Resilient Greencore looks ahead

FOOD GROUP Greencore reported a resilient half-year performance yesterday, as it absorbed the pain of higher raw material costs by recording a 3% fall in pre-tax profits.

The company met analysts' expectations with profits of €30.1 million in the six months to March.

Sales were ahead by 4% on a like-for-like basis. Input costs rose sharply as grain and egg prices soared in response to unfavourable weather conditions and events such as the bird flu epidemic.

Chief executive David Dilger said profits were impacted by up to €5m by a timelag in passing on price increases to customers, but that the group's operating margins would be back to their original levels during the second half.

Mr Dilger was upbeat about the group's performance and said Greencore had come through one of the most challenging periods in its history.

"It's an absolutely brilliant business with a great future," he said.

He forecast that the company would benefit as its convenience food markets continue to grow. The group holds the number one or number two position in most of its chosen markets, which include sandwiches, pizza, chilled quiche and bottled water.

Cost improvements, particularly from better waste management and improved labour productivity, would also flow through in the months ahead, said Mr Dilger.

Chief financial officer Patrick Kennedy said the group continued to make good progress in reducing its debt levels.

Net debt stood at €461m at the end of March, which was €36m lower than March 2003. This helped the company slash over 20% of its interest costs and add €4.6m to the bottom line.

Mr Dilger said that debt would continue to fall thanks to the group's ability to generate cash and that the financial risk associated with Greencore's high debt, which arose from its acquisition of British food group Hazlewood in 2001, had become much lower. Greencore's debt is now only half its 2001 level.

The group would also continue to innovate and would launch a new microwaveable pizza product that would be a "significant opportunity" later this summer, said Mr Dilger.

It will also look for greater automation in its manufacturing processes in an effort to drive down costs and improve margins.

Mr Dilger also said Greencore's malt business suffered from higher barley prices and that margins would remain under pressure over the next six months.

He added that aspects of the malt business were unprofitable during the first half and that this would not be sustainable over a lengthy period.