Greencore cfo insists business is not for sale
An article in The Independent yesterday cited sources close to the Dublin-based firm as saying that it was exploring its options following its failure to takeover Northern Foods two months ago, with chief executive Patrick Coveney also said to be considering approaches for other players in the sector.
But Williams said there was still a "compelling case" for industry consolidation, and that although Greencore was not compelled to transact due to continued growth ahead of the market, it would continue to look at businesses for sale both implicitly and explicity. However, he refused to say whether Uniq was a possible takeover target for Greencore.
Weathered Northern storm
Williams was speaking as Greencore released results today showing it had weathered a challenging first half of 2011, characterised by severe weather, rising commodity costs and its failure to acquire Northern Foods, by posting interim results in line with expectations.
Group sales of €442m (£386m) for the first half (H1) to March 25 2011 represent a 7.9% increase in year-on-year sales and a 4.4% increase on a constant currency basis.
Operating profits rose to €27m (£23m) up 1.7% year-on-year, despite a €0.6m (£520,000) or 2.2% fall in constant currency terms.
Greencore said the results were encouraging given a challenging trading environment within convenience foods (which represents 90% of group business volumes) and severe weather that “significantly” affected production at four of its largest factories: Manton Wood, Kiveton, Hull, Newburyport.
Raw material cost inflation was also a significant factor in H1 2011, Greencore said, addressing which was a key management focus; its impact was offset in H1 by “selective price increases, product re-engineering in conjunction with our retail partners and significant efficiency programmes throughout the business”.
Cake margins hit
Within Greencore’s largest division 'Food to Go' (40%+ of convenience division sales), which produces fresh sandwiches, salads and sushi, sandwich sales were up 8.4% against market growth of 2.6%. The group attributed volume growth to commodity price inflation meaning higher prices, the cost impact of a move to cardboard packaging and modest ‘trading up’ by consumers.
Prepared meals – private label chilled ready meals and quiche coupled with Weight Watchers branded products – performed strongly in H1, and Greencore saw value growth of 19.3% (against the market’s 9.4%) due to new and existing customer gains, with multi-buy and ‘dine in’ promotions key market trends within the category.
However, the cakes and desserts division (around 10% of sales) was hit by excess industry capacity, cost inflation and increasing promotional activity, with ambient cake sales down 0.2% in value terms and 1.1% by volume during H1, and margins significantly hit.
Asked how Greencore might turn this division around, Williams said double-digit cost inflation had hit flour, sugar, cocoa and dairy ingredients was hitting market players "across the piste".
He added that excess capacity made it hard to raise prices for such products to customers, while the prevailing economic climate meant that cakes (specifically in the 'celebration' segment where Greencore is biased towards) were not a "must have purchase".
Greencore improved its 32% market share in chilled sauces, and 12% market share in chilled soups, delivering 7% value growth in the former and 20% in the latter, above market levels.“Due to our strong growth in soups, we invested in further production capacity during the period,” the firm said.
Sounds cautious note
Despite improved market performance in March/April, and convenience food sales ahead of the market in H1 2011, Greencore warned that it expected the consumer environment to remain subdued throughout 2011, while managing input inflation was crucial.
“The seasonally more important second half of the year [with sales of 'Food to go' products such as sandwiches up in summer] has started well and we continue to experience strong demand for our convenience food offerings,” it said.
“Input inflation is now running at more pronounced levels than at the start of the current financial year, and managing its impact will remain a key area of management focus in the second half.”
Net debt at March 25 was €236.7m (£206m) compared to €193.4 (£168.8) last September, which was negatively impacted by acquisition costs, an exception charge relating to the failed Northern Foods bid (€17.5m or £15.2m) and seasonal capital outflow.
Maintaining its ‘buy’ recommendation, Investec Securities said in an analyst note that the results were in line with expectations, “with the core convenience foods business proving resilient in a challenging climate”.
“We expect more of the same in 2H, with lower finance costs helping to drive the growth in pre-tax [profits],” it said.
