Weaker sterling eats into food firm's profit

CONVENIENCE FOOD group Greencore saw its 2008 earnings swallowed up by weak sterling, a lag in recovering a rise in input costs and the impact of a fraud at its Campsie Mineral Water business in Scotland, the company said yesterday.

The group, which manufactures sandwiches, cakes and chilled prepared foods mainly for supermarket own-label ranges in Britain, achieved a 3.2 per cent growth in sales to €1.31 billion over the 12 months to the end of September, with a strong performance by its ingredients division offsetting a decline in convenience foods.

However, the weakening of sterling against the euro wiped €8.1 million from the translated operating profits, while there was an operating loss of €4 million at the group's water division.

A €7.3 million profit at the water division for 2007 has been restated as a €2.8 million loss, following the discovery in June of a concealment of costs at the division by its former financial controller.

Overall operating profit was down 16 per cent at €63 million, while the pretax profit fell 29 per cent to €41.7 million.

Greencore chief executive Patrick Coveney said this was a "pretty resilient" performance given the testing economic environment in the UK.

A buoyant market for Scottish whisky helped boost demand for malt, the star performer in Greencore's ingredients and property division, which recorded a 17 per cent increase in operating profit to €31.1 million and a 24 per cent rise in turnover to €414 million.

Excluding the water division, sales at Greencore's consumer foods business were €864 million, up 8.3 per cent on a constant currency basis (before the impact of translating the numbers from sterling to euro).

Operating profit at the consumer foods business fell 15 per cent to €46.2 million. Excluding the currency impact, operating profits fell 4.6 per cent. If the water division is also excluded, the profits declined by just 1.3 per cent.

Price inflation in input ingredients and packaging endured during the financial year were fully recovered through a combination of price increases from its retail customers and a cost-saving programme, although there was a lag in recovering costs at its sauces and pickles division.

The group is hoping to reduce its dependence on the British market by exploiting the development of a chilled prepared foods market in the US, where it bought the Boston-based company Home Made Brand Foods in April and has secured the licence for WeightWatchers chilled foods.

Mr Coveney said Greencore wanted to double US sales every year for the next five years through both organic growth and acquisitions, so that the business achieves the same scale and shape as it has in Britain.

Davy Research food analyst John O'Reilly said the group's finances, unlike those of some of its British rivals, were in good shape to allow it to invest in both the UK and US food sector.

Greencore's shares fell two cent to €1.07 yesterday.