Greencore Group plc, the food and ingredients group, today announced its results for the half-year ended March 30, 2001.
Highlights of the results include:
- Sales increased from Euro 420 million to Euro 729 million.
- Operating profit (pre-goodwill amortization and exceptional items) increased from Euro 35.3 million to Euro 46.7 million.
- Adjusted EPS of 14.2c (2000: 15.0c).
- Interim Dividend of 4.38c (2000: 4.38c).
- Good progress made in realizing benefits of Hazlewood acquisition and in re-shaping the business.
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Commenting on the results, David Dilger, Chief Executive, Greencore Group plc said:
“We have made a lot of progress in managing the integration of Hazlewood Foods in the short period since the acquisition. We remain on schedule to realize the synergies, cost savings and debt reduction targets we identified before we acquired the company.
Overall, the enlarged group has strong market positions in fast growing sectors of the UK and continental European convenience food markets. While much remains to be done during the next year to maximize the benefits and opportunities available to Greencore, we are confident that excellent value will be generated for customers and shareholders.”
Interim Statement Half Year Ended March 30, 2001
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By GlobalDataResults
Sales increased by Euro 309m from Euro 420m to Euro 729m with Euro 269m of the increase coming from acquisitions. Operating profit before goodwill amortization, exceptional items and associates increased by 32% from Euro 35.3m to Euro 46.7m. Adjusted earnings per share were 14.2c (prior period 15c). An interim dividend of IR3.45p (4.380596c) is to be paid which is in line with last year’s interim payment.
Acquisition of Hazlewood Foods
The acquisition of Hazlewood Foods plc, a leading U.K. and continental European based convenience food manufacturer, was completed on January 9, 2001. This was an important milestone in the development of the Group. The combination of Greencore and Hazlewood has a very strong strategic, operational and financial rationale. Strategically, it gives the Group significantly larger scale in growth markets; operationally, it provides an excellent blend of Greencore’s proven operational and rationalization skills with Hazlewood’s strong product innovation, customer relationships and sales and marketing skills; financially, it provides the opportunity for synergies and a higher future earnings growth profile.
Good progress has been made in realizing benefits from the restructuring and integration of Hazlewood. The combination of Greencore’s pizza and ambient sauce operations with the equivalent Hazlewood businesses has commenced; the Hazlewood head office at Derby has been closed and a new streamlined divisional structure introduced.
The acquisition of Hazlewood, before exceptional items, was earnings enhancing in the period. Excellent progress has been made towards the achievement of the annual cost savings of over Stg(pound)7m per annum anticipated in the shareholder circular of November 2000 to be achieved by the end of the second full year following the acquisition. Excellent progress has also been made towards restructuring and eliminating loss making operations through the sale of the F.H. Lee paper business and the Rowan readymeals operation together with the planned closure of the Dunstable frozen readymeals business.
The changing shape of Greencore’s business following the acquisition of Hazlewood, together with the consequent restructuring and management changes, requires a revision of the segmental analysis of the Group’s sales and operating profit. The sectors now comprise Ingredients, which includes sugar as well as the flour, malt and edible oils operations previously included in the Food and Ingredients sector; Ambient Grocery, which includes the baked goods, dried soups and sauces, ambient bottled sauces businesses previously included in Food and Ingredients together with the relevant Hazlewood operations; Chilled and Frozen, which includes the pizza and frozen savory, frozen desserts and non-dairy spreads businesses previously included in Food and Ingredients together with the chilled and frozen businesses from Hazlewood; and Agribusiness which remains unchanged. Prior periods have been restated to reflect these changes.
Review of Operations
Ingredients
Sales increased by 4% from Euro 230m to Euro 239m while operating profit declined by 2% from Euro 20.5m to Euro 20.1m. Sugar sales and profitability showed a small decline in the period with a lower volume of sale of quota sugar outside Ireland than in the comparative period. The 2000/2001 sugar campaign produced 219,000 tons of sugar which was 23,000 tons above the reduced quota of 196,000 tons (previously 200,200 tons). The beet pulp by-product operations saw an improvement in sales and profitability with demand generally strong as a result of poor weather conditions. Malt operations showed a good increase in both sales and operating profit with both the U.K. and Belgium operations achieving improved results, particularly from exports. The Irish flour market continued to be difficult with a decline in operating profit despite strong performances in oatmeal and specialty and heat treated flours. Edible oils continued to show good progress.
Ambient Grocery
Turnover increased from Euro 103m to Euro 199m with operating profit increasing from Euro 8.7m to Euro 11.4m. The main acquired Hazlewood businesses in this sector include bottled sauces, pickles and vinegar, cakes, bottled water and horticulture.
Overall trading within this group of acquired businesses was good. Some commissioning difficulties are being experienced in the major new Hull speciality and celebration cake bakery, which will incorporate operations previously carried out at five separate sites, but these are being dealt with. Excellent progress, as a result of exceptional effort from all concerned, was made in overcoming the problems arising from the pre-acquisition flood at the Selby bottled sauces and pickles plant.
In baked goods, profit showed a significant decline on the prior period as a result of the very difficult U.K. bread market and increased distribution costs. In dried soups and sauces, there was a good increase in both sales and profit.
