UU-MBA710 Finance & Strategic Management

UU-MBA710 Finance & Strategic Management

UU-MBA710 Finance & Strategic Management

Introduction

The current report is going to be conducted on the Interim Management Report of Kerry Group which is Ireland based public company falls under consumer food industry. In the year 1972, the company was founded in Listowel as a private limited company with three founders. This company was established by three shareholders such as  Dairy disposal Company which was owned by state (42.5% shareholding), a Federation of farmer’s co-opeartives having eight small farmers (42.5% shareholdings) and Erie Casein Company Inc of United States (15% shareholdings). Shares of this company are listed in London Stock Exchange and Dublin ISEQ. The company has bought Quest Food Ingredients Group in the first quarter of 2004 for $440 million and after that in 2005 it has acquired Noon Products for EURO 124 million, which is a supplier company of Thai and Indian ready meals. In the last month of the 3rd quarter of 2011, Kerry Group has acquired Cargill Flavor System for $230 million which is a manufacturing company use to manufacture food flavoring and after that in 2015 (February) it has acquired a hot dog supplier company named Rollover. In that year three US companies operates under the sector of nutrition and taste were acquired by the Kerry Group along with Island Oasis Wellmune and Red Arrow Products for $735 million (kerrygroup.com, 2017).

Interim management statement or report has been drawn for increasing the level of communication between the company and the public, in other words the stakeholders. This report shows the efficiency and integrity of the internal management systems (financial management, strategic management, sales management). Through this report public relation strengthen which is needed to smoothing the way of company’s development. The public financial report of the Kerry Group covers a statement showing company’s performance in the middle of the year or for a period less than 12 months. Interim statements are not an audited statement as it is not the final statement of the company.  This report helps the investors by providing them up-to-date information about the company to let them know about the financial management performance of the company within a financial year (Wheelen & Hunger, 2017).

Findings

The company operates its business by providing dairy products, meat products and meal solutions and the objective of the company is earn a fruitful profit by providing healthy and hygienic food to the people. The quality of the food provided by the company is not compromised and price of the products are pocket friendly for the consumers. The company is operating its business through America, Asia-pacific countries and countries falling under Europe-Middle East and Africa (EMEA). In 2016, business expanded in Asia-Pacific countries has been hugely flourished and showed a growth of 9.5% whereas in America was 3.5%. On the other hand, it has performed very less in EMEA countries due to the significant churn of products (due to which demand for differentiated products has been increased), increasing competitive environment as well as for geopolitical and economic issues those are having great impact on the marketplace. The growth of Asia-Pacific countries was evolved due to strong growth in all developing markets in the region and through continuous growth in lifestyle nutrition. The food, beverages and dairy products are the element through which the business of Kerry Group has been profusely flourished in the countries falls under Asia-Pacific region (kerrygroup.com, 2017).

From the Interim Management Report of Kerry Group published during 2016 has shown that that company is performing very well and it has experienced a growth than the previous year 2015. The company has earned adjusted EPS which was increased from 7.5% which amounted at 133.8 cent during the financial year 2016 and interim dividend has been also increased by 12% and stands at 16.8 cent per share. The company has earned revenue of EURO 3037 million and trading profit of EURO 322 million in 2016 which was increased by EURO 22 million than 2015. Interim financial and management report of the company is fully equipped to represent financial stability and continuity of the company in generating increased revenue and trading profit. The financial performance of the company in 2016 shows a growth and this also determine company’s financial performance has not been affected by the market and currency volatility of the country. Revenue of the company has been raised by 0.3% in 2016 than the year 2015 whereas costs of finance have been increased by EURO 3 million due to financing the acquisition. Due to the reduction of discount rates the pension fund of the company has been decreased by EURO 61 million and stands at EURO 314 million. In the financial year 2016, cash flow from business operation of the company has been increased by EURO 143 million than 2015 whereas capital expenditure of the company has been reduced by EURO 56 million which is a very good sign for the company (kerrygroup.com, 2017). For every company cost reduction is one of the most important targets.

