And 9 to advance the program. Good day, and welcome to the Kary Group Q3 2019 IMS conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to William Lynch. Please go ahead sir.
Thank you, operator. Good morning, ladies and gentlemen, and welcome to our conference call following the release of our 2019 Q3 interim management statement this morning. My name is William Mention. I'm Head of Investor Relations. With me is Edmond Scanton, Group CEO and Margaret Clarkon, Group CFO.
Edmunds and Marguerite will take you through a brief presentation, capturing the key points of our Q3 IMS release today. Resendation is available on the Investor Relations section of our website. Following that, there will be a question and answer session, which will be facilitated by the operator. Before commencing the presentation, let me draw your attention to the usual disclaimer regarding forward looking statements. I will now hand over to Edmond.
Thanks, William. Good morning, everyone, and thank you for joining the call. So over next, 10 minutes or so, Margaret and I are going to take you through a brief presentation. I'll start with, an overview of the business highlights. And, then Margaret will cover the financial performance and more detail, and I'll close out with the guidance for 2019 before doing the Q And A session.
So if you turn please to Slide 4 of the presentation, And looking at our Q3 year to date performance, the 3 most notable highlights for me were, firstly, because they're volume growth of 3.1% in the year to date, which represented growth of 3.9% in our case nutrition business, And we've spoken a number of times about the accelerating customer fragmentation being driven by the increased demand of the consumer. And this continues to reshape our industry and is impacting right across supply chains. And it's in this context, that our performance versus the underlying markets is a testament to to recognize the work we're doing, and our teams are doing on integrating the strategic acquisitions we've made over the last 12 months or so. We're very happy with the progress and the performance of these businesses have been very good. And we've spoken on a previous call about the positions of South Eastern Mills And Ariaki's U.
S. Business, which we completed in Q1 for just, just over 300,000,000 and both of these, are performing well. And since H1, we've made a number of further bolt on acquisitions for consideration about 200,000,000 And I'd just like to give you some color on these businesses. Forester come in is a very nice business, a good business based in Mexico focused on meat season. And it brings with it as a facility in Monterrey and complements our weekend use market offering in the region.
ISOWage Technologies And Biosecure Lab, our business is based in the U. S. And Canada, which further add to our leading capability for key labeled and natural shed blades extension technologies. And I'm really excited about these 2 acquisitions because they bring with them natural antimicrobial technologies based on citrus and other extracts. So moving on to Pivasa Biotech, this is a company based in Spain, and they're developed a very unique process technology to manufacture of high purity plant based proteins.
For example, roifhydrolysis for applications like pediatric formulations and medical nutrition. What's really interesting here is this process technology can be applied to other protein substrates like pea, chickpea, fava beans and sunflower seeds. Addition to these acquisitions, we've also agreed to acquire a U. S. Business based in Georgia, dedicated to manufacture of natural email and building blocks, for savory taste technologies, that could lead to multiple end use markets.
And this business is a really strong compliment the Ariackey West businesses business that I just mentioned, Erudera that we acquired, at the beginning of the year. So overall, I'm very pleased with the progress on the M and A front as we continue to evolve our technology capability and our strategic manufacturing footprint. And then finally, moving on to developing markets. We had a really strong year to date performance. And in particular last quarter, with growth of 10.3%.
And performance in developing markets within APMEA continued to be the main driver of this growth as we continue to deploy our business model and help our customers to meet evolving consumer needs. So overall, I'm pleased with our strategic business developments and our performance in the period with good volume growth and margin expansion expansion. With that, I'll hand you over to Margaret who was a little bit more detail on the financial performance.
Thanks Edmond, and good morning, everybody. So now turning to Slide 5 to update on our financial performance. This morning, I would update on our volume and trading mark performance. Overall, 2019 year to date has been a year of continued consistent good performance with group volumes up 3.1% in the period. Year to date volume growth in our Taste And Nutrition business of 3.9% and 4% in the quarter.
