Kerry Group plc (KRZ) Earnings Call Transcript & Summary

Good afternoon. I'd like to extend a warm welcome to the Kerry management team. This is Kerry's first time at CAGNY, and we're delighted to add them to the agenda. Joining me on stage are Edmond Scanlon, Chief Executive Officer; Marguerite Larkin, Chief Financial Officer; Dr. Albert McQuaid, Chief Technology Officer, along with William Lynch, the Head of Investor Relations. Together, they have over 75 years' combined experience working with Kerry as the company has evolved into a global leader, developing taste and nutrition solutions for the food, beverage and pharmaceuticals markets. Kerry has a strong track record of growth, is coming off solid 4Q results, and we're very delighted to have them here to present to us today. And with that, I'll hand it over to you, Edmond.

Thank you, Steve. Good afternoon, everybody. As you can probably tell from my accent, I'm not local to here. That said, I did call the U.S. my home for almost a decade. Spent time actually in Lakeland, Florida, at our Global Center of Excellence for Citrus, spent almost 4 years in New Jersey, where 2 of my children were born in our -- in one of our locations there. And then moved to Beloit, Wisconsin to our Global Technology & Innovation Centre. So delighted to have the opportunity to discuss with you and to share with you an overview of our business. So Kerry -- what's been very central, I would say, to Kerry's journey is the evolving consumer. And our focus has very much been about how we work with our customers to meet the needs of today's consumer and tomorrow's consumer. We've continuously reinvented ourselves, redefined our space in the industry, reinvested in our business to be the leader of our industry. So turning to the next slide, and I'm going to reference to the slide numbers for the people on the webcast and for the subsequent transcript. We have the industry reference business model. We've a broad technology platform in Taste & Nutrition. And what we have discovered from being in Taste & Nutrition for decades is that putting these technologies together is one of our industry's biggest challenges, and we at Kerry believe we have cracked the code. And finally, on integrated solutions, we are not a leader, we are the leader. So now moving to the agenda on Slide 3. I'll kick off here and share with you some insight into Kerry's history, our evolution and our purpose. William will then share with you an overview of our industry, the marketplace in which we find ourselves and our industry-leading business model. Then Albert will share with you an overview of our broad technology capabilities and bring those to life through some very exciting examples. And then Marguerite will take us through and talk to us about our sustainability journey so far, our ambition and our strong delivery of financials. Then I'll walk us through our strategies that underpin those financials and underpin those financials today and well into the future. So to kick off here, we've a short video about how we see the world, the marketplace in which we serve and our role in helping customers grow and win. So as we get set to play the video here, I'd just like to draw your attention to the standard disclaimer on forward-looking statements. So can we play the video, please. [Presentation]

Kerry was founded almost 50 years ago as a community-owned dairy cooperative in the Southwest corner of Ireland. And early on, we focused on our dairy and savory heritage, primarily focused on the U.K. and Irish markets. In the mid-80s, we became a public company. And in the late '80s, we showed our global ambition by acquiring a business here in the U.S. that more than doubled our size. And then over the course of the next 25 years, we transformed ourselves to the global leader in ingredients and flavors. We built out the broadest technology portfolio in the industry, serving global, regional and local customers, right across the food and beverage market. We developed our leading integrated solutions capability in the early 2000s, and we expanded our geographical presence with local manufacturing facilities in more than 25 countries. And in this period of time, we grew our global revenues from about EUR 500 million to about EUR 5 billion. But we weren't done