Greencore writes off pizza business

GREENCORE will take a €40 million hit after the food group cut its losses with its struggling pizza business yesterday by giving it away to management for free.

The company said it had decided to quit the market for chilled pizza in Britain, where it held the number two position with a 22% share, because the operation had "consistently failed to deliver the performance or returns that the group demands."

Chief financial officer Patrick Coveney, who took up his position a month ago after Patrick Kennedy defected to become chief executive of bookmaker Paddy Power, said the company had been flagging difficulties with its pizza operations for two years.

The decision to offload was finally taken during the summer after repeated attempts to turn its performance around had failed, he said. The company had spoken to other food companies and even considered closing the unit before plumping for a management buyout.

It will receive what it described as "a nominal sum" for the business, which could be as low as €1.

The disposal will wipe €40m of Greencore's full-year profits - around half of the total - thanks to a write-off of the subsidiary's asset base.

The company previously lost over €70m after writing off an ill-fated investment in Imperial Holly, an American sugar company.

Greencore's pizza subsidiary employs 800 of the group's 10,000 staff, but only accounted for around 7% of its business in Britain and less than 5% of total group assets. Mr Coveney said its other 8 units in Britain were performing strongly but chilled pizza had become an unattractive market.

Overcapacity in the market had driven down prices and squeezed margins, while the market segment was also under attack from two similar products - ready-made and frozen pizzas.

The company also said yesterday it had sold a specialist meats business in the Netherlands for €10m. Feldhues, which has an Irish operation located in Monaghan, produces delicatessen-style meat but was not considered core to Greencore's business.

There was better news for shareholders, however, with the announcement of a €17m takeover of Oldfields, a London-based sandwich manufacturer. Mr Coveney said the deal would boost Greencore's sandwich sales volumes by more than 20% but also gave it additional manufacturing capacity to cope with increasing demand.

Oldfields makes sandwiches for the high-margin end of the market. Its clients include around 500 British outlets of giant American coffee chain Starbucks and the takeover will give Greencore an additional distribution channel to complement its contracts with some of Britain's biggest grocery retailers.

Chief executive David Dilger said yesterday's developments were important steps in Greencore's evolution and marked the company's first acquisition since the mammoth takeover of British food group Hazlewood in 2001.