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An assessment and report on Kerry Group’s financial and strategic management performance for the period ended June 2016. This report explores the findings from a director’s point of view.
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Student Number: R1904D Course: Finance & Strategic Management, UU-MBA- 710 - ZM- 15726 Tutor: George Pirishis Date: April 25, 2020
1.0 Introduction This report is aimed at assessing and highlighting the financial and strategic management performance of the Kerry Group from a director’s point of view for the period ended June 2016. We will look at the history of the organization briefly and explore the strategies used for growth to achieve their organizational objectives. This report will cover the management strategies utilized by Kerry Group and their impact on the overall interim appearance and performance for the respective period. Tools such as a PEST analysis will be executed to assess their external operational economic situation; furthermore, the report will also include the use of a SWOT analysis to better evaluate and understand Kerry Group’s strategies relating to capital investment and other financial decisions. This will in turn assist in outlining the impact decisions have on cash flows and capital management of Kerry Group. We will also explore the group’s financial performance on the London Stock Exchange (LSE) for 2015- 2016. This will give some insight into the organization’s financial performance, market value and shareholder confidence over time. Furthermore, findings on the organization’s product and performance management will be explored briefly. In concluding, these findings will be summarized and used to determine their overall impact on the organization’s performance for the period ended June 2016. 2.0 Organization Background & Structure An organization’s structure is integral to the overall success of its operations as it enables balanced distribution and utilization of knowledge and resources geared towards meeting specific objectives. Many companies use charts or diagrams to simplify this representation in the form of a hierarchy. The larger the organization, the larger this hierarchy will be and more pyramid like in structure. The smaller the organization, the smaller the managerial hierarchy will be and thus a flatter structure. Workflow diagrams are also used to simplify the process management across various divisions of the company.
The Kerry Group is a large multinational organization operating within the global food and beverage industry; they commenced operations in 1972 and have grown significantly since. Kerry Group has achieved significant growth with revenues amounting to approximately €7. billion (Kerry Group: History, 2017). They offer a wide range of items within both the food and beverage industry and continue to expand their product lines. The Kerry Group is headquarters is located in Ireland with many other facilities worldwide. One of their key objectives is to continue growing and developing their brand by offering value-added customer foods to specific international markets. The Kerry Group became a publicly listed company (PLC) in 1986 and trades actively on both the Dublin ISEQ and London Stock Exchange (LSE). As a result, the organization is governed strictly by both exchanges’ rules and regulations and must comply to remain listed and traded publicly. 3.0 Macro-Environmental Analysis (PESTLE) Kerry Group’s strategic direction is directly influenced by several forces within their external operational environment. According to (Thompson, Strickland & Gamble, 2015, p. 46), the macro-environment refers to the external conditions in which an organization’s industry operates. The macro-environment consists of economic, social, political, legal and technological forces that can either work for or against the organization. To understand these forces in-depth, a PESTLE analysis was conducted. It is to be noted that though Kerry Group is headquartered in Ireland, they operate in several different countries worldwide with varying macro-environmental conditions. Therefore, the most common of these factors affecting them will be explored and expounded upon within this report. It is also to be noted that the organization’s management team must craft and implement strategies to facilitate changes as it is an inevitable part of managing a multinational enterprise. 3.1 Political As stated previously, Kerry Group operates in many different countries and thus is governed by their respective laws and regulations. These foreign markets can be categorized as
