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Failed Merger Bid Hits Greencore’s Profits

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Failed Merger Bid Hits Greencore’s Profits

Failed Merger Bid Hits Greencore’s Profits
May 25
15:46 2011
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Greencore, the UK and international convenience food group, has reported a 2.2% decline in operating profit to Eur27.0m on a constant currency basis on sales up 4.4% to Eur441.8m for the first half ended March 25th 2011. Operating profit was 1.7% ahead after the impact of currency translation and sales rose by 7.9% on the same basis.

However, Greencore incurred an exceptional cost of Eur17.7m (pre tax) during the first half with Eur13.6m relating to transaction costs associated with its failed proposed merger with Northern Foods, and those relating to an acquisition in the US. Pre-tax profit from continuing operations for the period was Eur2.5m compared to Eur10.7m for the first half of 2010.

Greencore’s Convenience Foods division, which accounts for 90% of group activity, had a good first half in challenging market conditions growing constant currency sales by 4.3% and constant currency operating profit by 0.7% resulting in a modest 20bps reduction in operating margins. The sales performance was encouraging in the light of the challenging trading environment and significant disruption from severe weather in four of Greencore’s largest factories in the UK and the US during December/January.

Patrick Coveney, chief executive of Greencore.

However, raw material inflation has been a significant factor and will be an area of focus for management for the foreseeable future. The impact has been largely offset during the first half through selective price increases, product re-engineering in conjunction with retail partners and significant efficiency programmes throughout the business, such as the Lean Manufacturing and Total Lowest Cost initiatives.

“Our business continues to perform well, despite some of the recent challenges in the UK and US food markets. We are delighted to have delivered sales growth for the first half of 7.9%,” comments Patrick Coveney, chief executive of Greencore. “This delivery is grounded in close customer relationships, strong operational performance, a passionate Greencore team and a focus on driving down financing costs following our disposal programme last year.”

He adds: “Clearly, in the last six months we devoted considerable time and resources to corporate development activity and it was disappointing not to be able to execute a combination with Northern Foods. However, we learnt an enormous amount from the process and we are optimistic about our ability to drive growth and shareholder value from both our existing business and from corporate development in the months and years ahead.”

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