Interim Financial Report of Kerry Group

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Finance and strategic development

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Introduction
The purpose of this report is to analyse the interim financial report of Kerry Group from
the director’s point of view. The motive is to discuss on the issues that are related with financial
as well as strategic performance of the company. Kerry Group is Ireland based public limited
company and this company deals in consumer food products. Initially Kerry group has been
founded as private limited company by the Listowel and other two founders. There are three
major shareholders in the company that holds all the shares of the company and they are divided
Dairy Disposal Company under state control (42.5% shareholding), farmer’s federation having
eight small farmers (42.5% shareholding) and lastly Erie Casein Company formed in United
States (15% of shareholding). After Kerry Group had been converted into public listed company
it got listed to London Stock Exchange and Dublin ISEQ. Kerry Group has expanded its business
in year 2004 and 2005 through making acquisition of two companies. In first quarter of year
2004, Kerry Group has brought Quest Food Ingredients Group for approximately 440 million
Euros and in year 2005. Kerry Group has acquired Noon Products for 124 million Euros. Noon
Products Company is main suppliers of company products in Indian as well as Thai market. As
this report is prepared from director’s point of view it is important that all strategic decision
taken by the company must be evaluated and their financial consequences must be drawn in
order to get complete understanding of interim performance of the company.
Interim management report of Kerry Group for year 2016 aims to review the company
strategy, revenues, earnings, trading profits, trading margins, finance cost, capital expenditures,
debt holding, tax impact, cash flows, and other financial information that has impact over the
future performance of the company. The report has been divided into three parts, review of
business operations, financial performance overview, and future prospects of the business. As
per information presented in interim management report there are many issues that Kerry Group
has to face in future years. The projections proposed in the interim management report can be
influenced by macro economic conditions, food industry demand and supply issues, fluctuations
due to foreign exchange transactions and change in prices of raw material and commodity
fluctuations. This report will lay emphasis on the issues which are relevant form the point of
view of directors. The methods used to examine the interim performance of Kerry Group are
ratio analysis and trend analysis.
Financial and Strategic Management Issues of Kerry Group
Interim management report is mainly developed to improve the level of communication
between management, shareholders and directors of the company. The motive of the interim
prepared by Kerry Group is to reflect the efficiency and integrity of various management groups
within the company such as financial management, sales management and strategic management.
The directors are in concern with the future performance of the company and they want to review
the interim management report to the future growth of the company. The data presented in the
interim management report is of period of 9 months and report is prepared to focus on the actual

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performance during the period. The interim financial information is not audited as it is not the
final statement of the company. Interim report provides mid-year performance of the company so
that shareholder can be aware about the performance of the company and if any issues are found
management can take proper steps to solve the issues.
The company is mainly involved in providing dairy products, meat products and meal
solutions to wide number of people with the objective of providing healthy and hygienic food to
them. The company has attained a position of being a global leader in providing quality food and
beverage products at affordable prices. It conducts its business operations mainly in countries
such as America, Asia-Pacific, Middle East and Africa. However, the major strategic issue that
has been faced by the company as analyzed from its Interim Management Report of the year
2016 that its business expansion in EMEA countries such as Europe, Middle East and Africa has
been slower as compared with that of Asia-Pacific countries. For example, it has been depicted
in its interim management report that its business has depicted a growth of about 10% in Asia-
Pacific countries whereas in America it has recorded a growth of about 4% in the year 2016. This
is mainly due to large-scale growth in the lifestyle nutrition products across these countries and
therefore causing increased demand of food products manufactured by Kerry Group. As such,
the major challenge that is present before the Kerry Group is to seek innovative solutions for
meeting the varying customer requirements across the EEA countries and thus enhancing the
demand of its food ingredients within these countries (Interim Management Report 2016).
The interim management report of the company has also highlighted the major challenges
that the company can face are developing food products with unique taste and nutrition for
meeting the changing customer needs and expectations at an international level. In this context,
the company is striving to adopt the use of latest technologies for producing food ingredients that
matches the customer requirements. In addition to this, the expansion and growth of its business
at an international level may be impacted by the regulatory changes that can negatively impact
the sale of its food products across the countries at a global level. As such, the company is taking
active measures to comply with all the regulatory requirements at an early stage in the product
development process. It is fostering food and beverage innovations for satisfying regulatory
requirements and reducing launch time to bring new food ingredients within the market (Interim
Management Report 2016).
The Interim Management Report of the company published in the year 2016 has shown
that its financial performance in the year 2016 has been improved as compared with that of the
financial year 2015. Its strong financial performance in the year 2016 has added to its global
leadership as a supplier of customer branded food to the Irish and other international markets. Its
market value has been strengthened in the year 2016 as compared with that of year 2015 as the
company EPS has improved from 7.5% to 133.8 cent and its interim dividend has been increased
from 12% to 16.8 cent per share. In addition to this, its revenue has also depicted an increase of
about 22 million Euros in the year 2016 as compared with the year of 2015. The trading profit
has also been improved from 300 million Euros to about 322 million Euros between the financial

