Greencore plans share buy-back

Greencore intends to buy back some of its own shares early next year and the group is expected to announce an acquisition soon. The company is understood to be in negotiations on two possible purchases in Britain, with market sources expecting an announcement over the next two to three months.

Chief executive, Mr David Dilger, was tight-lipped about the acquisition targets yesterday. There has been speculation that they are Paul's Malt, a subsidiary of Harrison and Crosfeld with a price tag of £60 million to £80 million sterling and the flour and ingredients businesses of Dalgety with price tags of about £300 million.

The share buy-back plan reflects the high level of funds held by the group and an aim to improve the return to shareholders. Buying back shares reduces the number of shares in issue thereby increasing earnings per share and usually dividends per share. Greencore, a strong cash generator with very low borrowings and shareholders' funds of £256 million, could comfortably afford to spend about £150 million on a combination of acquisitions and a share buy-back.

The extent of the planned share buy-back will depend on the outcome of "projects currently being evaluated", according to Mr Dilger. Greencore has shareholder approval to buy up to 10 per cent of its shares which would cost about £60 million. The buy-back is expected to be limited especially if one or more of the acquisitions is agreed.

The Budget cuts in Capital Gains Tax and reduction of the tax credit on dividends will make buy-backs more effective for shareholders than dividend payments, he said. The reduction in CGT will cut the tax due on any capital gain shareholders make from selling shares from 40 per cent to 20 per cent. While the removal of the tax credit on dividends over two years will mean that shareholders will pay tax at their marginal rate on the full amount of dividends received.

After some market uncertainty about the group's strategy in the US, Mr Dilger said Greencore was "satisfied" with its stake in US sugar company, Imperial Holly. That stake was diluted from 27 per cent to 14 per cent following the takeover by Imperial Holly of Savannah. Greencore now has a smaller stake in a larger and better company which is better than either of the two parts, Mr Dilger insisted. Overall, group strategy is to progress on acquiring primary processors and food ingredients companies which have long-term competitive raw material supply arrangements. Any acquisition must be earnings enhancing for Greencore and the ideal acquisition would be an underperforming company where Greencore could increase the value of the operation, Mr Dilger said.

Greencore hopes to increase the pace of its acquisition activity, he said adding that the management structure in this area had been changed to "sharpen our focus on development and improve our activity".

On the European Union sugar regime, Mr Dilger said he was more confident following a recent Council of Ministers meeting that existing arrangements would remain in place and that supports at existing levels would continue. Greencore is the sole producer of sugar in the Irish market operating two factories and it is the largest flour miller accounting for over 50 per cent of the Irish market.

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