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Rating Action:

Moody's assigns Baa2 rating to Kerry's new notes

25 Nov 2021

Milan, November 25, 2021 -- Moody's Investors Service ("Moody's") has today assigned a Baa2 long term backed senior unsecured rating to the proposed senior notes to be issued by Kerry Group Financial Services (the issuer) and guaranteed by Kerry Group Plc ("Kerry" or the company, Baa2 stable), a global leading taste and nutrition partner to the food, beverage and pharmaceutical industries. The existing Baa2 long term issuer rating of Kerry and the Baa2 backed senior unsecured ratings of Kerry Group Financial Services are unaffected by today's action. The outlook on all ratings is stable.

Proceeds from the new senior notes will be applied for general corporate purposes, including the repayment of indebtedness and funding acquisitions in the ordinary course of business.

A full list of affected ratings is provided towards the end of the press release.

RATINGS RATIONALE

The rating on the new notes reflects the unconditional and irrevocable financial guarantee from Kerry Group Plc and the fact that the notes will be unsubordinated and unsecured obligations of the issuer and will rank pari passu with all other obligations of the issuer including its existing senior unsecured debt.

Kerry's Baa2 rating reflects the company's leading position in the global taste and nutrition market; the stable nature of the sector, which Moody's expects to continue to grow over the next two to three years in the low- to mid-single digits in percentage terms; the company's track record of strong and predictable top-line and earnings growth while maintaining a conservative financial policy; and its strong credit metrics, underpinned by margin growth and positive free cash flow (FCF) generation.

The rating is constrained by Kerry's acquisitive strategy, including the risk of large acquisitions exceeding its annual free cash flow generation; and moderate geographical diversification, with around 57% of its 2020 sales generated in the US and the UK (albeit reliance on the UK market will reduce following the disposal of its Meats and Meals business). Despite the company's exposure to the food service industry, which was severely disrupted by the coronavirus outbreak, its 2020 performance was relatively unaffected, having benefitted from strong demand across the retail channel. The company reported strong recovery in 2021, with revenues and volumes up by mid to high single digit and profit margin expansion during the nine months to September 2021.

During 2021, the company accelerated its strategic initiatives aimed at focusing on the fast growing and higher margin Taste and Nutrition business. In September, it acquired for €853 million ($1,015 million) Niacet Corp. ("Niacet"), a global leader in technologies for preservation in bakery and pharma products. Kerry expects Niacet to generate pro-forma annualized revenue of approximately $220 million (€185 million) and EBITDA of $66 million (€55 million) in 2021, representing an EBITDA margin of ca. 30% and an acquisition multiple of 15.4x excluding synergies.

Earlier in 2021, the company also acquired for €126.9 million Biosearch Life, a Spanish company distributing probiotics, botanical extracts and omega-3 fatty acids products globally, which generated revenue of €25.3 million in 2020.

At the end of the third quarter, Kerry completed the disposal of its consumer foods' Meats and Meals business to Pilgrim's Pride Corporation (Ba3 stable) for €819 million (GBP704 million). These assets generated revenue of €828 million and EBITDA of €86 million (10.4% margin) mainly in the UK and Ireland, representing approximately 65% of the company' Consumer Foods division in terms of 2020 revenue.

RATIONALE FOR STABLE OUTLOOK

The stable outlook reflects Moody's view that Kerry is well positioned within its rating category and has some capacity to accommodate additional debt-funded non-transformational acquisitions or potential mild earnings pressure resulting from the pandemic. Its rating is constrained by the risk of sizeable M&A activity.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The company is well positioned in its rating category. Its strong free cash flow and potential for debt repayment could result in upward rating pressure. Moody's could consider upgrading the rating in case Kerry's Moody's-adjusted gross financial leverage remains below 2.5x on a sustained basis. However, at this stage, a rating upgrade remains unlikely because of the company's acquisitive nature, which could lead to more sizeable acquisitions over the next 18-24 months.

In the absence of sizeable debt-funded M&A activity, a downgrade is unlikely at this juncture. However, the rating could be downgraded if Kerry's gross leverage were to remain above 3.5x and its retained cash flow/net debt were to remain below 20% both on a sustained and Moody's-adjusted basis.

LIST OF AFFECTED RATINGS

Assignments:

..Issuer: Kerry Group Financial Services

....BACKED Senior Unsecured Regular Bond/Debenture, Assigned Baa2

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Headquartered in Tralee, Ireland, Kerry is the global leading supplier of flavours and ingredients to the food, beverage and pharmaceutical industries, as well as a supplier of own and customer-branded food products to retailers in the UK, Irish and select international markets. The company generated €6.95 billion of revenue and €1 billion of EBITDA in 2020 from its two core divisions: Taste & Nutrition (82% of revenue) and Consumer Foods (18%).

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Paolo Leschiutta
Senior Vice President
Corporate Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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