Weak sugar sales push Greencore towards convenience
division suggest that the Irish food company might consider
focusing on its more profitable convenience sector.
Profits before exceptional items in the year to September were up 6.4 per cent to €77.7m, driven largely by the launch of new ranges such as ready meals under the Weight Watchers brand.
But solid results from the firm's convenience food business could not quite hide the effect of weakened ingredient sales.
Exceptional costs totalling €121m, related to the closure of one of its two sugar processing factories, pushed the group into a pre-tax loss of €63.9m (loss €5.88m after exceptional costs of €52m).
The group also took a charge of €40m to provide for costs associated with disposing of the loss-making pizza business in the UK in October 2005, in order to remove a business that had been a drag on the performance of convenience foods.
In addition, turnover in the ingredients and agriculture division - which includes Irish Sugar - fell 6.2 per cent and operating profits dropped 11.2 per cent to €41.4m.
The future of the division - and the Irish sugar business in general - will depend very much on the effect of reforms of the EU sugar regime, announced yesterday in Brussels. Greencore, the number one sugar and malt producer in Ireland, will be watching these discussions with great interest.
The restructuring of the group's sugar processing capacity into one plant should deliver greater efficiency and give Greencore valuable leverage in determining the optimum strategy to compete in a post-EU sugar regime reform environment, but the changes will nonetheless pose a critical challenge.
"We have taken hard decisions in 2005 and this coming year may well require further decisions, particularly given impending EU sugar regime reform," said Dilger.
The European Commission initially proposed a 39 per cent reduction in the institutional price of sugar, though this has been reduced to 36 per cent. This is intended to reduce the amount of sugar produced in the EU, and some of the less efficient producers are expected to give up if the price falls.
The Commission proposal also includes a compensation fund of €4 billion to be paid out to processors that leave the industry.
Greencore could therefore take the decision to exit the sugar business entirely over the next few years. According to the UK's Financial Times, the company is already marking shareholders' cards, reminding them that two-thirds of group revenues are generated by sales from its convenience foods division.
And it is here that Greencore believes it has made the most significant progress in 2005. Sales from this division rose 7.5 per cent on a comparable basis, while margins rose from 7.4 to 8 per cent increasing operating profits 16.4 per cent to €67.7m.
"These results demonstrate solid underlying performance," said chief executive David Dilger.
"We are especially pleased with progress in convenience foods, where we now have high performing businesses right across the range of our operations, and believe that the extensive restructuring required since our acquisition of Hazlewood is now complete.
"This division has the strategic and operational model to succeed in the convenience food market and I am confident that we will make further progress in the coming year."
Greencore Group is a major international manufacturer and supplier of food ingredients and prepared foods. Manufacturing sites are located in Ireland, Great Britain, The Netherlands and Belgium, and employ over 9,000 people.
