Experts revealed that the firm’s decision to honour existing Uniq contracts over the key festive season in a bid to maintain strong customer relationships had dented the short-term profitability of last year’s acquisition.
Darren Shirley, an analyst at Shore Capital, said: “Essentially, we believe Greencore has continued to service loss-making business on a short-term basis to maintain strong customer relationships.”
“we highlight the commitment [as part of the acquisition] to continue to service existing customers through the important Christmas period, ahead of either transferring business from Minsterley, the firm’s desserts business, into the Evercreech facility or exiting the business.”
Cost savings
Shirley also added that the phasing of cost savings from the deal, all of which are expected to be derived from Uniq’s former operations, meant the delivery of synergies was likely to come in the second half of the year.
“There are a number of issues which, in our view, limit visibility on the sales performance for the debut interim results as part of Greencore,” he said.
“The change in the reporting period to a March first half end [from June], changes the seasonality of the business, boosting first half dessert sales which benefit from the Christmas period and materially reducing the sales (and profit) contribution from salads.”
In addition, Shirley revealed that the on-going exiting of dessert sales, which was part of the planned reduction in the divisions exposure to the Minsterley facility had contributed to the problem.
He added:“Such sales declined by 18% in four months already reported, with the sales decline expected to accelerate through the year.”
Shore Capital has forecast total Uniq sales of £135M for the period ending March 30, with an earnings before interest and tax (EBIT) contribution of £2.6M. But this was expected to rise in the second quarter, according to Shirley.
Modest growth
Overall Greencore is expected to announce modest growth following a strong performance in the second half of last year.
This was a result of weaker comparatives from the snow-hit early December 2010 and also the “very weak” post-Christmas trading in January last year, Shirley revealed.
He said: “We expect a more modest growth rate through February and March at 6.5%, implying first half sales growth of 10.5-11.0%, and sales of £382M. We forecast EBIT margin in the Greencore Convenience business to be broadly flat at 6.5%, which leads us to an estimated contribution of £24.6M.
“Elsewhere in Greencore, we expect the 3% sales growth in the Ingredients and Property division reported to January 27 to have been sustained, and look for a flat EBIT contribution of £0.9M for the first half of the year.”
The firm revealed last week that it would announce its interim results for the period on Tuesday May 22, 2012.