European Stock Story of the Month – Kerry Group

Many of us know how much damage buildings do in terms of carbon emissions, and we are well versed in energy management, smart buildings and innovative solutions to conserve and manage heat and light. Fewer of us are aware of the influence of our own bodies’ fuel system. The current food system has a huge impact both on societal strain and the wider environment, causing nearly a quarter of all greenhouse gas emissions. No surprise then that agriculture uses 70% of freshwater consumption[1]. The Prime Minister has called for us to be more conscious of our calorific intake from the point of view of fending off the ravages of COVID-19 on those of a more substantial build, but his point is valid from many other angles as well. This month, we take a look at Kerry Group (http://www.kerrygroup.com/), a major international food business, whose two divisions, Taste & Nutrition and Consumer Foods, put them on our household table on a very regular basis. In his seminal work, published in 1826, Anthelme Brillat-Savarin’s Physiologie du Gout introduced the much-hackneyed phrase ‘you are what you eat’. I suspect we all more or less agree with this, so let’s have a look at how Kerry measures up in its endeavours to capture share of our supermarket trolleys.

The group was founded in 1972[2] in Ireland as a dairy cooperative of eight small dairy farms in County Kerry and this aspect is bred in the bone of the organisation, which prides itself on its ‘farm to fork’ ethos. Over the years, it has expanded its operations, evolving away from purely dairy towards Ingredients and Flavours in the late 80’s and Taste and Nutrition in 2012. As the food industry moves away from single ingredients to multi ingredients and integrated solutions, Kerry is in a very strong position as a leading player in the ecosystem to leverage the demographic trends and capture an increasing slice of the pie.[3]

Kerry sits in the portfolio as a High-Quality name. Our conviction in the investment case is strengthened by its ESG credentials and it sits as one of our top positions. Kerry is a company that takes sustainability very seriously, its objective being to integrate sustainability into all aspects of its business with the aim of securing sustainable growth. Since 2009, Kerry has formally measured the impact of its business footprint, and last year founded a wide-ranging program to set targets to improve performance in four key areas; environment, marketplace, workplace and community, which come into play this year. [4]

The interlinked nature of these areas allows Kerry to apply a continuum of its ‘farm to fork’ strategy. If we take environment and marketplace, the objective of creating sustainable solutions is perfectly exemplified by issues such as food waste and plant proteins. Food waste is a huge problem with reputable studies showing around a third of food going to waste[5]. Kerry is replacing traditional chemicals used to enhance shelf life with plant-based ingredients. This new technology allows for more centralised production and efficient transportation and increases the products ability to withstand fluctuating temperatures along the chain. The huge growth of the plant-based food market also links environment with marketplace. Kerry launched their own protein, Radicle™, which is being rolled out globally. Kerry’s responsible sourcing policy is backed by strict certification and audit programs to ensure the highest standard of its supply chain across its global production platform.

Kerry’s reporting on ESG is strong and its culture proves that a focus on sustainability is a cornerstone of success. All stakeholders are important, whether they be the dairy farmers who get up before cockcrow to make the collection time, one of Kerry’s near 26,000employees,[6] or a curious consumer who’s tempted by Richmond meat-free sausages at less than 60 calories a banger. That reminds me - erstwhile Europhile Chloe S was meant to be giving me some feedback on the vegan snags, but never got back with her marks out of ten. As for me, I shall be sticking to the traditional pork ones, that is until your correspondent’s household pressures me to change my habits, which judging from the mealtime topics, won’t be long...

Information is accurate as at 04.08.2020. Opinions constitute the fund manager’s judgement as of this date and are subject to change without warning. The officers, employees and agents of CIP may have positions in any securities mentioned herein. This material may not be distributed, published or reproduced in whole or in part. With investment capital is at risk.

Sources and References

[1] https://www.kerrygroup.com/annual-report/assets/pdfs/home-page/KGAR19_Sustainability_Review.pdf (p52)

[2] https://en.wikipedia.org/wiki/Kerry_Group

[3] https://www.kerrygroup.com/our-company/history/

[4] https://www.kerrygroup.com/annual-report/assets/pdfs/home-page/KGAR19_Sustainability_Review.pdf (p52)

[5] https://www.fda.gov/food/consumers/food-loss-and-waste

[6] https://www.kerrygroup.com/investors/kerry-overview/Business-Description-Presentation-(29-7-2020).pdf

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