there. We were just, in many ways, just getting started. At that time, we saw the beginning of what we've seen today, that consumer revolution. Demand for great taste and nutrition, much more convenience, better-tasting products, products made from more natural and trusted ingredients, and the list of consumer demands has only got bigger and bigger. With the consumer at our core, we realigned our business around Taste & Nutrition strategies. We made Taste & Nutrition the cornerstone of every strategic decision we've made in the company ever since. We renamed our business Taste & Nutrition. And we did this to highlight what we stood for and what's central to creating true value for our customers. I'm tremendously proud of our organization and where we are today. I'm proud of our history, our people and our purpose to Inspire Food and Nourish Life. Inspire Food Nourish Life, this is our purpose and its essence has been with us from the very beginning. And when I came into this role over 2 years ago, I spent some time traveling around our organization, traveling globally, meeting our people in different parts of the world, different regions, different businesses, and I was blown away by their passion, their passion for our business, their passion for our customers. And I sense that, the pure passion and the common bond between us. It just needed to be articulated. It needed to be articulated for the 26,000 of us at Kerry. So over the past 18 months, we've spent time in focus groups, doing interviews all over the world. More than 22,000 people have participated in defining, redefining, rearticulating our purpose and our values. This was truly a by us, for us process. And our purpose and values reflect the best of Kerry heritage and our forward-looking ambition. Inspire Food Nourish Life is about innovation and sustainability. Inspiring food by innovation by creating better tasting, better-for-you and better performing products. And nourishing life by producing sustainable products that nourish people and the planet. And to give you some context, more than 1 billion products are consumed every day that contain a Kerry ingredient or a Kerry solution. And this provides a phenomenal platform for us, a phenomenal platform to co-create nutrition solutions with our customers for their consumers. So here on this map is what our business looks like today. And what this highlights for me is that Kerry is a truly global organization with an extensive footprint that enables us to partner with our customers wherever they are, and to help them to meet, to enable them to meet local consumer needs. We've group revenues of EUR 7.2 billion and EBITDA of EUR 1.1 billion. We have 151 manufacturing facilities across 32 countries with sales into more than 150 countries. Our global B2B Taste & Nutrition business accounts for about EUR 6 billion of our total business and it's spread across the Americas, Europe and APMEA. We manage our business. We set strategy through our 8 end-use markets on the bottom right-hand side of the page. And this aligns with how our customers look at their business, therefore enables us to make -- to have better partnerships with our customers. Our breadth of expertise right across all these end-use markets helps customers broaden their ranges, move into new categories, launch cleaner label products, all in a really fast and sustainable way. And Albert will take us through some examples that we bring that to life. Our world is food, beverage and pharma. And this slide looks at our industry through that lens. Today, we're the leader in our space, with our Taste & Nutrition business, as I said, over EUR 6 billion and an EBITDA margin of 18%. And how we have evolved and grown has defined the specialty ingredients and flavors landscape. We've evolved to be the largest, but what's most important is to be our customers' MVP, to be our customers' most valued partner. Here in this slide is how we set ourselves apart. We have a unique positioning across Taste & Nutrition, and our customers see the value that we can bring them and that we can add to their offerings. We excel at the intersection of Taste & Nutrition. And this is why we are the industry leader. So with that, I'll now ask William to come up, and he will provide us an overview of the marketplace.