In Consumer Foods, business volumes were back 0.7% taking into account the loss of the previously reported ready meals contracts. Excluding the impact of this year to date volumes were positive 0.6%. Slicing was pretty much flat with lower pricing year on year of 0.1% as the average raw material prices were neutral at past the period. On margin, group reported margin was up 20 basis points with good growth driven mainly by operating leverage enhanced portfolio mix and efficiencies being offset by investments for growth as Brexit risk mitigation costs and some incremental spend on the Keri Connect program. These to Nutrition margins were up 20 basis points while we maintained Consumer Foods margins taking into account efficiencies offset by under recovery of pricing and Brexit related costs.
So now turning to Slide 6, and taking a more detailed look at our revenue growth analysis for the 9 months to end September 2019. Overall, I'm pleased to say that our group reported revenue increased by 10% in the period. This comprised good overall group wide growth of 3.1% and which I will go through in more detail shortly by division. There were pricing as I mentioned 1% on a year to date basis reflective of lower raw material prices on the raw material basket. And acquisitions contributed 4.7 percent to revenue growth, including the impact of Fleishman's Southeastern Mills, ATCO and the Ariaki USA business, while translation currency was favorable 2.3% in the period.
So all in all, to summarize a good overall revenue growth in the period. So now moving to Slide 7 and taking a closer look at our taste and nutrition business. Firstly, on volumes, overall year to date divisional volumes grew by 3.9% and doing a trading margin expansion of 20 basis points. Growth in the period was particularly good in our meat snacks and beverage and end use markets. And our nutrition and well-being technology portfolio had a strong performance with solutions incorporating carries fermented ingredients, our broad protein portfolio, probiotics, botanicals and natural extracts all contributing to good growth and business development.
And as Edmonds mentioned earlier, developing markets performance continued to be very strong with volume growth of 9.5% in the period and food service delivering growth of 5.1%. Planting in the periods, as I mentioned, marginal at 0.1%. And on margin, we continued to deliver good margin fraction of 20 basis points through the continued evolution of our portfolio mix, operating leverage and deficiencies. Partially offset by investments for growth and Brexit risk management costs. So turning to Slide 8 and looking at taste and nutrition performance from a regional perspective.
Firstly, to the Americas, where we had volume growth of 2.6% in the period. North America has continued to deliver solid volume growth with the meat and snacks and juice markets all performing well. In LatAm, we were pleased with the performance with both Brazil and Mexico delivering good growth. And as Edmonds mentioned earlier, we made a number of complimentary bolt on acquisitions in the last quarter further enhancing our technology capabilities. In Europe, we had good performance with 2.3% volume growth, and the beverage meat and snacks end use markets all performed well with a number of launches in the clean label space.
We had strong growth in Northern Europe and Russia. In asthma, we continue to deliver very strong performance with excellent growth of 9.9% year to date and indeed 10.5% in the last quarter. From an end use market standpoint, this growth was pretty broad based with performance in meat, beverage and snacks most notable. Food service in the region continued to be strong with good growth right across the region. And finally, we made good progress with our strategic expansion with our facilities in Nantong and the Greater Beijing area.
We also opened our new facility in Tomcore, India, in June, and we expanded our capabilities in the Middle East region. So overall, I would say a very good performance our taste and nutrition business in the period. Turning now to Consumer Foods on Slide 9. While the overall reported business volumes were back 0.7% in the period, reflecting the loss Reggie Mills contracts previously reported. Revenue volumes, excluding this contract, were up from 6% in the period.
Against a backdrop of a pretty subdued marketplace. Pricing in the period was negative 0.6% reflecting challenging market's pricing dynamics in private label and input costs not fully recovered. The realignment for growth program progressed in line with expectations and is now well advanced. Overall, we maintained trading margin with efficiency savings from our realignment program will offset by pricing and Brexit risk management costs. And finally, at the end of September, we were very pleased to successfully launch a number of plant based products under the Naked Glory And Richmond brands, which are showing positive to early times.
