Shares in Greencore fall by 8%

GREENCORE shares fell by as much as 8% yesterday after 2004 results at the world’s largest sandwich maker fell slightly below expectations.

The food group, which also incorporates the old Irish Sugar operations, yesterday posted an 8% rise in full-year pre-tax and exceptional items profit to €73 million for the year to the end of September. This was before an exceptional goodwill write-off and net asset impairment right-off of €52m relating to disposals, Rathbones bakery and associate James Budgett. Retained losses appear to be €41m, after dividend payments of €24.2m, tax of €9.9m and amortisation and exceptional items. The total recognised losses for the year were €23m, compared to recognised gains of €43.4m in 2003.

Group chief executive David Dilger said he was pleased with the results.

“Against the background of a difficult first half caused by adverse raw material pricing, Greencore has demonstrated its resilience by achieving good profit growth and cash generation in FY2004.

“I am confident that our strategy, the quality of our market positions and our complementary growth and cash generative characteristics position us well for further progress,” he said.

The company managed to overcome its poor first-half performance by increasing prices by €17m in an impressive display of pricing power, which reveals a robust product range. Dolmen Securities analyst Stuart Draper said: “the achievement of the price increases was testimony to the strong number one or number two market positions of Greencore’s products. The other driver of the return to underlying earnings growth was a 21% reduction in the net interest charge to €32.5m.”

Mr Draper said that the EU Commission’s formal proposal of changes to the EU sugar regime last summer, has resulted in the usual market overreaction, generating an attractive entry level for medium-term investors.

“Investors have the opportunity to purchase Greencore shares at a 3% discount to the €2.90 per share level at which Dermot Desmond purchased his additional 11.4m Greencore shares in October 2003,” he said.

Mr Draper argues that the new sugar regime will have limited impact.

“While the initially proposed 33.3% cut in sugar prices would reduce Greencore’s current earnings per share by c15%, the more likely 20% cut in prices, after the concerns of national farming groups and politicians are taken into account, would only reduce group earnings per share by c5%,” he argued in a note to clients.

Mr Draper said the three-year phase-in period being proposed by the EU was an effective safety net for investors.

“This gives Greencore the breathing space to further reduce its sugar exposure,” he said.

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