Assignment 2: You are requested to prepare a report for a public company.

You should
approach this case from a director’s point of view upon issues related with financial and
strategic management. For this final assignment you are requested to use information upon
your discretion regarding the overall interim appearance of a public company. The target
company is “Kerry Group”.

R2003D10581013
Strategic Development UU-MBA-710-ZM-20526
Ali Malik
22 November 2020

1
 Director’s Bi-Annual Report

For

Kerry Group

For the Period 1 January to 30 June 2016

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Table of Contents
Company Directors................................................................................................................................5
PRINCIPAL ACTIVITIES............................................................................................................................5
Governance...........................................................................................................................................5
Board and Committee Changes.........................................................................................................5
Operating Result....................................................................................................................................6
Market Review......................................................................................................................................6
Developed Markets...........................................................................................................................6
Developing Markets...........................................................................................................................6
Market Dynamics...............................................................................................................................6
Business Review....................................................................................................................................7
Taste and Nutrition............................................................................................................................7
Consumer Foods................................................................................................................................7
Research and Development...............................................................................................................7
Finance Review......................................................................................................................................7
Revenue.............................................................................................................................................7
Trading profit.....................................................................................................................................8
Adjusted Earnings Per Share.............................................................................................................8
Finance Costs....................................................................................................................................8
Micro Environment Analysis – Review of the Internal Environment.....................................................8
Strengths...........................................................................................................................................8
Weaknesses.......................................................................................................................................9
Opportunities....................................................................................................................................9
Threats...............................................................................................................................................9
Macro Environment Analysis – Review of the External Environment..................................................10
Political Factors............................................................................................................................10
Economic Factors.............................................................................................................................10
Social Factors...................................................................................................................................10
Technological Factors......................................................................................................................11
Environmental Factors.....................................................................................................................11
Legal Factors....................................................................................................................................11
Going Concern.....................................................................................................................................12
Longer Term Viability.......................................................................................................................12
Sustainability...................................................................................................................................12
Directors’ Compliance Policy Statement.............................................................................................12
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Conclusion...........................................................................................................................................12
Appendices..........................................................................................................................................13
Appendix 1. Trading Margin by business.........................................................................................13
Appendix 2. EPS Reconciliation........................................................................................................13
REFERENCES........................................................................................................................................14

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Company Directors

Michael Dowling, Chairman

Stan McCarthy, Chief Executive Officer
Brian Mehigan, Chief Financial Officer
Gerry Behan, President & CEO Taste & Nutrition
Flor Healy, CEO Kerry Foods
Hugh Brady
Patrick Casey
Karin Dorrepaal
Joan Garahy
James C. Kenny
Tom Moran
Philip Toomey, Executive Director

PRINCIPAL ACTIVITIES
Kerry Group started as a small dairy company in 1972 in Ireland. The company has managed
over the years to maintain competitive advantage (Ritson, 2011). by meeting the constantly
changing consumer needs in foodstuffs that is in line with lifestyle changes and increasing
preference for convenience, variety and quality prepared foods or snack products (Kerry
Group). The mission of the company mentions that there is customer engagement as well as
technology and science in their goal of nourishing the people through tasty food. The
company has since spread to the Americas, Europe, Middle East, Africa and Asia-Pacific and
is listed on the Irish and London Stock Exchanges.

Governance
The company has a Board of Directors made up of 11 members whose responsibility is to
safeguard the long-term success of the company through effective control of the company’s
activities. The company also has an array of policies and statements which guide staff on the
code of conduct and company operations. The Articles of Association of the Kerry Group
authorize the board to appoint and retire Directors as well as allow them to avail
themselves for reelection at subsequent AGMs.

Board and Committee Changes

The Group CEO, Stan McCarthy will retire as Group CEO on 30 September 2017. Mr
McCarthy will also be stepping down from the Board at year end. The Nomination
Committee will recommend the next CEO who will take over thereafter. Michael Ahern,
James Devane and John Joseph O’Connor will be retiring from the Board on 31 December
2016.