So now moving on to updates on a few other matters on Slide 10, before I hand you back to Edmunds. Firstly, a brief update on Carey Connect rollout. We have completed the 1st phase of our go live in a number of our North American sites, which have gone well. And as I mentioned before, this was the beginning of the last phase of the program with a continued busy period of deployments. On raw materials, as mentioned, the overall basket of raw material input costs was pretty flat and we see this continuing earnings per share of 2% to 3% for 2019.
And finally, net debt was 1,000,000,000 at the end of the period, reflecting the acquisition activity noted earlier. So I'll just wrap up the performance to update briefly. We delivered continued strong volume growth ahead of the market growth and in particular in developing markets, as Reade mentioned, a good group margin expansion of 20 basis points and continued good progress on the integration of acquisitions. So with that, I'll turn you back to Edmund to wrap up and give you the outlook for the remainder of the year.
Thanks, Marguerite. So moving on to slide number 11, and looking specifically to our outlook for 2019 before I pass it over for Q and A, We fit continued performance ahead of our markets. In our case nutrition business, we see broad prospects in both and developing markets as we continue to partner with our customers, leveraging our unique business model, our own private technologies and our processing capabilities, Again, regardless of channel category or market, we have a really strong innovation pipeline. And we continue to evolve our unique business model aligned to ever changing market dynamics. With respect to our Foods business, we are continuing to navigate this after consumer environment and continue to realign our core business and invest in adjacencies in line with our strategic priorities.
We continue to scale our business monitor organic growth, M and A investment opportunities. So for 2019, for the full year, we are reaffirming our guidance and expect to deliver adjusted EPS growth 7% to 9% on a constant currency basis. And with that, I'd just like to thank you for taking time to turn into our call this morning I'll now hand you back to the operator for any questions you may have.
Questions. We shall now take our first question from Kaho Kami from Davy Research. Please go ahead. Your line is open.
Good morning, Marguerice, William and Edmonds. Two questions from my side. Firstly, can you elaborate on the performance of China within APMEA? And my second question relates to growth outlook for North America, just over the medium term, how is it couple of quarters evolving in the context of what you call softer market volume growth rates. Thank you.
Thanks, Tahul. So I suppose, look, the context of our developing markets performance is that we've had an acceleration in developing markets in the quarter. China would call, probably, has not been the highlight this quarter. I think it's, just reflecting back on the year, I would say the dynamics in China have been a little bit different in that. Some of the maybe mass market categories like Gary Beverage and yogurt certainly have been under pressure in the year.
The other side of Apto is that, food service has been quite dynamic for us. And I would call it, that was a bright spot for us in China. So overall, performance in China, call it a solid. You know, some elements of the market, a little bit challenged, especially the mass market, areas and foodservice being the bright spot. You know, in terms of overall, Afnea region, I would say that Southwest Asia was certainly a bright spot for us, in the quarter and in the year so far.
And I'd call it out as an area where, you know, I believe we've, it's a good example of our business model, I think, really working for us in a specific region. So that would have been the bright spot for us, in the quark or in developing markets and apnea. In terms of the North America or the sorry, the second question was the Americas, yes?
Yes, not to Marrick.
Not to Marrick. So I think we've these lagging since the beginning of the year that pricing has had an impact in consumer demand in the region. And I think that certainly has has led to muted, I would say volumes for the region. But that said, we would continue to remain really positive about our position in the North American market and feel that when we consider the strategic priorities that we have We see that our priorities and our strategy is very much in line to what's happening in the marketplace. But when we look at things like authenticate, when we look at clean label, and when we look at hand based protein and what's happening there, we feel we're really well positioned.
So yes, there's some, softness in the market driven by heightened pricing, but that said, we feel we're really well positioned.
Thank you.
We will now take our next question from Jason Wallace from Goodbody. Your line is open. Please go ahead.
Hi, it's Jason Mullins here. A couple of questions. In terms of the plant based products within your Consumer Foods division now and obviously the work within TNM and the Radical brand How big is plant based for you? What sort of growth rates and opportunities do you see in that market? And then just moving on to the Consumer Foods division, solid performance from a margin perspective, but given the leverage impact from the contract loss, I guess, is greater in the second half of the year.