Chilled and Frozen
Operating profit of Euro 10.3m was earned in the period on sales of Euro 231.7m as compared with an operating profit of Euro 1.7m on sales of Euro 24.4m in the prior period. The main Hazlewood businesses included in this sector are sandwiches, chilled pizza, chilled sauces, chilled quiche, readymeals, fish and meat. Additionally Greencore’s pizza, frozen savory, frozen desserts and non-dairy spreads businesses, previously included in Food and Ingredients, are now part of this sector. In sandwiches, the commissioning of the major new facility at Manton Wood was successfully completed. In pizza, the Greencore and Hazlewood businesses have been merged. Chilled sauces achieved good progress in the period in a strong market. In ready meals, good progress is being made through the product development program together with rationalization measures already taken. Meat products results were impacted by some of the effects of the foot and mouth outbreak which are now diminishing and, in fish, restrictions on catch quotas increased costs.
Agribusiness
Operating profits increased from Euro 4.4m to Euro 4.9m on sales down by 6% from Euro 62.3m to Euro 58.8m. This improvement was achieved despite a slow start to the key spring selling period as a result of poor weather conditions and steps being taken by the Irish Farmers Association in pursuit of its claim for a higher sugar beet price.
Associates
Share of profits of associates, net of share of interest payable and goodwill amortization, declined from Euro 4.9m to Euro 1.9m due to the fact that Imperial Sugar is no longer dealt with as an associate. Imperial Sugar contributed Euro 3.3m in the comparative period.
Finance
Net interest payable increased from Euro 7.3m to Euro 20.4m as a result of the acquisition of Hazlewood at a cost of Euro 443m (inclusive of acquisition costs and finance fees) together with borrowings acquired of Euro 277m. Interest cost also includes the finance cost of the shareholding in Hazlewood acquired in the months preceding the completion of the offer. Net debt increased from Euro198m at the year-end to Euro 874m at the half-year as a result of the Hazlewood acquisition and a higher level of capital expenditure offset by the continuing strong cash flow of the Group. The exceptional cost within operating profit of Euro 1.5m relates to the start-up costs of the two major new Hazlewood facilities. The exceptional charge of Euro 7.9m relates to the initial costs of a fundamental re-organization of the Group including the integration of the sauce and pizza operations, the rationalization of the readymeals operations, the re-positioning of certain Group businesses, the restructuring of the divisional operations and the consequential closure of the former head office of Hazlewood. Net capital expenditure in the period increased from Euro 13.4m to Euro 32.5m with Euro21m of this relating to Hazlewood, principally in relation to the major projects in sandwiches and cakes. Tax decreased from Euro 4.3m to Euro 0.6m (net of a credit of Euro0.4m in relation to the exceptional charges) as a result of the changed structure of the Group together with the impact of the increase in capital expenditure projections consequent upon the acquisition of the growth businesses within Hazlewood. Earnings per share, adjusted to eliminate exceptional items (net of tax), goodwill amortization and amortization of finance facility issue costs, decreased by 5.3% from 15c to 14.2c. Basic earnings per share were 7.2c (2000: 14.7c).
Current Trading and Outlook
Good progress has been made in realizing the benefits of the Hazlewood acquisition and in reshaping the operations. The process is on schedule as per our stated timeframe. Much remains to be done and continued progress is the Group’s clear priority. The Group’s disposal and debt reduction program is also proceeding in line with our timetable and plans.
In Ingredients, action has been taken to improve the return on capital employed in the flour business and the outlook for malt is for further improvement in the second half of the year. In sugar, as previously reported, the reduction of quota and the difficulty of passing on any inflationary cost increases in a market which is increasingly priced on a pan-European basis will impact sugar profits in the current year. The E.U. has recently agreed the renewal of the sugar regime to July 1, 2006. The renewal includes the abolition of the storage equalization scheme and provisions for a Commission study and report in 2003. The removal of the storage equalization scheme, and the consequent drop in the effective support price, does not mean a commensurate drop in the price of sugar, with storage costs simply becoming purely commercial instead of institutional.
In Ambient Food, trading continues to be satisfactory in a tough food environment. In horticulture, tomato yields are significantly below normal levels.
In Chilled and Frozen foods, the market continues to demonstrate good growth in the sectors in which the Group operates and our businesses are well positioned and well invested to exploit these opportunities. The major new pizza topping facility in North Wales is expected to start to come into production in the latter part of this calendar year.
The enlarged Group has a greatly improved balance of strong, cash generative but lower growth businesses together with convenience food operations with excellent market positions in some of the fastest growing segments of the European convenience food market. Much remains to be done to maximize the benefits and opportunities now available to Greencore. We are confident that excellent value will be generated for customers and shareholders.
Greencore is a major manufacturer and supplier of primary foods, food ingredients and prepared foods to industrial and consumer markets. Its core activities are sugar, malt, flour, related agribusiness and baked and packaged, chilled and frozen grocery products. The Group has operations in Ireland and the United Kingdom. Greencore’s ordinary shares trade in Dublin and London, and information can be accessed on Bloomberg under the symbols GNC ID and GNC LN respectively and on Reuters under GNC.I and GNC.L. Additional information is available on Greencore’s internet site: www.greencore.ie.
For tabular information, please contact Taylor Rafferty at (212) 889-4350.