 

The market dynamics of Kerry Group are consists of various issues related with food products and service which are manufactured and delivered by the company. Market dynamics of the company includes the following,

  • Demand for nutritious food, health and wellness products
  • Focusing on safety of food provided by the company, origin of the food
  • Clear and understandable level on the package of the food to show ingredients, manufacturing date, expiry date protein and fat contains and other relevant information
  • Inserting different channel for delivering and offering products to the consumers
  • Development of E-Commerce business to capture large market
  • Widening occasion of meal, ‘food-to-go’ and other food related service to catch up the consumer demand and to expand business.

Taste and Nutrition business of Kerry Group performed very well in the year 2016 for that reason it was able to secure revenue of EURO 697 million with a growth of 2.3% and generated a trading profit of EURO 58 million. The foodservice channels of Kerry Group have performed strongly in all over the region which has instigated the profit generation process. Trading profit of this segment of Kerry Group has been improved due to the underlying business which was an effect of offset by disposal and currency. Snack items and meal solution of Kerry Group has performed the best in 2016 which led the growth of its business volume and it continuing its growth through e-tailing. The company is consistently performing in terms of financial performance in a highly volatile market and changing environment. The market volatility has been occurred due to the challenging status quo of the changing consumers, investment made by the consumers in product innovation. Volatility of currency, deflationary inputs in the cost environment and delivering partnership model are some other factors due to which market and environment has become volatile and rapidly changing in nature (Henisz, Dorobantu & Nartey, 2014).

One of the important determinants of measuring the performance of a business is return. For calculating the rate of return on the investment made by the shareholders of the company through investing in company's equity shares ROE or ROAE has been computed and represented in the interim report as well as in the annual financial report of the company (Renz, 2016). The interim report for the year 2016 shows a slight reduction in the interim report of 2015 and stands at 16.8%. Return on Average Equity (ROAE) which is the adjusted version of ROE (return on equity) of Kerry Group measures the profitability of the company. Through this ROAE performance of the company, over a particular fiscal year is been measured. The acquisitions of Kerry Group in the financial year 2015 has performed very well in 2016 and for that reason the overall business performance of the company has been raised.

The cash flow return on investment i.e. CFROI of the company has been increased during 2016 by 3.6% than 2015 (according to the interim report of the company for both the years). CFROI is a model for valuing the business of Kerry Group which assumes the price set by the London Stock Exchange on the cash flow it has earned. This model is not constructed on the earnings and corporate performance of the company (McKinney, 2015). As per the interim report of 2016, Kerry Group has experienced 14.5% CFROI which represent that the cash flow of the company has been increased. The company has faced negative impact from the exchange rate of Sterling. Above all negativity the company has efficiently managed and fought with the obstacles and experienced a financial growth in terms of revenue generation and trading profit generation which are the basic elements of deciding how the company working or performing (Hong, Huseynov & Zhang, 2014).

The company has implemented some unprecedented changes in the industry of food and beverages to compete with the competitor as well as to fight with the market instability and volatility. The company has strived for providing healthy and nutritious food and beverages without compromising the taste of the food. Convenience retail, online order collection and processing i.e. e-commerce, foodservice are some newly implemented business pattern of the Kerry Group for personal consumption of food and beverages. For growth reposition Kerry food has manufactured and invented new product line with excellence, focuses on e-commerce, and has implemented market-leading branding for executing in-market business strategy (Bryce, 2017). The company has started focusing on customer insight to understand customer behaviour as of now customers is showing their intention to know about those foods which they have to take and not to take. Customers become more health conscious and due to this Kerry Group have implemented strategies to provide them foods and beverages full of nutrition and health beneficial. The company has positioned itself in a way through which it can reach customers to understand them and become able to meet their need by providing safe and hygienic food to them. This will help the company to meet customers’ satisfaction at optimum level (Giannakis & Harker, 2014). The manufacturing infrastructure of the company has upgraded according with the technology to manufacture highly upgraded food and beverages. The research and development department of Kerry Group has been improved by R&D investment to invent new and diversified food and beverage products for the customers to fulfill their changing taste and preferences (Brigham & Ehrhardt, 2013).

Analysis:

From the above discussion on the interim management report it is clearly seen that the company has performed very well in the financial report 2016 and due to this it has earned increased revenue and trading profit from its business activities. Increased revenue and trading profit are the example of its growing financial performance which denotes its profitability and financial stability (Julian & Ofori?dankwa, 2013). The company has earned increased revenue and trading profit because its volume of sales has been increased and in Asia-Pacific region the sales of consumer foods has been increased hugely. Every segment of its business i.e. taste and nutrition, consumer foods and group is been expected to grow in coming years by 2%, 1% and 2% respectively.