How should we think about the overall margin outlook? And then just a final question, if you don't mind, just around your guidance, I guess given the improved momentum you've generally seen during Q3, just wondering if we see that momentum continuing into Q4, Should that mean we're close to, I guess, the top end of the range of your guidance, possibly bearing in mind, you've added a few new businesses. During the second half already? Thanks.
Well, I'll take the first part of that question, Jason, and maybe I'll hand it over to Marbury for comment on tools. So in terms of our plant based, as well as the plant based opportunity that we see ahead of us, Firstly, I would say that in terms of the SCAMADAC business right now, we should think about it in the scheme of maybe maybe 1% of our, between 1% to 2% of our revenue. That's kind of the scale of it at the moment. But that said, it's growing and the growth is accelerating. And if you when you consider our portfolio of, of, options that we have to go to that market.
I think we're extremely well positioned So as customers and as consumers demand more from that category, we're very well positioned to work with those customers. Generate the next generation of plant based proteins for them. And we can have those customers in terms of taste. Textured clean label and nutritional quality. So across those four areas, I think we're really well positioned.
We have a really strong portfolio And I think it could be an important driver of growth in our business well into the future. So, Marvin, do you want to take those other questions?
Yes, sure. Edmonds, good morning, Jason. And specifically, your question in relation to consumer food. And so as Ed mentioned, we are reaffirming our guidance for the full year. And as we think about consumer foods, for the last quarter.
Obviously, it has the ready wheels contract referenced has a greater impact in the last quarter as we've guided. That being said, consistent with our guidance our outlook is to maintain the margins in Consumer Foods through the year. In terms of looking at overall
guidance,
in terms of the timing of the acquisitions we've just discussed There's no real noteworthy impact on EPS, just giving the timing of the completion of the acquisition.
And I might just add, to that, Margaret, look, this is a very healthy pipeline across all three regions within TNN. And we do expect to see continued good growth well ahead of our markets for the remainder of 2019. So I guess directionally, we would see growth in TNN in Q4 being similar to the number of Q3 in the 4% zone.
Great. That's helpful. I'm sorry, just the point of clarification, the I think you mentioned $200,000,000 of bolt on deals. Did that include the Georgia business that you're still to complete or have completed most
quarter? No.
We will now take our next question from Arthur Reeves from Barclays. Please go ahead. Good
morning, everyone. Two questions for me, please. The first is continuing the debate about L and A. Is there a lot more to come in quarter 4? I think you guided at the start of the year, you would try and maintain the rate as in 2018.
So is there more to come in quarter 4, please? And then my second question is just a quick clarification. What are the non trading charges likely to be in FY 2019, please?
So I'll take the M and A question. I hand it off to my friends on the end of my trading. I suppose maybe to take a step back on maybe the first point is that our M and A pipeline remains robust and we continue to look at opportunities that are aligned to our strategic priorities. I think that's the and I think nothing has changed in terms of what we have said. We don't guide specific the under timing of when, M and A, when we close M and A, but I think the important point is that the pipeline is robust.
It's very much core to our strategy. We see M and A as something that has been a key driver of shareholder value over a really long period of time. And you see there's a core competency within the organization and something we're going to continue to do really difficult to, to, to predict the exact timing of when these, acquisitions happen. But that all said, the pipeline is, remains really robust.
And, good morning, Arthur. Jeff, to add on the NTIs, very much as we've guided, NTIs on the strategic acquisitions, we'll be investing in the order of 5% to 6%. So in the order of $50,000,000 on acquisitions. And the 2nd component of our NTIs is in relation to our food, 3 alignment program. And as we guided, that's circa 1,000,000.
Overall looking at circa $80,000,000 for 2019.
We will now take our next question from Heidi First Denham from BNP Paribas. Your line is open. Please go ahead.
