Revelations weaken a vulnerable Greencore
Shares in the group had already been falling after the group reported a 14% drop in pre-tax profits for the six months to the end of March. Pre-tax profits fell from €34.86m to €30.035m, while sales rose by 2% to €648.7m.
Currency fluctuations were to blame, but crucially, at the operating level the group had met the earnings expectations of the market.
The continuing strength of the euro against the dollar and sterling however, suggests overall profits for the year will also be affected.
At the launch of its first half results, the group said it was well placed to deliver a good performance in the seasonally more significant second half of the year, but currency translations would have an impact on results.
In all about 80% of total operating profit is generated in the sterling area through its Hazlewood subsidiary which it took over in 2001. If the euro/sterling level continued in the 78-80 pence range, the effect year-on-year would reduce operating profit by €11m.
On the day Greencore’s shares slumped 16 cent to close at €3.07 in Dublin.
Of the €21m operating loss suffered through what looks to have been fraud in its mineral water subsidiary in Scotland the group will have to deduct a further €9m from the operating line in the current financial year on top of the anticipated currency translation loss.
This could not have come at a worst time in a way for the group which has just seen Patrick Coveney take over from David Dilger as group chief executive.
It also comes at a time when Greencore has just announced a strategic move into the west coast of the US where it hopes to significantly expand its ambient and chilled foods ranges.
The technologies it has on board from the Hazlewood deal provides a platform for expansion by the group at a time when own label brands are becoming very popular as food prices start to rise and Greencore has a product range to meet those needs.
It must be said that a company with so many accountants in its management has been weakened by the disclosures. Both Dilger and Coveney come from strong financial backgrounds, as does Geoff Doherty who took over the finance job.
Maybe questions need to be asked to as to what the group’s auditors have been doing over the three years, but either way this has been a bad week for Greencore.
And its will be interesting to see what action if any is taken in that regard.
For Greencore its share price in now languishing down at €1.90 after highs of €5.60 last year. The shares hit a low of €2.25 back in 2003 and have gained steadily ever since.
As former boss David Dilger quit the top job many felt he had finally left the group in a very strong position from which to advance, after many years of trying to anchor the company which had evolved out of Irish Sugar, the former state owned company which closed its last sugar operation in Mallow in 2006.
This time last year the group’s property prospects looked very encouraging with several hundred acres of key development land due for conversion into commercial and domestic developments on the sites of the two former sugar plants.
Those initiatives are now very much on he back burner as the property sector goes into sharp decline while the soaring cost of commodities is forcing up the cost of consumer foods.
All of this on top of the currency and fraud issues has seriously undermined the outlook for the group.
And the new management team has a tough job on its hands to ensure that the basically sound convenience food and maltings businesses — and property developments — realise the goals that David Dilger struggled to achieve for the group.