The business model of Kerry Group is resilient as well as well placed for responding in the volatile market scenario, changing consumer landscape and macroeconomic because it has implemented unique capabilities regarding taste and nutrition, system and functional ingredients. This also includes locality based innovation and speed for capturing product market, outperformance snack food items, convenience and growth rates in e-commerce. The businesses which were acquired by Kerry Group during the financial year 2015 are performed well in terms of financial performance which has instigated the profitability of the company. The company has got good opportunities due to its business expansion through expanded international taste, foodservice markets and urge for consuming nutrition to improve health (Sheffet et al. 2014).

According to the analysis of the Kerry Group’s shareholders it is seen that the shareholders of Kerry Group has been distributed in three different segments such as institutions (57%), co-operatives of Kerry (14%) and retail (29%). The institutional shareholders of 57% include UK (15%), Ireland (3%), North America (20%) and Continental Europe (19%). After analysing the business activities of Kerry Group across the countries from where it use to operate its business it is seen that Asia-pacific region has taken the most important and large part in fulfilling the profit generation purpose of the company for 2016. In Asia-Pacific region the business volume of Taste & Nutrition business of Kerry Group has been increased by 9.5% and showed excellent performance in developing markets of this region. Taste technologies of the company has achieved strong market in respect of dairy complete in Indonesia, Vietnam, Philippines and China, snack market in Malaysia, Philipines and Thailand. In South Korea, the company has acquired Jungjin Foods. The sweet technology of the company has been developed and showed a continuous growth in India and meat sector has been flourished in New Zealand and Australia. Beverage system of Kerry Group has shown a strong growth in terms of C-Stores and foodservice (Osadchy & Akhmetshin, 2015).

Kerry Group is confident towards delivering an efficient underlying performance during a whole year as guided previously. Considering the increasing headwinds of currency for 5% at present exchange rates and increased rate in adjusted EPS (Earnings per Share) in the financial year 2016 is assumed to be move towards the lower and middle with a range of 6 percent to 10 percent which amounts to 320 cent to 332 cent per share. In EMEA (Europe, Middle East and Africa) the business of Kerry faces serious challenges due to significant churn in product, increasing instability of currency and geopolitical issues (Karna, Richter & Riesenkampff, 2016). Whereas opportunities for continuous growth is seen in the foodservice channel of Kerry in this region where the company has acquired Vendin S.L of Spain. Meat sector of the company has faces high market competition but although it has improved its business in Eastern Europe and Russia. Technologies regarding nutritious shows a continuous growth in clinical as well as infant nutritional sectors. On the other hand, the dairy sector and sweet and cereal sector of Kerry Group has not experienced that much growth in comparison to these sectors (Omar et al. 2014). The reason for this is the impact of oversupply in dairy markets active internationally whereas the sectors of sweet and cereal remain subdued in the EMEA region. One of the fundamental objectives of Kerry Group is to provide authentic food to its consumers and to deliver innovative products those are prefered by its consumers full of taste, nutrition and free from gluten. The company has assured its consumers regarding using natural ingredient and food with reduced salt and fat (Karadag, 2015).

Recommendations

According to the interim management report of Kerry Group for the financial year 2016, it is clearly seen that the company has performed very well in the highly volatile market scenario and has experienced financial growth after getting pressurised by the external factors. Proper recommendation regarding manufacturing process, quality control and product innovation and delivery mechanism will help the company to flourish its business across the country. For the further growth and to stay in the highly competitive market some recommendations are drawn for the betterment of the company. These recommendations are as follows,

  1. Kerry Group needs to implement quality control department for its own to evaluate and maintain the quality of foods and beverages manufactured by it
  2. Proper training for manufacturing food and beverages needs to be provided to the employees working in the manufacturing department for two times in a year
  3. Hygiene control mechanism should be implemented to provide safe and secure food to the customers and through this assuring them about the quality of the food. Natural colour should be used for safety
  4. Distillation, extraction, flavoring and fermentation process needs to be monitored properly. Natural colour and flavour of food and beverages needs to be maintained to keep the nutrition value of the intact. External flavourings should be avoided
  5. Preservation process of dairy product needs to be improved and proper mechanism should be implemented to increase the shelf life of dairy products. Natural preservatives needs to be used instead of using chemical preservatives
  6. Packaging, delivering and culinary processing needs to be modified in accordance with the customer choice and preferences which could lead growth in the volume of sales. Authenticity of the product needs to be maintain properly
  7. Use of natural ingredient and natural texture should be used. Multifunctional natural ingredient like roux (natural thickener made with flour and fat) should be used in place of other chemical containing ingredient.

