Greencore has insisted it expects its full-year earnings to meet “market expectations” despite the Irish convenience group earlier today (24 May) reporting mixed half-year results.
The company this morning revealed that pre-tax profit for the six months to the end of March plunged to EUR2.5m (US$3.5m), down from EUR10.7m last year. Exceptional charges primarily related to Greencore’s failed attempt to acquire UK food group Northern Foods hit the group’s bottom line.
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The charges meant that Greencore’s operating profit – before acquisition-related amortisation – fell by more than 65% to EUR9.4m.
However, the company said that operating profit before acquisition-related amortisation – and excluding the one-off exceptional charges – rose 1.7% to EUR27m. However, on a constant-currency basis, operating profit declined 2.2%.
In all, Greencore reported a net loss of EUR251,000, compared to net profit of EUR17.3m a year earlier.
However, the company expects to meet the market’s expectations for full-year earnings per share of EUR0.155.
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By GlobalDataDuring the first half of Greencore’s financial year, the company’s margins fell to 6.1% due to production disruption from January and February’s severe weather. Cost inflation also had an impact. However, Greencore said that it was able to offset this through a combination of higher selling prices and internal efficiencies.
The company has forecast margin expansion of 25 basis points over the next few years, and despite the first-half drop in margins, management remained confident in its ability to deliver gains.
“We think we have taken our business to a much better place in terms of operating margins and return on capital, at 6.5% and 13% respectively,” CEO Patrick Coveney said during an analyst conference call. “We have a lot of internal plans to take margins up over time, but I think it is wise to be cautious about that in the near-term.”
Greencore said that cost inflation during fiscal 2011 is expected to stand at 4-5% on a constant-currency basis. The group said that it would look to offset this through increased efficiency and price increases.
Looking to fiscal 2012, Coveney added: “We do anticipate at this point that the level of inflation will be at least as strong as it was for 2011… On that basis we will be using the same set of tools that we have used this year – and indeed in prior years – to recover that: namely supply chain efficiencies, range reconfiguration and passing that on in terms of pricing. We have been encouraged by the progress we have made in each of those areas to protect the business.”
In spite of these near-term challenges – and the recent hit to profits due to the failed Northern merger – Coveney said that Greencore remained focused on driving growth, both organically and through acquisitions.
“We think there are lots of development opportunities in the market but we are going to get off the treadmill here… you can anticipate that over a 24-month time period we will look to develop our business through organic development and through acquisitions,” he revealed. “We will be measured and strategic and highly value sensitive in terms of how we develop our bus going forward.”
Commenting on the result, which also included a 7.9% increase in sales, Goodbody’s analyst Liam Igoe said that the company had got off to an “encouraging start” in a “difficult market”.
“These interim results reflect a robust performance by Greencore in difficult market conditions. With management expecting fiscal 2011 to be in-line with market expectations, we do not anticipate making changes to our forecasts at this stage at EPS level.”