3.4 Technology The evolution of technology continues to shape the delivery of products by Kerry Group. With the rapid development and deployment of new technologies worldwide, Kerry Group stands to benefit from these new discoveries. Kerry Group has invested in clean label technologies that have allowed them to reduce the quantity of ingredients needed to produce a finished product while maintaining quality standards and optimal nutritional value. As the world becomes more health conscious, nutritional technologies are being utilized more frequently, especially in infant and toddler products. 3.5 Legal & Regulatory Environment Laws and regulatory legislations exist worldwide and vary from country to country. Kerry Group has no direct control over these matters and can only do their best to uphold the standards as outlined by the markets in which they operate globally. As a result, great emphasis has been placed on ensuring that these rules and regulations are followed closely to mitigate any legal ramifications that could cost the organization millions and affect shareholder confidence. It is to be noted that Kerry Group has made changes to their products in an attempt to conform to China’s changing regulations impacting the infant nutrition sector. 4.0 Micro-Environmental Analysis (SWOT) Kerry Group has given great consideration to various external assessments of its operations; as such, they have placed equal importance on conducting internal assessments. One way in which they have done this, is through the use of a SWOT analysis. A SWOT analysis can be defined as a mixture of internal and external assessments geared towards identifying and leveraging strategies against the strengths, weaknesses, opportunities and threats of an organization within a particular market (Gürel & Tat, 2017). By conducting a comprehensive SWOT analysis, Kerry Group was able to identify and improve on key internal strategies, furthermore strengthening their ability to manage and or mitigate exposure to external risks. Let
us now explore a few of the strengths, weaknesses, opportunities and threats associated with the Kerry Group. 4.1 Strengths Kerry Group possesses a strong network of reliable suppliers for raw materials thereby enabling them to bypass any supply bottlenecks within the market. Kerry Group remains favorably successful with the creation and completion of projects within budget and time schedule. Furthermore, they have reported good cash returns on capital expenditure by establishing new streams of income. They are also very innovative as they have continued research into developing new products more suited to consumer needs. Kerry Group also consists of many strong teams with highly skilled workers. This has been achieved through consistent investment in training and learning programs. Kerry Group’s financial reports indicated strong growths in revenue with the organization realizing a return of €322 million in trading profits for financial year ended June 2016 ; an increase of 7.4% over the previous period (Kerry Group: Results & Presentations, 2016). Furthermore, they have managed to cut costs associated with production by leveraging economies of scale due to the size of their organization. 4.2 Weaknesses Customer trends change rapidly in more developed markets; as such, the organization has to place more resources into understanding and adapting to these sometimes very sudden shifts in preferences. Even though Kerry Group operates globally, they are highly concentrated in the United Kingdom (UK) and Ireland markets; this has left them vulnerable to unrealized gains due to inflation. Furthermore, they have realized a significantly lower market share in Asia due to much higher competition within that market. There is room for improvement with their financial planning and documentation as the organization can use revenue more efficiently than they currently do.
financial resources. By executing these strategies effectively and efficiently, the organization will realize sustainable growth and will in turn help boost shareholder confidence. According to (Kerry Group: Interim Management Report, 2016), for year ended June 2016, the organization realized an adjusted earnings per share (EPS) of 7.5% to settle at €133.80. The group also realized revenues of €3 billion representing a 3.2% business volume growth over the respective period. Kerry Group’s trading profit increased by 7.4% to settle at a comfortable €332 million. Their financial reports also indicated an increase in trading margin up 70 basis points to settle at 10.6%. It should also be noted that the taste and nutrition division gained 70 basis points to settle at 12.8%; furthermore, the consumer foods division gained 30 basis points to settle at 8.3%. The organization’s interim dividend per share saw an increase of 12% to settle at €16.80. Kerry Group realized a significant free cash flow of €379 million for the period ended June 2016 up from €192 million in H1 2015 (KYGA KERRY GROUP PLC 'A'ORD EUR0.125., 2020). This represents a great opportunity for the organization to consider making capital investments for long term growth and stability. Kerry Group has displayed their intentions to invest in high growth segments geared towards meeting consumer requirements. These investments can be managed more effectively through the use of available funds and reduce the need for borrowing if any at all. Strategic financial management will play an integral role in achieving the organization’s key objectives for growth. As such, they should seek to reduce debt as much as possible and as quickly as possible. According to (Kerry Group: Interim Management Report, 2016), Kerry Group recorded a net debt of €1, 520 million as at financial year ended June 2016. This represents a €130 million decrease relative to the period ended December 2015. Kerry Group’s net debt (EBITDA) was reduced to 1.7x as at June 2016, down from 1.6x as reported for June 2015. It is also to be noted that the maximum covenant for net debt (EBITDA) is 3.5x. Reports indicated that the organization was able to stay below this threshold for three consecutive periods which is an indicator of effective debt management.