Conclusion

At the end of the current study, based on the interim management report of Kerry Group it is very evident to conclude here that the company is performing very well in the year 2016 than the year 2015. Financial management as well as the strategic management of every company are the two pillars indicating the financial performance and stability of the company and these two department of Kerry Group is well designed and are able to perform at optimum level. Through an efficient and effective strategic management process, the company use to make continuous plan for improving business activities and monitor as well as analysis and assess the entire necessary element related with the organisation to conquer its business objectives and economic goals.

Strategic management of Kerry Group helps to formulate and implement major goals and to take proper initiatives for meeting those goals. Proper compliance with the rules, regulation of the legislative body also help the company to expand its business in and out of the home country and it is expected that the business expansion will continue in future. Interim management Report of Kerry Group has represented the current growth in profitability and future growth perspectives. Financial management of the company helps it to identify financial need and financing it properly whenever it needs due to which the company did not feel lack of fund which could put barriers for its business. Debt and borrowing of the company has properly managed and financial obligations of the company have been write off properly and timely. Here, it is well enough to say that Kerry Group has the potential to experienced financial growth in future by expanding its business in international market.

Reference List:

(JOURNAL)

1. Giannakis, D., & Harker, M. J. (2014). Strategic alignment between relationship marketing and human resource management in financial services organizations. Journal of Strategic Marketing, 22(5), 396-419.

2. Henisz, W. J., Dorobantu, S., & Nartey, L. J. (2014). Spinning gold: The financial returns to stakeholder engagement. Strategic Management Journal, 35(12), 1727-1748.

3. Hong, Y., Huseynov, F., & Zhang, W. (2014). Earnings management and analyst following: A simultaneous equations analysis. Financial Management, 43(2), 355-390.

4. Julian, S. D., & Ofori?dankwa, J. C. (2013). Financial resource availability and corporate social responsibility expenditures in a sub?Saharan economy: The institutional difference hypothesis. Strategic Management Journal, 34(11), 1314-1330.

5. Karadag, H. (2015). Financial management challenges in small and medium-sized enterprises: A strategic management approach. Emerging Markets Journal, 5(1), 26.

6. Karna, A., Richter, A., & Riesenkampff, E. (2016). Revisiting the role of the environment in the capabilities–financial performance relationship: A meta?analysis. Strategic Management Journal, 37(6), 1154-1173.

7. Omar, N., Koya, R. K., Sanusi, Z. M., & Shafie, N. A. (2014). Financial statement fraud: A case examination using Beneish Model and ratio analysis. International Journal of Trade, Economics and Finance, 5(2), 184.

8. Osadchy, E. A., & Akhmetshin, E. M. (2015). Development of the financial control system in the company in crisis. Mediterranean Journal of Social Sciences, 6(5), 390.

9. Sheffet, A. J., Flaxman, L., Tom, M., Hughes, S. E., Longbottom, M. E., Howard, V. J., ... & Brott, T. G. (2014). Financial management of a large multisite randomized clinical trial. International Journal of Stroke, 9(6), 811-813.

(BOOK)

1. Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage Learning.

2. Bryce, H. J. (2017). Financial and strategic management for nonprofit organizations. Walter de Gruyter GmbH & Co KG.

3. McKinney, J. B. (2015). Effective financial management in public and nonprofit agencies. ABC-CLIO.

4. Renz, D. O. (2016). The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons.

5. Wheelen, T. L., & Hunger, J. D. (2017). Strategic management and business policy. person.

(WEBSITE)

1. Interim Management Report for the half year ended 30 June 2016. (2017). kerrygroup.com. [Retrieved from https://www.kerrygroup.com/docs/news/featured/2016-Interim-Management-Report-Press-Release.pdf accessed on 14 October 2017].