Assignment 2

Student Number 1710D3613374

BACKGROUND

This report has been prepared to report for a public company with an approach from a Director’s point
of view looking at issues related with financial and strategic management. The target company is Kerry
Group.

INTRODUCTION

Kerry Group is a leading global business in Consumer Foods and Taste and Nutrition. The company
was formed in 1972 and is headquartered in Tralee, Ireland. Its global headquarters is in Naas, County
Kildare where it also hosts the group’s global technology and innovation centre. Kerry group is
registered on the Dublin ISEC and the London Stock Exchange. Their main products are Food
ingredients and flavours, cheese and cheese snacks, ready meals, Cooked Meats, Sausages, Dairy
Spreads, Water and Juices. They have introduced regional technology and innovation centres across
the globe and have worldwide manufacturing plants mostly concentrated in Europe and America. They
have 151 production locations, employing 26, 000 people and do sales in over 150 countries.

The company started with Dairy and Savoury products. Between 1988 and 2012 the company started
investing in ingredients and flavours buying the Quest Food Ingredients group in 2004 and Noon
Products, who was a supplier of Indian and Thai ready meals in 2005. By 2011, the company bought
Cargill Flavour Systems, a manufacturer of flavour foods. By 2012, the company started investing on
Taste and Nutrition with the acquisition of Red Arrow Products, Wellmune and Island Oasis who were
trading in the United States in the taste and nutrition sector.

Kerry group has maintained Global, Regional and Local consumers with distributions through
Consumer Packaged Good, Retailers and Food Services.

ORGANISATIONAL AND BUSINESS STRUCTURE

Kerry Group is structured across 3 business areas; Taste and Nutrition, Consumer Foods and
Agribusiness.

• Taste and Nutrition

In this business, Kerry group provides a leading market innovation using technology and systems
targeting the Food, Beverage and Pharmaceutical markets. The company revenue generated from
taste and nutrition distributed across geographical locations is Euro3.2bn in America, Euro1.5bn in
Europe and Asia, Pacific, Middle East and Africa (APMEA) generates Euro1.3bn. 72% of the revenue
generated comes from the developed world while 28% is from the developing world. 70% of Taste and
nutrition products are distributed through retailers while 30% are distributed through food service.
In gaining a competitive advantage, Kerry foods has the following insights in taste and nutrition; an
accelerated profound consumer led food revolution, a highly fragmented market place, a projected
growth of 1-3% in the short to medium term and a co creation business model of delivering across all
sectors and geographical locations.

Taste and nutrition also boast of a diversified portfolio of 5 product groups in Savoury and Dairy, Cereal
and Sweet Beverage, Functional Ingredients and Nutrition and Pharma, all having a market presence
across the globe.

To ensure growth in their Taste and Nutrition unit, Kerry Group ensures authentic taste, nutrition and
wellness functionality, developing markets and food service. This has a growth target of 4-6% per
annum.
The group’s strategy includes; replacing ingredients with clean label alternatives like natural flavours,
preservatives etc, eliminating some ingredients to comply with health and safety issues, reducing
some ingredients and simplifying statements by using multi-functional ingredients and reducing sugar
and sodium and repositioning its products in the market place.

• Consumer Foods

The group consumer foods is a leading manufacturer and marketer of added value branded and
customer branded chilled foods in the UK and Irish international consumer foods. This is distributed
in 3 product categories; everyday fresh (Meat and Dairy) grossing a revenue of Euro9.0bn, Convenient
Meal Solutions with a revenue of Euro 4.0bn and their largest earner Food to Go with a revenue of
Euro16.3bn.

Their strategic growth priorities and targets for Consumer foods are; deep consumer insights, leading
edge innovation, engaged customer network and market responsive teams.

• Agribusiness

This division works closely with milk suppliers especially in Ireland. They ensure efficient and effective
production of high-quality milk which becomes the source of premium quality, sustainably produced
nutritional products.

Governance

Kerry group is governed by a board of directors. The board is responsible for ensuring the long-term
success of the company. They provide oversight of Kerry Group by ensuring experienced leadership
and establishment of effective control of the company’s activities. The Board has 12 members which
comprises a non-executive chairman, CEO, CFO, Executive Director and 8 non-executive directors. The
board has a further 3 committees; Audit, Nomination and Remuneration.
MARKET OVERVIEW

Kerry group has developed well established market leadership positions in Foods, Beverages, and
Pharmaceuticals in over 140 Countries across the world. The strategy used to achieve this feat is
understanding and anticipating changes in customer trends. The market is constantly evolving and is
characterised by an extraordinary level of change in attitudes and consumption tendencies in recent
years. Customers are constantly changing food and beverage requirements which requires a lot of
innovation and development of alternatives to address convenience, health and life stage preferences.
Fundamental influences which include population growth, changes in demography, urbanisation and
growth in middle class spending and new spenders looking for immediate satisfaction while trying to
attain health, freshness and value in addition to the growing food service sector coupled with
increased technology underpin the growing of global demand for food and beverage markets for the
foreseeable future.