Thank you, Edmond. For the next few minutes, I will talk to the rapidly changing consumer landscape, where the industry is moving and what customers need from suppliers in today's marketplace. Turning to Slide 13. The markets we serve and the industry overall are undergoing significant change. It is a consumer-led revolution. And with people demanding more from the products they buy. They want food with enhanced nutrition, better taste experiences, products they can trust and more personalized, convenient and affordable options to match their on-the-go and digital lifestyles. All of this is requiring customers to transform. These changes are impacting the end-to-end supply chain, reinventing our industry, challenging long-established business models and redefining traditional ways of working. And underpinning all of this is the consumer's expectation for greater sustainability. To summarize, the consumer revolution is driving customer transformation and reshaping our industry. On Slide 14, you will see our industry is migrating towards integrated solutions. This is a slide we have shown before, and it illustrates what we call the value-add staircase. Many that look at our sector will typically view companies in terms of their portfolios. There are many single ingredient specialists, a number of multi-ingredient suppliers with broad technology offerings, and when it comes to integrated solutions, there are very few. What is key for Kerry is how we have built our extensive capabilities in developing integrated solutions for customer applications right across the food and beverage markets. I can tell you from my experience in Kerry, it's hard moving from left to right. It takes time and it's a steep staircase to climb. But in the eyes of our customers, this is a staircase of value. Now turning to Slide 17 and looking at what customers want from suppliers today. What we found is that customers are looking for a new kind of supplier. On the left of the slide are the different types of product offerings we've just mentioned, from single ingredient suppliers right through to integrated solution providers. What's critical here is that customers are looking for more driven by the demands of the end consumer you see on the right. So what is this more the customers want? They're looking for a true co-creation partner, providing a total customer offering; working with them in a more holistic way, supporting them from ideation to launch; helping them to move into new categories or new sub channels; supporting them and bringing more products to market, doing this quicker, and with the expertise to help them deliver efficiencies in their processing and supply chain. This is what it means to be a true co-creation partner. So I've just given some context to the changing industry landscape. The move towards integrated solutions and the value of a true co-creation partner. These dynamics all play right into Kerry and our industry-leading business model. So now turning to Slide 17. Our business model is centered all around our customers and what we can do for them. I'm going to touch on some key points that make it truly special. So firstly, looking at the left side of the slide and our foundation of core technologies. Albert will take you through the breadth, depth and integration of our Taste & Nutrition foundational technology shortly. But the key point for me here is that we are unique. We have a leading technology capability that is the foundation to our business model. Kerry has a breadth and depth of taste capabilities, a breadth and depth of nutrition, wellness and functionality capabilities, and most importantly, has more than 20 years' experience combining these technologies. This is the code that Edmond referred to earlier. Building on this technology foundation, we moved to the center of our business model or the value creation engine, as we call it. This engine is centered around 3 core elements, which work together to support our customers: culinary and insights, where our global network of professional chefs and baristas, in conjunction with our marketing teams and consumer insight tools, such as Kerry trendspotting, are used to support our customers at the ideation stage of the new product development. An example of this in action is our collaborative rapid fire sessions at our innovation centers, where we can generate sample products in just 2 days. Turning to development and applications. This is where our experts in product development, sensory, applications, regulatory, analytical and commercialization all support our customers in many different ways as we move from the ideation phase of a new product development all the way to the launch of the new product. And thirdly, our product process technologies cover our industry-leading breadth of process technology expertise that Albert will speak to shortly. This value creation engine built on the foundation of our leading Taste & Nutrition technology capabilities makes us unique to our customers. So if you're a global, regional, our local customer, or whether you're in the retail or foodservice channel, Kerry has the business model to support you. Kerry is a true co-creation partner. So with that, I'll hand you over to Albert, who will talk about our technology strategy and capabilities.

Thank you, William, and good afternoon, everyone. So over the next 10 minutes or so, I will provide more detail around Kerry's technology strategy and our role -- and the role our technology capabilities play in our business model, and I'll share a few examples of how we excel in creating integrated solutions with our customers for their consumers. Our technology strategy is built on a combination of 3 pillars: breadth of technology capability; depth and expertise within each of these technologies; and critically, the integration of these technology capabilities to deliver unique and value-added solutions for our customers. In the global Kerry organization, we have over 1,000 scientists across a multitude of disciplines spanning food science, biochemistry, flavor science, engineering, to name a few. This extensive scientific expertise drives our 22 core technologies. It leverages and evolves our 25 process technology platforms, and