Yes, good morning. So a few questions, M and A related. You said that recent acquisitions performing well. Can you talk about how you evaluate whether an acquisition has been successful? Because you know, it's quite hard for investors to track this once it gets integrated into the big machine.
So what sort of metrics do you look at? That's my first question.
So in terms, I mean, I mean, feel free, Margaret, to jump in, but, I think from my perspective, the first thing that we look at is you know, I mean, if we were to take an acquisition that brings with it a significant amount of technology, the first thing that we is look at the pipeline and how that pipeline is evolving. And how that technology is being integrated into other applications as beyond the, the specific application that perhaps dominated that particular technology when we acquired a business. So that gives us a good indication of how we're integrating that business from a technology perspective. You know, that's number 1. Number 2 is, you know, geographically, are we seeing that we can take that technology and deploy it into into another region.
Again, our pipeline tells us back when we look at it and usually takes a little bit of time, do that and takes a little bit of time to see it just from a practical standpoint. And the third thing that we look for is coming out of our R and D and our innovation, I suppose, program, are we seeing of our functionality that those technologies, are bringing to carry. So when we, when we plug it into the machine, is there is there another functionality that we can, we can create, or we can develop that, that allows us to, to generate another stream of, of revenue and another stream of growth of that specific acquisition.
And I might just add from a financial perspective, we very much evaluate the acquisitions from the context of growth and returns. So from our growth KPIs perspective, capacity to drive revenue growth, margin, mentioned and EPS contribution. And from returns over the medium to long term, and our objective is returns of in the order of 12% depending on the nature of the acquisition.
And then, so is it correct that when you look at targets, it tends to be more about sales synergies and costs because you're looking to basically find new revenue streams, right? As you highlighted and yes, would that be correct?
Yes, I mean, it's hard for me to from, from in terms of, I suppose if I was to reflect on many of the most recent acquisitions and even the ones that I just touched on there at the beginning of the presentation, Absolutely, it would be sales synergies.
And then one other question, if possible. So you previously talked about fact that your platform has been built for scale, can you talk about what exactly that means?
I suppose we've talked, what we've talked about is that, the M and A is a really important part about overall strategy. It has been for a long time. And the words I've used many times is the fact that like that, that in terms of identifying evaluating and integrating acquisitions in the core competency within our organization. We generated a significant amount of shareholder value over the years through our M and A strategy. So in terms of our business model, in terms of, the engine we've been within the organization, we're very well set up to talk M and A into our model.
And we've generated, as I said, a lot of shareholders over a long period of time in doing that.
Thank you.
We'll now take our next question from Charles Eden from UBS. Please go ahead.
Good morning, Edmond. Good morning, Marguerite. Good morning, William. Just a quick question for me on TNM volumes and then a follow-up on Naked Glory. So on the TNM volumes, obviously they accelerated slightly versus the 1st half and return to the 4% in Q3.
But obviously, that still remains at the low end of your medium term target range of 4% to 6%. So my question is, how realistic do you see the medium to high end of this 4 range? And I guess following up from that, what needs to change to accelerate to the middle of this range? And my second question Nakey Glory is, I know this launch is at the end of September. Does it fair to assume there was no real impact on consumer foods volumes in Q3 from this launch?
Thank you.
Yes. I mean, it's maybe to take the naked government first. I mean, yes, that's a recent launch. And while there's certainly been some early excitement about it, there's, it's still early days. I think what's was really interesting, I think, is the fact that, from a product quality standpoint that we've, that's a product that we've deployed the best of, exposed taste and nutrition technology into that, into that specific product.
I think in terms of, or growth rates, uncertainty, there's been an acceleration in Q3. When we look out into the future and look at, as well as our strategic growth priorities, versus what's happening in the marketplace, I feel really good that we're executing against our strategy, whether it's authentic pace, whether it's nutrition wellness and functionality, developing markets or food service. When I look at those, strategies, when you look at our execution plans, when we look at what's happening at a consumer level, globally across the organization, we feel we're really well positioned to, to grow our business well into the future. That all said, I suppose, there is a market context. And what we have said is that we are absolutely, we want to grow our business 2%, at least 2% beyond the market.