MACRO ENVIRONMENT ANALSYSIS

In this category, we will use the PESTEL analysis to look at the Kerry Group and its Macro Environment.
PESTEL refers to Political, Economic, Social, Technological Environmental and Legal factors that impact
the Macro environment of the Kerry Group. Changes in these factors have an impact on the Kerry
Group and its competitors in the Food and Beverage Industry. They can impact an organisation’s
profitability and competitiveness.

Political Factors

Political risks emanate from changes in regimes and civil unrests which influences the government to
make sudden changes in major decisions. Kerry Group has established most of its production and
innovation agencies in America and Europe where the democratic way of government is more stable.
Only 30% of their investment has been placed in developing countries where changes in government
can have drastic changes in policies and procedures. In this way, they have therefore tried to mitigate
the political risk by ensuring that the core of the organisation has placed in stable countries. Most
European and American companies also recognise the intellectual property law which ensures that
Kerry Group’s IP is safeguarded against copyright. Developing countries tend to take a lesser stance
against IP and thus poses a risk to the company. The removal of barriers to trade in Europe (EU) also
has positive repercussions to Kerry Group by improving its negotiating power and being offered a
wider market and higher revenue due to tax reductions.

Economic Factors

Kerry Group operates in a free market area. By virtue of being headquartered in the EU, the company
is guaranteed of a wider market with reduced trade embargos. This offers a competitive advantage
against competitors from the APMEA region and America. The EU gives Kerry Group a higher
negotiating power than its competitors. The GDP of its bigger markets in the EU and US is high
therefore offering a standard market to its products. Furthermore, the stability of the Euro against
other currencies also offer Kerry Group a competitive advantage as this makes it more attractive to
investors. High employment levels in the APMEA region offers an alternative to labour to the company
as people wages are low reducing the company’s costs. However, due to issues relating with BREXIT,
the company may wish to re-evaluate some of its strategies as soon some embargoes and taxations
may be reintroduced which can affect their competitiveness.
Social Factors

Social factors are a direct reflection of the society that Kerry Group operates in. This looks at the
culture, social norms and beliefs that would help design the organisations products and strategy. Kerry
Group has taken advantage of the growing middle-class population whose change reflection is
significantly changing to match those they admire and used this as a strategy for growth. The
disbursement of their distribution channels and sales point indicates that they are more present in
areas where there is higher GDP which means a ready market. America and Europe have more
advanced consumers who are developing the desire for quick fast foods that are health compliant
which is the core of Kerry Group’s products. Whereas in the APMEA region, consumers are still mostly
looking at traditional foods and therefore do not offer a ready market for Kerry Group’s products.
However, the company will need to re-strategize as these economies are also developing and it will
be imperative to make early inroads to establish the market as a trendsetter and therefore the catalyst
of the products.

Technology

Technology has a high influence on the price structure of the organisation and its competitive
landscape. Kerry group has ensured that they are ahead in terms of their technological advancement.
They have made massive investments in Research and Development creating over 8 Technology and
Innovation Centres in the World which employs about 900 people. This ensures that Kerry Group is up
to date with the world trend in the field of technology and is in synch with the global village while
conducting their business

Environmental Factors

Different industries have different environmental standards as their norm. However, there is a
common issue of climate change which is affecting all business across the scope. Kerry has invested a
lot in machinery and as such are contributing to pollution by the production plants contributing to key
environmental challenges. The company has committed to; reducing carbon emission in all their
manufacturing sites, reducing water use and minimising waste. They have developed ways to use
generated waste to be used as a resource somewhere else. They have also rolled out accredited
environmental management systems in their sites. They are currently at 80% progress on their eligible
sites achieving ISO 14001 and anticipate completion by 2020. They are also certifying their energy
intensive sites under the ISO50001, an Energy Management Certification.

Legal Factors

Country legal frameworks are also an important part to an organisation sustenance. Kerry Group is
spread over different jurisdiction spanning across 140 countries in the world and adherence to these
regulations in these countries is imperative to sustaining the company’s operations. They have
therefore partaken to acknowledge legal requirements of all the countries in which hey have
operations.

MICRO ENVIRONMENT ANALYSIS

To evaluate Kerry Group’s Micro environment, we will use a SWOT analysis of the organisation. A
SWOT analysis is used to determine a company’s competitiveness in the market. Being among the
leaders in their industry, Kerry Group needs to maintain or improve their position. For this, the
company needs to review its SWOT to strategically position themselves on top.

Strengths
Kerry Group has distinctly established several strengths in the industry

• The group has developed many outlets across the globe, trading in 140 countries worldwide. The
large distribution network ensures that there reach to consumers is simplified
• Due to the large number of production plants, Kerry group enjoys economies of scale which
reduces their costs and therefore allows them to sell products at a lower price than competitors
• The huge capital investments by the group ensure a strong financial position which in turn
improves their future capital expenditure.
• Kerry Group has ensured automation of most of their processes which improves production and
minimises costs in the long run. It also allows for consistency in the production line with a quick
response to market demand
• Having been in the industry for over 40 years, Kerry Group has developed a skilled labour set in
which they have invested heavily to improve and motivate the employees.
• They have a robust innovation team which is well funded to identify new products and new market
worldwide which gives them a competitive advantage.
• The company has a high brand awareness especially in the US and UK
• Kerry Group has also developed strong partnerships with supplier and other stakeholders which
allows for leverage when required

