Greencore faces first full year loss

AGRI BUSINESS group Greencore will report its first fall in full year profits this year since its 1991 privatisation as a result of the eight week strike in the sugar plants, the Irish Farmer's Association (IFA) boycott of its fertilisers, adverse currency movements and a severe squeeze in margins in its agri business interests.

Analysts now believe Greencore will report full year profits of around £53.5 million compared with last year's £54.5 million. This forecast fall in profits excludes the £5.8 million charge that Grecncore took in the first half reflecting the fine from the EU for anti competitive practices. This fine is now being appealed.

The market responded positively, however, to the profits' warning and the fall in first half pre tax profits - down from £25.5 million to £21.7 million. Most investors took the view that the company was set for solid growth now that these negative tractors were out of the way.

Greencore shares have traded down from a high of 390p earlier this year in anticipation of the impact of exchange rates and the disputes with sugar factory workers and beet growers. In the past couple of weeks, however, Greencore shares have traded in big volumes as overseas investors bought into the company and this trend continued yesterday as the share moved ahead 6p to 350p.

Part of the renewed demand reflects an anticipation in the market of a share buy back. Greencore could buy back up to £100 million worth of its shares without bringing its gearing above 50 per cent, said market sources.

At yesterday's briefing on the half year results, which showed a 8 per cent rise in operating profits to £28.1 million despite a 6 per cent fall in sales to £216.2 million, chief executive, Mr David Dilger said that Greencore was facing into a difficult second half of the year. He identified four "abnormal" factors which would impact on the results for the year.

The eight week strike in the sugar factories resulted in a 10 week interruption to production, although Mr Dilger that "every customer was serviced despite the odds". The agreement negotiated with SIPTU provides "an excellent platform for the future productivity and efficiency of the plants", he said.

The boycott of Greencore's farm inputs by the IFA as part of its campaign for higher prices for sugar beet finally ended last week but will impact on second half profits. Mr Dilger said, however: "We have reached a four year deal with growers, not just on prices, but on contract tonnages and quality. We now have the basis to move forward to create a win win situation in a system which allows Greencore to benefit from higher quality and the growers to benefit from higher prices."

On the two disputes, Mr Dilger rejected any suggestions of "macho management". "We were faced with wage claims and a claim of an extra £5 per tonne from growers. They had to be dealt with. I'd like to have forgotten they existed, but they had to be dealt with for the benefit of all the parties."

He added that the boycott by the IFA had been well implemented by the farmers but declined to itemise the impact of the two disputes.

Changes in EU storage levies will cost Greencore about £800,000 in the second half while the third green pound revaluation will continue to hit sugar profits in the second half of the year. Irish Sugar offset the first two green pound revaluations, £11 a tonne and £23 a tonne but the third revaluation of £14 a tonne was not offset and Greencore had to absorb its 50 per cent share of that revaluation.

Greencore's results are a combination of excellent news from its food business flour, malt and consumer foods - a sharp fall in fertiliser profits and a modest increase in sugar profits. Overall, the operating margin was up from 10.4 per cent to 11.5 per cent.

Associate companies chipped in £3.3 million to profits, a rise of 62 per cent on the first half of last year.