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European Business News – Week ending November 19, 2010

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European Business News – Week ending November 19, 2010

November 19
00:44 2010

During a week when the Republic of Ireland’s beleaguered Government went cap in hand to the EU and IMF for a financial bailout to try and stabilise its foundering banking system, it was ironic that two Irish companies achieved notable successes abroad, stressing the importance of the food and drink industry in contributing to the country’s export-led, future economic recovery.

Patrick Coveney, chief executive of Greencore.

Dublin-based Greencore is one of the leading convenience foods processors in the UK. It is merging with its British counterpart, Northern Foods, to create a £1.7b turnover business with strong positions in private label production, particularly in ready meals and pre-packed sandwiches, along with significant band strength in biscuits and frozen pizzas. Integrating the two highly complementary businesses, to form Essenta Foods, is expected to yield cost synergies of £40m per annum within three years, with at least half due to be realised within the first 12 months after completion.

The ‘merger by acquisition’ will entail Northern Foods’ assets and liabilities being transferred to Greencore, with the English company’s shareholders owning half of Essenta, which will be headed by Irishman Patrick Coveney and headquartered in Dublin.

Following the acquisition of Hazlewood Foods for £350 million in 2001 and its subsequent integration, Greencore has been gradually transformed through organic growth and bolt-on acquisitions from being chiefly dependent on sugar processing in Ireland into a fully focused UK convenience foods business. It has also entered the US convenience foods market.

Three strategic disposals in its last financial year have completed Greencore’s transition. Last week Patrick Coveney, who succeeded David Dilger as chief executive in 2008, was able to announce strong annual results for Greencore with a 17.6% rise in group operating profit from continuing operations to Eur59.7m on sales up by 6.9% to Eur856.9m. Group operating margin from continuing operations improved by 63bps to 7.0%.

By contrast, Northern Foods is still in the process of restructuring and recently reported an operating loss of £9.5m, including restructuring charges, and a drop in turnover for the six months to October 2010 as improvements in its chilled foods and bakery businesses were offset by a loss in frozen foods. The share price of both Greencore and Northern Foods has risen on news of the merger.

Cause For Irish Optimism

Another Irish company, Cooley Distillery, has been named European Distiller of the Year for the third consecutive year at the annual International Wine and Spirits Competition (IWSC). Cooley, which is Ireland’s only independent distillery, is benefiting from the growing popularity of Irish whiskey, especially in the US. The world’s two largest spirits groups, Diageo and Pernod Ricard, have both been busy building their Irish whiskey brands, and Scotch distiller William Grant has also now entered the market after the recent acquisition of Tullamore Dew.

Founder and chairman, John Teeling believes that Cooley’s achievements throughout the downturn show that the exporting and marketing of quality Irish produce will drive the recovery of the Irish economy. “While the State and the economic commentators work to rearrange the chairs on the deck of the Titanic, the rest of us are getting on with what needs to be done to bring us back from the brink,” he says. The award demonstrates three things – “the value of Irish businessmen building world class internationally competitive businesses; the indisputable fact that Irish workers can produce products of the highest quality and the ability of young Irish road warriors to market our products and gain market share in tough markets around the world.”

Dairy Uncertainty Ahead

On the dairy front, Arla Foods confirmed a general recovery in international markets during 2010 following the troubles of 2009 by increasing milk prices for its co-operative members for the fifth time this year. However, chief executive Peder Tuborgh has cautioned that 2011 is likely to be more uncertain, characterised by more market fluctuations.

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