it's brought to life for our customers through our 33 end-use market development and application centers across the globe. We seamlessly integrate a culinary food craft with deep fundamental science, to understand and solve our customers' needs. So here is a way to visually show some of these capabilities and how we leverage them. We have the industry-leading capabilities across a broad range of core technologies spanning taste, nutrition, functional and pharma are shown here. And this is further enhanced by a global network of suppliers and partners with whom we collaborate to develop solutions. We combine these individual technology expertise with the broadest process technology footprint in our industry, spanning from pyrolysis to extrusion to fermentation, to name just a few. These 2 elements enable us to create another layer of technology, which we call integrated technologies that are more customized to specific end-use markets and customer demands, and this is the space where Kerry hold absolute global leadership. And then critically, all of these capabilities are leveraged by our teams to create unique integrated solutions for our customers that are defined and aligned to consumer needs and bespoke customer requirements. This is at the core of our unique and leading Taste & Nutrition positioning. It is where we excel as the co-creation partner for our customers, it's the accumulation of decades of research and development and investment in our broad technology platform, is an example of the value-add staircase we've built, and it's why we are the industry leader in integrated solutions. As William mentioned earlier, the consumer-led market environment is evolving faster than ever and bringing new challenges and new technology requirements. To meet these needs, we have a global innovation program that is focused on 7 core platforms. Each of these are aligned to key macro consumer trends that we see driving growth in the industry over the coming years. This focused innovation program, which leverages both internal Kerry teams and collaboration with third-party research, has developed -- has delivered unique capabilities over the years. A good example is our modulation platform, where we developed industry-leading taste, salt and masking taste modulators that are meeting consumers' demand for improved taste in nutritionally optimized products. Overall, we've a very healthy innovation pipeline to enable and drive our growth in the coming years. I want to move on and show some examples of how we've leveraged our technology to meet the needs of the end consumer. We've spoken about consumer demand for more sophisticated products and with the many factors influencing their choice, as shown here. The end consumer has driven the need for customers to require much more from their supply base. So it is not about offering technical capabilities. What customers need is the "&" partner, who can co-create consumer and customer relevant integrated solutions, leveraging their technical capabilities. So now I just want to look at 3 examples: Firstly, in the beverage category, there has been a significant evolution from the traditional carbonated soft drink to an expectation of the delivery of functional and nutritional benefits from the beverages that consumers are consuming. Kerry is a leading supplier to the rapidly growing kombucha beverage category. However, we recognize that for this category to continue to scale in a sustainable way, there was a need to deliver a great-tasting and nutritious kombucha beverage in a more convenient and sustainable manner. We have leveraged our expertise in vinegar fermentation, our unique BC30 probiotic, in combination with our expertise in drying process technology and taste delivery to provide the industry with a ready-to-mix kombucha powder, which will deliver on consumer taste and nutrition expectations while being much more convenient and effective for our customers. I would imagine over the last few years, we've all heard here about the explosion in plant-based solutions and products. Kerry was one of the pioneers in this technology, and has over 20 years of history serving customers in the meat, food and beverage categories for plant-based solutions. If we take the demand for meat alternatives, we have a clear understanding of the key factors driving consumer demand and customer challenges, looking for balanced nutrition, authentic look, color and taste and clean label. We add value for our customers by leveraging a combination of core technology across taste, fermentation, natural preservation, integrated technologies and our broad integrated solution capabilities to improve the taste, the nutrition quality and the shelf life of the products in this category. In both the U.S. and the European markets where this trend is currently the strongest, we are the partner of choice of many of the established and emerging leaders in this category, and this is reflected in our delivery of very strong double-digit growth in this category in 2019. And lastly, linked to the demand for greater sustainability in our industry, which Marguerite will talk to you in more detail after, but also to the industry's move away from chemical based ingredients, we have developed a patented natural preservation solution leveraging a number of our fermentation technologies. This solution is targeted at the uncured meat category and delivers a product with a more authentic taste profile and meets consumer expectations in relation to using only recognizable and natural food ingredients but yet delivers on the shelf life and food safety requirements needed to serve our customers and consumers with busy lifestyles. This innovation has reignited a category that was in decline and led to mid-single-digit growth. So to reiterate, our technology strategy is focused on this combination of having a breadth of technology capability, a depth of expertise that enables us to continually evolve this and critically, a unique business model that enables us to layer and leverage these capabilities to help us enable our customers to win in the marketplace. With that, I will turn it over to Marguerite, who will share details on our sustainability strategy and financial performance.