Greencore looks ahead as beet crop dropped

GREENCORE’S decision not to proceed with a sugar beet crop this year, while expected, is still a shock to the system.

Carlow sugar factory was founded in 1926 and the other three plants, including Mallow, Tuam and Thurles followed on shortly after. The developments were hugely significant for the economy and Irish agriculture.

It has been suggested that if relationships between farmers and Irish Sugar owners, Greencore Group, were better, one last season might have been salvageable for producers.

But growing competition in EU sugar markets and the 11.6% reduction in Ireland’s national quota made the decision to call a halt in May that bit easier to make.

The exit will result in €10 million of lost earnings, before interest and tax, from the sugar and agri division in the current year, resulting in earnings falling by 12% to 31 cent, from 35.2c in 2005.

It is also going to be a year of further write-offs by Greencore and the 2006 figures will include a net exceptional charge of €44m, based on the company’s own estimates.

These figures assume Greencore will secure 90% of the EU compensation package or €131m of the €146m earmarked by Brussels for the sector in Ireland.

Some believe Greencore could have a battle on its hands on this issue, despite legal opinion suggesting it is entitled to the €131m figure..

Greencore has been spinning that line for some time but NCB Stockbrokers have publicly questioned that assumption.

Farmers protesting outside Jury’s in Ballsbridge during the recent annual general meeting of Greencore held placards up demanding “Hands off our cash”.

Whatever about their interest in another beet season - and a lot of growers in the southern region were keenly interested - they were clear on the day that cash and compensation was the major issue now.

Expect the IFA lobby to put huge pressure on Agriculture Minister Mary Coughlan to skew much more of that compensation package into the pockets of beet growers.

Some believe it is just a question of how much and the reality is that Greencore could face a bigger hole in its accounts before the final curtain comes down on the sugar sector in Ireland.

In the overall scheme of things, the politics of the situation is probably more interesting, but the real debate now shifts to the future prospects for the group.

While the loss of nearly €25m a year in operating profits is a significant hit for the company, being rid of the aggravation of dealing with farmers will help make life easier for the suits.

Once the sugar question is finally put to bed the group will have no where to hide. Its sandwich, sauces and chilled convenience foods are the future of the group.

It also holds strategic positions in all of those categories and is the number one supplier to many of the top supermarket chains across Britain.

All of that business is British-based and with Irish Sugar about to exit stage left Greencore is about to start a new era where the bulk of its profits are generated in that market.

As markets go, the British grocery market is fiercely competitive, with giants like Wal-Mart and Tesco putting huge pressure on supplier margins.

It is a time of rapid change in the sector and as food companies merge, pressure is mounting on the supply chain to create greater scale.

Britain has always been a notoriously difficult market and to stay ahead of the pack is not easy.

In that context, speculation is mounting that Greencore may become a takeover play as mergers and acquisitions intensify in the food sector.

But analysts suggest that at €3.17, the takeover factor is already taken into account in the share price.

There is a distinct feeling out there that management still have to deliver on the Hazlewood acquisition, in which it has invested so much time and effort since it was acquired in late 2000.

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