5
Operating Result
The Kerry Group trading profit for the six months ended 30 June 2016 amounted to €322
million.

Market Review
The Kerry Group has witnessed a growth in its markets over the years to become a major
player in both the local and international markets (developed and developing countries). The
market is characterized by the demand by consumers of healthy foods.

Developed Markets
The Kerry Group has established markets which have seen the business continuously
growing and leading in the market, albeit being affected by the macro-economic
environment in which the company operates. Currency instability, and the ever-changing
consumer tastes have also resulted in a continuously changing marketplace as companies try
to adapt to the changes in taste and providing the preferred foodstuffs.

Developing Markets
These have been characterized by slow economic growth, increasing geopolitical and
currency unpredictability, more food and health regulations were imposed by the
authorities.

Market Dynamics
The market has witnessed an increase in demand for a variety of products, consumers prefer
to eat healthily as part of their healthy lifestyles and are also worried about convenience
which has seen the growth of e-commerce where products can now be purchased from
internet platforms. Food safety, informative labeling on the packages are also being
practiced following the regulations introduced by the authorities. In compliance, the
company has to ensured that the stipulated standards and health regulations are adhered to
i.e that foodstuffs need to be packaged safely with clear labeling of the ingredients and
nutritional values, expiry date and indicate the origin of the food.

6
Business Review

Taste and Nutrition

Revenue increased during the period under review by 3.5% to €2,379m. trading profit
increased by 7.9% to €304m. These increases are supported by innovative ideas being
implemented by management. They also reflect on the company’s ability to adapt to the
dynamic consumer preferences and lifestyles. Meat, daily and beverage products are the
performing well in the developed markets in the Americas. There is considerable growth of
the developing markets in Central and South America. Acquisitions from 2015 have
enhanced meat and savory product performance. The growth can be attributed to improved
business acumen and efficiency initiatives as opposed to other cashflow activities such as
asset disposals. Dairy, meat products and meal solutions continue to perform well in the
market. In the EMEA region, there is a lot of competition which has restricted growth in the
developed markets. Performance in Russia is stable. In the Asia-Pacific countries, there is
strong growth in the developing markets drive by beverage, dairy and food service.

Consumer Foods
The company focuses on everyday low pricing strategy as opposed to occasional price
reductions thereby attracting more customers. Electronic retailing has led to accessibility of
products which in turn has led to business growth especially in snacking and meal solutions.
Revenue for consumer goods grew by 2.3% to €697m, trading profit decreased by 3.7% to
€58m for the period. Dairy, meat and meal solutions have all being performing well.

Research and Development

Kerry Group is dedicated to continuous technological advancement across its business
sectors. This innovation by the group enables the companies to provide products that meet
the costumer’s needs by combining the expertise available with information from market
research. The group invested €260.7m in establishing research, development and
application centres whose head office is located In Naas, Ireland.

Finance Review
Revenue
Revenue for the group for the period increased by 3.2% to €3,037m. The positive increase is
a result of the aggregate growth in business across the groups’ entities. When compared to
the performance of the same period for the previous year, there was a slight increase from
the amount of €3,028m (Appendix 1)

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Trading profit
There was an increase from €300m to €322m for the group when comparing H1 2015 to H1
2016. The Group trading margin rose by 70 basis points to 10.6% compared to 9.9% in
H1 2015. The improvement is a result of product diversification and efficiency amongst
other factors (Appendix 1)

Adjusted Earnings Per Share

The adjusted earnings per share rose to 133.8c which signifies a 7.5% increase. The factors
that affected the group’s performance are (i) Changing consumer challenging status quo (ii)
Customers investing in innovation (iii) Currency volatility (iv) Deflationary input cost
environment and (v) Partnership model delivering (Appendix 2)

Finance Costs
The Group finance costs for the period increased by €3m to €39m due to financing of the
acquisition. A decrease in the discount rate resulted in an increase by €61m net deficit for
the pension. There was a decrease in the cost of raw materials.