Weaknesses

• Most products that the company produces have got a low market share. Kerry Group only relied
on a few products to control the market which can make them vulnerable
• Kerry Group has seen arise in employee turnover with most employees going to competitors
• Although Kerry Group has a presence worldwide, their decision making is centralised and being a
huge company, there is a lot of Bureaucracy involved in decision making which can delay processes
• While they have a robust innovation team, they rarely do market search and as a result their
decision are based on old data when customers might have evolved n their wants

Opportunities

• The increase in the use of Internet by people allows the company to expand their online presence
to attract new customer and interact with existing ones. They can further improve on their e-
commerce by opening online purchasing sites
• Kerry Group should continue to invest in technology and implement its use in their operations
which will reduce lead times, production costs and data transfer within the organisation
• Changes in the consumption habits of people in the APMEA region to copy that of the America an
UK offers an opportunity for market expansion
• Population growth has ensured a standard increase in possible customers that can be targeted
with their products
• The flourishing transport industry offers a reduction in costs for the group which can allow them
to reduce prices attracting more customers
• Consumers are becoming more inclined towards health eating habits and Kerry Group can utilise
this as an opportunity to advance their products
• Reduced trade barriers due to common markets created allows Kerry Group to target these
markets at reduced costs

Threats

• New entrants to the market have increased taking a portion of the business in the process
• Bargaining power of suppliers have increased due to formations of association. This trend has
allowed many suppliers to be negotiating as an entity which means more costs for raw materials
• Fluctuating exchange rates is threatening international sales especially against local suppliers in
those countries
• Constant changes in consumer tastes means the company also must consistently change its
product which can be expensive
• Unstable pollical situations in some of the countries where they trade can affect production and
sales which can reduce revenue and profits
• A lot of substitute product are now appearing on the market at a cheaper price threatening the
market share of Kerry Group

COMPETITORS

Company Name Con Agra General Kraft Nestle Glanbia Du Pont

Mills Heinz
Founding Date 1919 1928 2015 1866 1997 1802
Type Public Public Public Public Public Public
Location (HQ) Chicago Minneapolis Chicago Vevey Kilkeney Midland
Employees 18,000 40,000 37,000 308,000 - 35,000
Valuation (US$) 13.7bn 31.1bn 31.8bn - 5.8tn 31.7bn
Revenue 9.5bn 16.9bn 25bn 95.7bn 13.8bn
Cost of Goods 6.9bn 11.1bn 16.8bn 48.3bn 8.6bn
Net Income 678.3mn 1.8bn 1.9bn 11bn 959mn

BUSINESS OVERVIEW

Kerry Group has continued to outperform most competitors in the industry. There is constant growth
which is led by strong performance across all regions in the snacking and meal solutions. This was
further driven by efficiency in programmes being implemented and repositioning of the company
portfolio

Financial Highlights

Kerry group recorded an increase of 0.42% from Euro6.10bn in 2015 to Euro6.13bn in 2016. 78% of
the revenue was from Taste and Nutrition. Revenue generation was high in EMEA which contributed
Euro2.8bn, followed by America at 2.5bn WITH THE Asia Pacific contributing Euro0.8bn. The trading
profit recorded an increase of 7% from Euro700bn in 2015 to Euro750bn in 2016. This was mainly due
to the company recording an improvement is share association profits, foreign exchange gains and
reduction of operating charges. The profit after tax increased by 1.5% from 525mn in 2015 to 533mn
in 2016.

Research and development

Kerry Group has shown commitment to Technological innovation in its business. They are providing
integrated, customer focused product development by leveraging global technology capabilities and
expertise. The group has invested in highly focused research, development and application centres of
excellence with a strategically located Global Technology & Innovation Centre, based in Naas, Ireland
supported by Regional Development & Application Centres. The expenditure on research and
development amounted to €260.7m in 2016 (2015: €234.2m).
Sustainability

Kerry Group’s sustainability programme is aimed at reflecting their effort to make the food industry
better. They are putting efforts to have their global presence interpret to positive impacts to the
people they connect with. The company launched a five-year sustainability programme in 2015 based
around for aspects of the business. This provides a strong framework for action and sets out
commitments that assist in directing the company’s activities. These sustainability pillars are
Environmental Sustainability, Market place sustainability, workplace sustainability and community
sustainability.
REFERENCES

Craig t., Campbell D., 2016, Organisation and the Business Environment, 2nd Edition, Routledge

http://www.kerrygroup.com/ (accessed 28th February 2020)

Ross S.A, Westerfield R.W and Jordan B.A, 2015, Essentials of Corporate Finance, 9th Edition, McGraw
Hill

Sangster A and Wood F, (2018), Frank Wood’s Business Accounting Volume 1, 14th Edition, Pearson
UK

Wagner J., Chandera Y., Dobson W.D., The evolution of Irelands Kerry Group PLC – Implications of the
US and Global Dairy Food Industry, Babcock Institute discussion paper No. 2000-2