6.0 Strategic Product Management 6.1 Boston Consulting Group (BCG) Matrix The Kerry Group has crafted a long term growth strategy that includes continuous innovation of its products in order to achieve sustainable growth. As a result, great emphasis has been placed on product research and development. If the organization wishes to maintain a certain degree of competitive advantage, they need to pay close attention to market data, analyze product performance, build brand image and streamline product management. Several tools have been developed over the years to aid organizations in product management. According to (Hayes, 2020), the BCG Matrix is a planning tool developed in 1970 by the Boston Consulting Group. This tool utilizes graphical representations to assist managers in the decision making process enabling them to conclude what products and or services they should retain, withdraw or amend. By utilizing the BCG Matrix, the Kerry Group was able to organize their products into four categories; they are as follows: i. Cash Cows Cash cows can be defined as well developed products and or services in a mature market that generate significant profit. Cash cows are identified by their above average consistent positive performance and usually stem from areas where the organization has a large market share. As a result, the organization wouldn’t be required to invest heavily in marketing as these products are widely known and are household favorites. Kerry Group’s management strategy should be to keep milking their cash cows for as long as possible and reinvest profit into products identified with great potential. ii. Dog/ Pets These can be defined as products and or services that possess a lower market share and have a lower potential for growth. As a result, Kerry Group should seek to liquidate or reposition identified dog/ pets to mitigate any losses. The proper strategic
managing risks. The use of various performance objectives provides a foundation on which managers and stakeholders can successfully evaluate the potential of the organization to meet set targets, furthermore to determine sustainability. Performance management systems have become more widely used in recent years as the need for higher quality products and services continue to grow. Kerry Group should continue investing in these tools to ensure their standard is maintained across all divisions. This will also enable management to make more informed financial decisions that will ultimately steer them closer to realizing the organization’s vision. By utilizing performance management systems Kerry Group will have a competitive advantage over other organizations within their sector who fail to make use of these tools. 7.0 Conclusion Management should continue developing and implementing strategies geared towards growing the organization. This report has outlined several ways in which Kerry Group has implemented these methods in forms such as SWOT and PESTLE analysis. The proper use of these tools will ensure the organization remains on track with achieving key objectives as well as ensuring proper risk management. To that end, the organization will continue having a competitive advantage against rivals within the food and beverage market. With strong financial performance outlined in their 2016 interim report, the implementation of key financial and strategic management plans will ensure the continued success of the organization; furthermore it will assist in maintaining good corporate image and performance.
References Gürel, E., & Tat, M. (2017). SWOT analysis: A theoretical review. Journal of International Social Research , 10 (51). Hayes, A. (2020). BCG Growth-Share Matrix. Retrieved from https://www.investopedia.com/terms/b/bcg.asp Kerry Group: History. (2017). Retrieved from https://www.kerrygroup.com/ourcompany/history/ Kerry Group: Interim Management Report. (2016). Retrieved from https://www.kerrygroup.com/investors/results-presentations/2016-Interim-Management-Report- Press-Release.pdf Kerry Group PLC SWOT Analysis. (2017). Retrieved from http://fernfortuniversity.com/term- papers/swot/nyse/6654-kerry-group-plc.php Kerry Group: Results & Presentations. (2016). Retrieved from https://www.kerrygroup.com/investors/results-presentations/2016-H1-Results-Presentation- 4 - 8 - 16.pdf KYGA KERRY GROUP PLC 'A'ORD EUR0.125. (2020). Retrieved from https://www.londonstockexchange.com/exchange/prices/stocks/summary/fundamentals.html?fou rWayKey=IE0004906560IEEURSET Thompson, A., Strickland, A. J., & Gamble, J. (2015). Crafting and executing strategy: Concepts and readings, (20th^ Ed.). McGraw-Hill Education.