Micro Environment Analysis – Review of the Internal

Environment
Using the SWOT analysis, the management of Kerry Group will be able to analyse the
Strengths, Weakness, Opportunities and Threats of the business environment . The SWOT
analysis involved a detailed participatory process among the different departments within
the firm e.g marketing, IT, finance, operations, sales, management information systems etc.
The process will allow Kerry Group to identify the strategies to utilise in order to exploit
opportunities that are available and also to counter any threats that may exist

Strengths
Kerry Group have identified the following strengths within their companies that help them
to have competitive advantage:

 Reliable suppliers of raw material that enable the company to operate smoothly
without disruptions.
 Positive Returns on Capital Expenditure by successfully introducing new projects and
in turn new income streams
 Proven track record on the development of new products (product innovation).
 Wide customer base characterised by a high level of customer satisfaction
 Highly skilled workforce. Kerry Group has been investing in training and
development of its employees.
 Strong and reliable distribution network that feeds the current markets and can
reach potential markets too.
 diversification of products

8
Weaknesses
These are areas of improvement in order for the company to maintain its strategic
position:

 Weak marketing strategy

 Low investment in new technologies.
 The profitability ratio and Net Contribution % of Kerry Group Plc are below the
industry average.
 Financial planning is not done properly and efficiently. The current asset ratio and
liquid asset ratios suggest that the company can use the cash more efficiently than
what it is doing at present.

Opportunities
 New environmental policies – These will create a level playing field for all the players
in the industry.
 The new taxation policy that encourages productivity and hence business growth
 High demand of meat and dairy product
 The new technology provides an opportunity to practice differentiated pricing
strategy in the new market.
 Government green drive also opens an opportunity for procurement of Kerry Group
Plc products by the state as well as federal government contractors.
 Increased global consumers due to globalization
 Reduced shipping prices that promote profitability and lower prices to customer

Threats
 Negative impact of currency fluctuation given the different countries the company
trades in
 Increases in the price of raw materials which reduce the profit
 Liability and regulation laws may expose the company to claims in countries as
different laws and regulations apply
 An increase in counterfeit products by unscrupulous companies
 Changes in consumer buying behavior which could be a threat to the existing
physical infrastructure driven supply chain model.
 New environment regulations under Paris agreement (2016) could be a threat to
certain existing product categories

9
Macro Environment Analysis – Review of the External
Environment
This is a strategic tool used to analyze the Political, Economic, Social, Technological,
Environmental and Legal factors that impact the macro environment of Kerry Group Plc.
Changes in the macro-environment factors can have a direct impact on Kerry Group Plc as
well as its competitors, customers and suppliers in the industry.

Political Factors

The existence and survival of Kerry Group in different countries is affected to a greater
extent. The following are the list of factors to be considered prior to investing in a different
country or market.

 Political stability
 Risk of military invasion or wars
 Level of corruption
 Bureaucracy and government interference.
 Legal framework for contract enforcement
 Trade regulations & tariffs related to Consumer Goods
 Anti-trust laws related to Food & Beverage
 Taxation

Economic Factors
 Exchange rates & currency stability.
 Efficiency of financial markets
 Infrastructure quality and availability.
 Labor costs and productivity in the economy
 Business cycle stage (e.g. prosperity, recession, recovery)
 Economic growth rate
 Unemployment rate
 Inflation rate
 Interest rates

Social Factors
 Demographics and skill level of the population
 Education level
 Culture and norms
 Gender issues or roles
 Entrepreneurial spirit ad societal views.
 Attitudes (health, environmental consciousness, etc.)
 Leisure interests

10
Technological Factors
Technology has an impact on how the company operates or produces and distributes it’s
goods and services. Kerry Group should incorporate technological advancement in order to
remain relevant in the market. the factors are:

 Recent technological developments in the sector

 Technology's impact on product offering
 Impact on cost structure
 Impact on value chain structure

Environmental Factors
It is important for Kerry Group to first study the environment in which they operate. The
environmental factors are as follows:

 Weather patterns
 Climate conditions
 environmental pollution regulations
 Waste management
 Attitudes toward “green” or ecological products
 Endangered species
 renewable energy

Legal Factors
Different countries have different laws which affect registration of companies, trading and
intellectual property rights. The legal factors that could affect Kerry Group’s market are -

 Discrimination law
 Copyright, patents / Intellectual property law
 Consumer protection and e-commerce
 Employment law
 Health and safety law
 Data Protection

11
Going Concern
The Directors examined the financial position of the Group i.e cash flows, liquidity issues,
assets, liabilities and associated risks and have concluded that the company is a going
concern with enough resources to continue to operate and exist.

