Greencore hasn’t delivered for shareholders, admits Coveney

Greencore chief executive Patrick Coveney took an unusual tack at Tuesday's annual general meeting, admitting the company "hadn't delivered for shareholders".

He said the convenience food giant had underestimated various restructuring and investment costs associated with acquisitions and divestments, and had “made a mess of its IT investment”, a multi-year programme to overhaul the firm’s aging IT system, which has now been halted. “In truth we’ve been struggling a bit,” Mr Coveney said.

His frank admission comes at the end of a turbulent year for Greencore shareholders with the company’s share price down nearly 15 per cent amid the loss of a major US contract with Starbucks and questions over its relationship with Tyson Foods, its biggest US customer.

In November, the company admitted that the discontinued roll-out of its new IT system had triggered a €33.7 million impairment charge and percipitated a 74 per cent slump in pre-tax profits.

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Despite the setbacks, Mr Coveney said the core parts of Greencore’s business – its ready-to-go trade in the UK and its consumer-packaged-goods business in the US – performed strongly in 2017.

In advance of the AGM, the company released a trading update for the 13 weeks to the end of December, which showed group revenue had jumped 53 per cent to £640.5 million (€726 million).

Organic growth

While most of this can be attributed to the company's acquisation of Peacock Foods in the US , which has effectively quadrupled the size of its business there, Mr Coveney highlighted that pro forma revenue, a more accurate measure of organic growth, had risen 7.2 per cent in the quarter, which was ahead of most of its peers.

He also noted that revenue from its convenience food division in the UK and Ireland was up 9.2 per cent to £385.4 million, driven by its food-to-go business, and that 50 per cent of UK population now consumed a Greencore product at least once a week.

The positive numbers, however, failed to halt the slide in its share price, which slumped a further 1.6 per cent to £1.99 on Tuesday.

A big issue for the company has been overcapacity on foot of the loss of contracts in the US and switching consumers tastes.

Mr Coveney admitted Greencore had 30 per cent overcapacity across its UK and US operations but that it was ideally poised to take advantage of two dominant trends in the global food business – the preference for healthier, fresher convenience food and the outsourcing of food assembly by branded food firms.

One shareholder raised concerns about Mr Coveney other directorial commitments and the number of board meetings he must attend as chairman of Core Media, one of Ireland’s largest marketing communications group, and as a non-executive director of Glanbia.

However, Greencore chairman Gary Kennedy said Mr Coveney’s work rate for the company was beyond reproach and that “CEOs functioned better if they had outside commitments”.

Recent volatility

In his address to shareholders, Mr Kennedy also attributed some of the recent volatility in Greencore’s share price to short selling by hedge funds without elaborating.

On Brexit, Mr Kennedy said that since 100 per cent of the company’s UK produce was produced and sold in the UK, it was effectively “ring-fenced” regardless of what route the UK took in leaving the EU.

The company last week announced its plans to exit the cakes and desserts sector in the UK, with the decision to sell its cake manufacturing business in Hull in Yorkshire for an undisclosed sum. The group previously announced it would close its desserts facility in Evercreech.

In its latest statement, Greencore said the impact of the disposal on group adjusted earnings is neutral, but there would be a one-off, largely non cash, charge of around £15 million to the income statement in its fiscal year 2018 interim results.

The group said the cut in US tcorporate tax would require requires revaluation of Greencore’s US deferred tax assets and liabilities, and it expected a one-off, non-cash, credit of around $28 million to the income statement in its interim results.

Looking ahead, Greencore said it is expecting a year of strong growth, although the recent currency movements would have an adverse impact on its translated US profits, if sustained.