdrafts, derivative financial instruments and cash at bank and in hand. See full reconciliation of net debt in note 23 to the financial statements on pages 171-173.
206 Kerry Group Annual Report 2018 KERRY GROUP Prince’s Street Tralee Co. Kerry V92 EH11 Ireland T: +353 66 718 2000
www.kerrygroup.com