Longer Term Viability

Even though the Group has a five-year strategic plan, the Board decided that the suitable
number of years to access longer term viability of the business is three years which is the
period when projections and expenditure plans are performing optimally.

Sustainability
Kerry Group made considerable progress on the implementation of its sustainability y
Strategy ‘Towards 2020’ programme. Kerry Group is always dedicated to maintaining
business standards and ethical behavior as set out by the company code of conduct. The
company will also aim to fulfil its pledge to assist the communities and create of long-term
value for all stakeholders on a socially and environmentally sustainable basis.

Directors’ Compliance Policy Statement

The Directors accept their responsibility for ensuring that the Company complies with the
relevant regulations stated in the Companies Act 2014. The Directors confirm the necessary
arrangements have been put in place to guarantee such compliance. A support team made
up of legal and tax advisors is available to provide knowledge and technical expertise on
compliance issues.

Conclusion
The company has managed to adapt its business operations in order to be in sync with the
evolving market. Management need to be proactive, continually scanning the environment
for new information and devising ways of meeting new consumer expectations profitably in
order to maintain competitive advantage (Morden,1993). Kerry Group experienced a fruitful
first half of 2016. The company will continue to look into issues raised by the SWOT and
Pestel analysis in order to meet the consumer needs at a profit. We look forward to
continuing the trend into the last half of the financial year.

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Appendices
Appendix 1. Trading Margin by business

H1 2016 H1 2015
Revenue Trading Profit Revenue Trading Profit
€m €m % €m €m %

Taste & Nutrition 2,379 304 1 2 .8 % 2,318 282 1 2 .1 %

Consumer Foods 697 58 8.3% 749 60 8.0%

E lim in a tio n s /u n a llo c a te d (39) (40) – (39) (42) –

Group 3,037 322 1 0 .6 % 3,028 300 9 .9 %

Appendix 2. EPS Reconciliation

H 1 2016 H1 2015 G ro w th
€ cent € cent %

Adjusted EPS* 133.8 124.5 7.5%

B r a n d r e la te d in t a n g ib le a s s e t a m o r t is a tio n (5.8) (4.8)

Non-trading items (net of related tax) (1.6) 15.5

B a s ic E P S 126.4 135.2 (6.5%)

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 REFERENCES

1. Fern Fort University. Kerry Group Plc PESTEL & Environment Analysis: Strategic
Management Essays, Term Papers & Presentations. Retrieved from
http://fernfortuniversity.com/term-papers/pestel/nyse4/6654-kerry-group-plc.php

2. Fern Fort University. Kerry Group Plc SWOT Analysis / Matrix. Retrieved from
http://fernfortuniversity.com/term-papers/swot/nyse/6654-kerry-group-plc.php

3. Kerry Group (2016). Interim Management Report for the half year ended 30 June
2016. Retrieved from https://www.kerrygroup.com/docs/news/featured/2016-
Interim-Management-Report-Press-Release.pdf

4. Kerry Group plc (2016). 2016 Interim Management Report. Retrieved from

https://www.kerrygroup.com/investors/results-presentations/2016-H1-Results-
Presentation-4-8-16.pdf
5. Kerry Group plc (2016). 2016 Interim management report press release. Retrieved
from https://www.kerrygroup.com/docs/news/featured/2016-Interim-
Management-Report-Press-Release.pdf
6. Morden, T. (1993), “Business Strategy and Planning”, Mc-Graw-Hill Book
Company,England.
7. Ritson, N. (2011). Strategic Management. Retrieved from
https://www.bookboon.com

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