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Price actions on cost rises deliver steady H1 for Kerry ingredients unit

By Lindsey Partos , 26-Aug-2008

Food firm Kerry delivers like-for-like trading profit of €134 million at its ingredients and flavours unit for the first half of 2008, thanks in part to 'prudent price actions' that have brought good cost recovery to the group.

The Irish ingredients and consumer food group reported this morning pre-tax profits of €132.8m for the first half of this year, with sales in Kerry's flavours and ingredients business up 7.8 per cent to €1.66 billion.

While the cost of raw materials such as cereals and edible oils increased by about 7 per cent during the period, compared with a rise of 5 per cent in 2007 and just one per cent in 2005, the Irish company said it has raised prices to customers to compensate, as well as becoming more efficient.

Despite the backdrop of substantial input inflation across the entire food industry, Kerry's chief executive Stan McCarthy said in a presentation today the ingredients unit had gained from significant global wins.

"The breadth of our technology and our ability to help our customers with the challenges they have is really, truly, providing us with opportunities for significant wins," he asserted.

Stripping out currency movements, acquisitions and disposals, the firm reported

7.8 per cent like-for-like revenue growth for the ingredients and flavours unit.

According to the firm's chief financial officer Brian Mehigan the key message from this revenue growth "is the very strong volume growth in the context of a strong inflationary environment."

For the CFO, the growth "indicates the level of activity still going on in the food industry in terms of creativity in formulation and reformulation, the impact of health and nutrition, and there is still a lot of activity, sometimes between categories and sometimes reacting to the pressure of input costs from the commodity markets," he said this morning.

On raw material cost pressures and hedging options, Mehigan commented that Kerry has a policy to "try to have three to five months coverage on everything (commodities, including fuel) going forward," that goes out to avoid any sudden adverse reactions from the market place.

"We have a sound model managing commodities built around sustainability of the margin rather than outsmarting the marketplace," he added.

Mehigan said that since 2006 Kerry has made "the necessary amendments and improvements to our business model" with the right focus to manage the inflationary environment.

Turning to global growth drivers for the ingredients unit, Stan McCarthy earmarked complete sauces, culinary systems, granola and clusters applications and new delivery formats for beverages for the ingredients and flavours business.

Repositioning of the firm's ingredients and flavours business, that kicked off in certain parts of the globe in 2006, is set to continue with 'a streamlining of the organisation around the world to get the modus operandi to where we actually want it', added McCarthy. Some sites in the Americas have already been closed.

Overall, Kerry's consumer food unit and its ingredients and flavours business combined, reported first-half net profit of €105 million, with sales revenue of

€2.3 billion on a rise of 1.3 per cent.

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