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years 2015-2016. The company has recorded a growth in the financial performance of the
company in the year 2016 as compared with that of the year 2015 despite of the market and
currency volatility (Interim Management Report, 2016). The same can also be depicted from the
interim management report of the company as follows:
Also, there is also an increase in the cash inflows of the company in the year 2016 as
compared with that of the year 2015 by about 143 million Euros. This is mainly due to reduction
in the capital expenditure of the company by about 57 million euro and that has caused an
increase in its cash inflows. The company has realized growth in all of its major business
segments such as Taste and Nutrition business and consumer foods. The growth realized by the
company in the food segments of its snack items and meal solution is responsible for the growth
in its sales volume. The company growth in its diverse food segments has offset any negative
impact that can occur on its financial performance due to volatility present within the market and
the currency fluctuations. The company has achieved increase in the sales volume of its food
products by meeting the taste preferences of the local customers and enhancing the nutrition of
its food ingredients through using innovative technology. The company has also reported an
increase in its trade profit by about 3.7% from the year 2015-2016 mainly due to ongoing
efficient programs and reposition of its portfolio (Interim Management Report, 2016)
It has also been analyzed from the interim report of the company that its Return on
Average Equity (ROAE) has been gradually reduced from 18% to 16.8% from the year 2015-
2016. This slight reduction in the profitability incurred by the company can be stated mainly due
to exchange rate fluctuations. However, the cash flow return on investment (CFROI) of the
company has reported an increased to about 14.5% in the financial year 2016. This means that
there has been an increase in the cash flow of the company mainly due to improved revenue
generation and trading profit (Omar, Koya, Sanusi & Shafie, 2014).

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The company has implemented changes in the food and beverage sector for competing
with the competitors and sustaining its growth in the sector. It is continuously striving for
providing quality and healthy food to its customers all over the world and therefore is
emphasizing on delivering them nutritious food without compromising on quality. The future
growth plans of the company includes focusing on enhancing its reach to global customers
though the use of platforms such as e-commerce. Also, it is developing insight into the tastes and
preferences of its customers worldwide for meeting their needs and requirements in an effective
manner. Kerry Group has realized that the customers all over the world have become more health
conscious and thus they have implemented strategies for developing food products that is
nutritious and also does not compromise of taste. As such, it has also upgraded its manufacturing
capabilities for meeting the needs of the global customers in an effective manner. The demand of
the customers for healthy food is fulfilled by the company by making continuous investment in
research and development activities for inventing new and diversified food and beverage
products (Interim Management Report, 2016).
The interim management report of the company for the year 2016 has clearly depicted
that it has improved its financial stability as compared with that of the year 2015. This is mainly
due to increase in the sales volume of the company in Asia-Pacific region with the growth
realized in its various business segments of taste and nutrition and consumer foods group. The
business manager of Kerry Group is taking active measures for responding effectively for the
challenges of market volatility and changing customer requirements (Osadchy & Akhmetshin,
2015). It has taken the opportunity of business expansion and effectively meeting the customer
requirements of tasty and nutritious food (Sheffet, 2014). It has been analyzed from examining
the interim management report of the company that the company is facing serious challenges for
meeting the customer demands within the EMEA countries. As such, the company is actively
making strategies for promoting the growth of its business across these countries. This includes
carrying out research for developing an insight into the customer taste and preferences and

