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May 30, 2002

REPUBLIC OF IRELAND: Greencore posts H1 boosted by Hazlewood acquisition

Irish food and ingredients group Greencore has released an interim statement of results for the half year ended 29 March 2002. Financial highlights for this period include a 45% increase in turnover to €816m (US$m). The company said that this growth principally reflects the inclusion of the results of the retained Hazlewood businesses for six months, compared with three months in the comparative period; in addition, like-for-like sales from continuing operations grew by 5%, reflecting the growth in the markets in which Greencore now operates.

Irish food and ingredients group Greencore has released an interim statement of results for the half year ended 29 March 2002.

Financial highlights for this period include a 45% increase in turnover to €816m (US$m). The company said that this growth principally reflects the inclusion of the results of the retained Hazlewood businesses for six months, compared with three months in the comparative period; in addition, like-for-like sales from continuing operations grew by 5%, reflecting the growth in the markets in which Greencore now operates.

Chairman A D Barry said: “Greencore has continued to make good progress in the H1 of this financial year. Profits from continuing operations have grown strongly, the total proceeds from the disposal programme have exceeded the announced target and the restructuring programme initiated after 2001’s acquisition of Hazlewood Foods is nearing completion.”
 
Operating profit from continuing operations (before goodwill and exceptional items) also showed strong growth, increasing by 40% from €35.9m to €50.3m.

Adjusted earnings per share were 13.8c (prior period 14.2c), reflecting primarily the dilutive impact of the disposal program. An interim dividend of 4.38c per share is to be paid, which is in line with last year.

Integration of Hazlewood Foods

Barry added: “The successful acquisition of Hazlewood Foods has provided Greencore with significant growth prospects, as demonstrated by the financial performance in the H1.

“To enable the group to take advantage of these, a substantial disposal and restructuring programme was undertaken. In total, 18 businesses have now been sold since the acquisition of Hazlewood, with proceeds of some €198m generated, and a further four closed. Following the disposal programme, the group’s convenience portfolio is now focused on product categories with significant growth prospects.”

The diverse spread of businesses and accompanying structures in Hazlewood has also been substantially reduced since the acquisition. Businesses exited include paper towels, horticulture, cured meats, vinegar, nappies and fish. Significant savings have been made to the cost base, and the group is well advanced in achieving the synergies targeted pre-acquisition, said Barry.

Review of Operations

Chilled and Frozen

Operating profit from continuing activities increased to €19.3m in the period on sales of €362.3m, compared with €8.8m on sales of €179.5m in the prior period, with operating profit margins rising from 4.9% to 5.3%. In sandwiches, the combination of the new state-of-the-art Manton Wood facility, double-digit sales growth in the category, and Hazlewood’s clear market leadership delivered improved results. Chilled sauces continued to benefit from both strong category growth and new product introductions with the product base continuing to expand from the core pasta sauce range to include meat sauces and sweet sauces.

These same two factors drove growth in quiche and ready meals, which also benefited from the rationalization measures taken in the last financial year. The new pizza facility will benefit the group’s topped pizza business in the same way as the Manton Wood facility has enhanced the sandwich business, whilst the Group’s Dutch pizza operation completed on budget a €3m investment in a new production hall, which will provide additional necessary capacity to service continental market growth.

Ingredients

Sales increased from €239.1m to €246m, whilst operating profit was up from €20.1m to €20.4m. As reported at the AGM, Irish Sugar’s profitability declined due to an increase in beet prices and the shutdown of the two factories during the related dispute with beet growers. However, the five-year agreement subsequently entered into with the Irish Farmers’ Association provides the basis for stability going forward.

In milling, Odlums produced to the capacity of its mills, with profits benefiting accordingly, although a mild winter in the US as well as post-11 September de-stocking programmes inhibited the very strong recent growth record of its McCanns branded oatmeal product. Malt generated a good increase in sales and profits, in particular in the UK, which benefited from excellent cost management.

Ambient Grocery

Operating profit on continuing activities increased from €7.1m last year to €12.1m, with sales from continuing operations up from €138.1m to €209.4m. Much of the increase was due to the inclusion of Hazlewood for the entire period, although operating profit margins also showed good improvement, increasing from 5.1% to 5.8% on continuing activities.

The Scottish mineral water business, Campsie, continues to benefit from the increasing demand for mineral water in the UK, whilst remaining very focused on its cost base. The ambient sauces and pickles business continues to recover volume; although the sector remains very competitive, the rationalization of the two smaller facilities will result in further improvements to the cost base. Results from Rathbones declined significantly versus the same period last year, as the UK bread market remained very competitive. Transfer of production to the new cake and dessert facility in Hull was delayed, resulting in significant underperformance during the peak Christmas cake season.

Agribusiness

Agribusiness profitability from continuing operations increased from €0.9m to €1.2m on sales of €33m versus €28.6m, with a strong performance in the agrichemical distribution business more than offsetting the impact of a reduction in EU grain import levies immediately post-harvest. The fertilizer business, Grassland, was sold since the half-year, and its results have been included in discontinued activities.

Financial review

Net debt in the H1 was reduced by €54.9m from €722.6m to €667.7m. The March 2002 net debt figure is €206m lower than the level in 2001. Net interest payable increased from €20.4m to €28.4m, reflecting the inclusion for the entire period of the acquisition financing of Hazlewood. Amortisation of finance facility costs increased from €0.6m to €1.3m for the same reason. The exceptional cost within operating profit relates principally to start-up inefficiencies at the new pizza and cake facilities, whilst the exceptional loss on disposal of €6.9m relates to the partial disposal of Odlums. Net capital expenditure in the period declined from €32.5m in the same period last year to €25.1m. The tax charge of €1.7m equates to an effective rate of 6%, which reflects the ongoing restructuring of the Group.

Earnings per share decreased by 2.8% to 13.8c from 14.2c. Basic earnings per share were 2.1c (2001: 7.2c).

Current Trading and Outlook

Greencore expects an uplift in performance by the end of the current financial year.

In Chilled and Frozen, the market continues to show good growth, in line with consumer demand for fresh prepared food, which is both convenient and of high quality. The group is confident of continued profit growth in these categories.

In Ingredients, the outlook for malt is for further improvement in the H2. Irish Sugar will be impacted by the additional costs incurred in the campaign earlier in the year, although it will benefit from sales price increases recently achieved.

In Ambient Grocery, trading continues to be satisfactory in water, sauces and pickles, and dried soups and sauces, but has not yet improved in bread, where much effort is being dedicated to improving Rathbones’ performance and the market in which it operates.

A moderate H1 is expected from the group’s agribusinesses, which are becoming an increasingly smaller proportion of the group overall.

A specific focus in the H2 will be on continuing to reduce indebtedness, whilst driving improvements at the cakes, pizza and bakery businesses. The outlook for growth in the H2 in continuing operations is favourable, said Barry, although the results will be impacted by the dilutive effect of the disposal programme.

Barry concluded: “The acquisition of Hazlewood has transformed Greencore, and whilst much remains to be done, the group is already capitalising on its combination of market leadership positions, excellently invested facilities, and a balanced mix of strong growth and highly cash generative categories.”

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