Kerry outwits costs with robust ingredients performance

The group, whose food ingredients division encompasses application-specific ingredients, flavours and bio-science businesses, reported total revenue of €2.33bn in the six months ended June 30 2007, representing an up-swing of 5.6 per cent.

Ingredients revenue was up 4.21 per cent to €1.61bn, or 5.9 per cent on a like-for-like basis, when exchange rates, acquisitions and disposals were taken into account.

Trading profits reached €130m.

This growth was against a backdrop of energy-driven input cost inflation.

Director of corporate affairs Frank Hayes told FoodNavigator.com that high energy costs in the last two years were the original catalyst, but that the impact has trickled down to changes in land use and increased use of biofuels.

This, in turn, has driven up costs of key raw materials, including wheat and dairy products.

Kerry has implemented cost recovery programmes to combat this, including new efficiencies in processes, supply chain management, and passing on expenses.

In the last case, however Hayes said it is not possible to see immediate results since this is an on-going process that looks set to continue.

In Europe, this cost recovery lagged behind other markets.

Although "significant progress" was nonetheless said to have been achieved, the problem, Hayes said, is that there is greater competition in Europe in the major food categories.

"It is harder to increase prices because of the intensity of competition," he said.

Kerry has also developed a "go-to-market" strategy, which involves a simplified structure so as to maximise selling opportunities across its customer base.

The idea is to leverage strengths in science, and to provide innovative solutions and applications to match a customer's needs.

This is not a formal restructuring, Hayes said, but, put simply, "it means ten different business areas are not calling the same customers".

Amongst the best performing areas for ingredients in the six month reporting period was dairy, which bounced back following tricky market conditions in 2006 as demand increases and inventories reduced, leading to better returns for producers and processors.

"Kerry Dairy Ingredients has also continued to benefit from on-going development of milk proteins in the nutritional and functional food and beverage sectors," said the group in its report.

In particular, the Bio-Science range of value-added dairy products, which aim to enhance taste, texture, shelf-life and convenience, performed well.

Bio-Science was also instrumental in Kerry's functional bakery activities - that is, enzymes, fermented ingredients and emulsifiers.

Fruit and sweet ingredients did well off the back of innovation and supply chain efficiencies, that led to better fruit applications for yoghurt and fruit smoothies.

Demand for nutritional offerings, especially in breakfast cereals and confectionery, also helped.

The beverage sector benefited from expanded capacity at the Menstrie yeast plant in Scotland, said the report.

Mastertaste, Kerry's flavours business, made "solid progress", particularly in the chilled savoury markets, in Italian confectionery, and in natural solutions for the European beverage sector.

In the US, Mastertaste was given a push by new demand for foods with less salt and fewer calories - attributes that pose specific flavour issues since even the healthiest of foods will not enjoy consumer acceptance if they are lacking in the taste department.

Since the end of the reporting period Mastertaste has tapped further into the salt/calorie reduction field, with the launch of new flavour modulation technology aimed to help reduce salt and sugar content in foods.

It also recently announced the introduction of an extensive new range of botanical extracts for flavours.

In the United States, Kerry also drew attention to recovery of the dairy market and its role in lifting sales revenue.

However the flip-side of this was slightly lower volume sales in the ice-cream sector, which was put down to raw material prices.

Other opportunities presented themselves in the form of trans-fat replacement, and enhanced nutritional offerings as a driver for ready-to-eat cereal and nutritional products.

As for Asia, sales revenue rose 14.3 per cent to €199m. Highlights were the branded flavoured beverages and nutritional products for "growing diets" , especially in China.

One detracting factor was the slow up of growth in the regional savoury markets, specially in Australia.