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driving product innovation continually for enhancing its saves volume across these regions
(Interim Management Report, 2016).
The company is developing innovative products that meet nutritious and all other
technical, functional and regulation requirements for enhancing its profitability and growth
within EMEA regions. The company has potential of realizing larger growth and development at
an international level mainly due to its successful acquisition and international trade. Also, the
unique design and quality of its products are also helping it to expand at a global level by
meeting the taste and preferences of the customers in an effective manner (Percivol, 2017). Also,
the company has acquired clean label over its products in the email sector and bakery category
that has caused an increase in its sales volume worldwide. Its sweet technologies have enabled it
to achieve growth within Indian and meat sector within Australia and New Zealand. The
snacking sector has enabled it to achieve growth within Malaysia and acquisition of Jungjin food
has caused its development in South Korea. However, the major challenge that is present before
the company that could negatively impact its profitable growth across EMEA countries is Brexit.
The exit of the Britain from the European Union (EU) could have a negative impact on the
financial performance of the company. This is because it could restrict the trade of food products
across the UK and Ireland. In this context, it is very essential for the company to take active
measures for strengthening its logistic system and developing new routes for transporting the
food products between the UK and Ireland. As such, it is seeking to materialize shipping routes
for transporting the perishable products across the UK and Ireland (The impact of Brexit on
Kerry Group, 2017).
It can be said from analysis of the interim management report of Kerry Group of the year
2016 that it is adequately managing its strategic and financial issues. The business model of
Kerry Group is resilient and it has been placed adequately for responding to the challenges of
currency fluctuations and changing customer needs and requirements. The business acquired by
the company in the financial year 2015 has also lead to the growth of its financial performance.
Also, the measures taken by the company such as e-commerce, online retailing and upgrading
technological infrastructure for driving product innovation will help to sustain its business
effectively at a global level (Brigham & Ehrhardt, 2013).
Recommendations
On the basis of overall examination of the interim management report of the Kerry
Group, recommendations have been provided to the management and directors to improve the
efficiency and financial strength. As the per information provided in the interim management
report of Kerry Group for year 2016 it can be said that company outperformed the market in the
volatile market situation. It has been noticed that Kerry Group has achieved the target financial
growth even being suffered with so many external factors. So it can be said that external factors
are main issues that need to be addressed by Kerry Group in order to further improve the
financial performance as well as strategic performance. Recommendations provided will mainly

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focus on improving the manufacturing process, brand value, product innovation and quality
control. Further there is need to focus on the delivery mechanism as it help to achieve the
maximum customer satisfaction which is very important for the growth of the company. As
Kerry group is planning to expand its business in EMEA and Asian Pacific countries, it requires
building a solid network of delivery network and after sales services so that it can provide better
products and services to their customers (Henisz, Dorobantu & Nartey, 2014). Kerry Group
belongs to consumer food industry that requires best quality product and good shell life as
products are consumed few days after it was packed and delivered to the customers. In order to
grow and flourish in the highly volatile market place there are some recommendations gathered
for Kerry Group that have been provided below. These recommendations if properly executed by
the Kerry Group will help the company to boost its strategic performance as well as financial
performance of the company. Below are the some of the recommendations that need to be taken
care Kerry Group:
 There is need to setup top class quality control department at every manufacturing
location so that quality product can be assured by the company. Although company take
care of quality but still the exclusive quality control department will help to improve the
quality as well as help to decrease the delivery time of the product (Hong, Huseynov &
Zhang, 2014).
 Training of employees is the crucial factor for such big companies and it is very
important to provide timely training to employees.
 Due to the impact of Brexit there are many issues that have to be handled by the company
in effective manner. So it is important that Kerry Group must develop the trading route
between Ireland and United Kingdom. Also the manufacturing facility that has to be built
in United Kingdom must be planned as early as possible and must be executed in very
less time frame. United Kingdom is the most important market of Kerry that needs not to
go easily. So every effort will count to remain in market of United Kingdom (Karna,
Richter & Riesenkampff, 2016).
 As Kerry Group manufactures the food products and there is needed to maintain the
proper hygiene control mechanism in order to deliver the safe and secure food to the
customers. So it is recommended to use natural colors and human friendly preservatives
to maintain good quality products.
 Process such as flavoring, extraction, distillation and fermentation must be monitored
properly in order to have safety of employees and also the quality (Julian &
Oforidankwa, 2013).
 As Kerry Group is looking for expansion in EMEA countries it has to explore the market
properly and make arrangement for marketing the products.
 In the expansion phase company will requires proper funds to manage the capital assets
as well as working capital. So it is suggested that to make proper arrangements of funds
either through bank loans or fresh issue of shares. Profitability position of the company
will help to make available of loan in easy way (Karadag, 2015).

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Conclusion
On the basis of overall evaluation of the performance of Kerry Group through interim
management report it can be said that Kerry Group has outperformed in year 2016 as compared
to year 2015. It was also expected that Kerry Group will able to expand its market more rapidly
in EMEA and Asia Pacific countries. There will be many issues while making this expansion as
there is need to make proper arrangement of funds and also plans for innovative marketing ideas
to capture the market. The issue of Brexit must be handled in effective manner so that sales
potential in United Kingdom cannot be affected. All the recommendations must be followed and
properly executed to achieve improved results.

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References
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Cengage Learning.
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Hong, Y., Huseynov, F., & Zhang, W. (2014). Earnings management and analyst following: A
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