And if you look at any one of the markets that we've been operating in, we certainly are achieving that And the acceleration of our growth that we were achieving in, you know, in just a recent quarter in, in Europe, in the APMEA region, definitely gives me a lot of confidence into the future. There's a very healthy pipeline across all our regions. We expect to see continued good roles We're exactly where we need to be in terms of our medium term targets. We're really optimistic about, what this organization can achieve from a growth perspective.
Thank you very much.
We will now take our next question from James Targush from Berenberg. Your line is open. Please go ahead.
Hello. Good morning, everyone. Couple of questions from me. Firstly, just on, on Taste Nutrition, food service growth. Don't want to be picky, but I think it did decelerate a little bit in the in the Q3.
So I just wonder kind of where where you're seeing the weak spots in food service in Q3 relative to QH1 and whether that's you just referenced to the U. S. Comments you made earlier? And then my second question is on M and A as well. I just wanted generally do you consider the major industry consolidation a good thing, for the carry business?
And if you did want to participate in anything bigger, how do you feel about, use of significant amounts of equity to fund that deal?
Thank you. Thanks, James. Yes, as you mentioned, James, Foodservice has slightly came back in Q3. We had flagged it actually in Q1. It improved actually in Q2, and it's come back a little bit in Q3.
It's exclusively, I would call it, the U. S. Market issue, like I mentioned earlier on, you know, with that said, I would say that, from a developing market standpoint, especially in apnea, we achieved really strong growth in in the food service market and feel like we touched on at the half year that, we're really well positioned to take advantage of the opportunity in the food service, food service market. I suppose in terms of, consolidation and large scale M and A, I think our view on that is that, we see ourselves like we said in the past, as the consolidator in the industry, I've mentioned a few times on the call that, we feel we're, this is, a strong area for Terry. We've talked in the past about the, scanning our business model.
And, we feel we're really well positioned in terms of generating significant shareholder value on any M and A that we look at I'll be the long track record of, making sure that any M and A that we look at a strong strategic fit. We've had a long strike track record of being, of having a disciplined approach and with the long track record of delivering, I would say, shareholder value, from both organic and M and A sources. So in terms of equity, I feel that, we wouldn't be prepared to go to our shareholders for support in the event of a strategic opportunity to generate shareholder value.
Great. Thank you.
We will now take our final question from John Ennis from Goldman Sachs. Your line is open. Please go ahead.
Hello. Good morning, everyone. A couple from me as well, please. The first is on TASIN Nutrition. I think earlier in the year, the expectations was for volume growth to modestly improve in the 4th quarter.
And I guess we've already seen a bit of a pickup in 3Q. I just wondered, is it still your expectation to see a further step up in 4Q? And then my second is on the Consumer Foods contract loss. You said the contract loss will have a bigger impact in 4Q. Can you also talk about phasing into 2020 and maybe just remind us of the overall impact a 12 month basis and whether there will be any spillover effect from this in the second half of twenty twenty, are you 3Q 2020?
Thanks, John. I'll kick off here and Marlorie might want to add something. So in terms of, in terms of Q4, I firstly maybe looking at Q3, we've had an acceleration into Q3 and we expect that to continue into Q4. So we should be thinking about Q4 pretty much in line with, are pretty similar to, to Q3.
So just on the RedHill's contract, in the context of the impact for 'nineteen and 'twenty, very much as we have spoken about in the past From a revenue perspective, on an annualized business, the impact is roughly high single digit 7% in overall value of 100,000,000. So 40,000,000 in 2019 60,000,000 in 20 20. And the last quarter, there will be some tracking, in the last quarter of 2020.
Great. Thanks a lot.
As there are no further questions in the queue at this time, I'd like to turn the call back for any additional or closing remarks.
Yes. We would like to thank everyone for joining us on the call this morning. And with that, we will conclude the call. Thank you.
Thank you. That concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.