Ireland: Malt recovery drives ingredients growth for Greencore

Greencore Group plc, one of Europe's leading convenience food producers, announces a strong performance for the half year ended March 30, 2007 and good prospects for the remainder of the year, PRNewswire reported May 31.

Highlights

- Group operating profit (pre-exceptionals) up 24% to EUR 40.0m

- Profit before tax (pre-exceptionals) up 38% to EUR 35.4m

- Continuing adjusted EPS* up 32% to 12.1 cent (total adjusted EPS* including discontinued Sugar operations for the first half of FY06 was 13.6 cent)

- Continued progress in Convenience Foods division

- 80% of Group operating profit

- Turnover growth of 8.2% to EUR 478m

- Operating profit growth of 5.0% to EUR 31.8m

- Positive outlook for second half of FY07

- Strong Malt recovery driving Ingredients, Agribusiness and Related Property division

- 305% increase in continuing operating profit to EUR 8.2m

- All ingredient businesses delivered turnover and operating profit growth

- Net finance costs reduced by 32%

- Full year adjusted EPS* outlook ahead of current market consensus of 25.8 cent by circa 10%

- Continued focus on the strategic development of our category, channel and geographic positions

* Before exceptional items, inter-company foreign exchange gains/losses and the movement in the fair value of all derivative financial instruments and related debt adjustments.

"We are delighted with these results, Group Chief Executive David Dilger said. “They reflect the significant momentum evident in every part of our business. In a demanding convenience food market, we continue to deliver strong sales and profit performance. Our Malt business has bounced back strongly and we believe we are adding real value to our significant property assets. As our businesses continue to progress, we are confident that Greencore will deliver a strong performance for the full year."

About Greencore

- One of Europe's leading producers of convenience foods, as well as an established ingredients and agribusiness supplier with operations in Ireland, the UK, the Netherlands and Belgium

- Europe's largest sandwich manufacturer, producing more than 200 million sandwiches per annum

- The UK's largest Christmas cake manufacturer, with a 33% market share

- The UK's largest producer of customer-branded mineral water, selling 190 million units per annum

- The leading malt producer in Ireland, the UK and Belgium

- Significant property assets in Ireland and the UK


Greencore has performed strongly in the first half of FY07, with significant progress evident in all parts of the Group.

The Ingredients, Agribusiness and Related Property division has made excellent progress in the first half of FY07. Operating profits from continuing operations were EUR 8.2m, a rise of 305%, albeit from an unsustainably low level in FY06. Turnover from continuing operations has risen 19.5% to EUR 155m, with good progress evident in all businesses. Central to this uplift has been the strong recovery of our Malt business. Global malt markets have experienced a significant recovery, reflecting a better balance between demand and capacity, continued concerns regarding the availability of quality malting barley and a more benign energy pricing environment. These industry developments, allied to the positive impact of the changes we delivered in our Malt business in FY05 and FY06, as well as excellent operational and commercial performance, have driven a significant but much needed profit improvement in this business in the first half of FY07. In addition, the Group's property team has continued to make progress in adding value to our significant property assets.

The Group's net finance charge for the period has been reduced by 32% to EUR 5.4m, reflecting both an improvement in the net pension financing credit from the Group's defined benefit pension schemes and income arising on the increase in the present value of EU aid receivable. The Group's cash position has improved with comparable net debt at March 30, 2007 totaling EUR 393m, a reduction of EUR 30m on the comparable period last year.

The board of directors is recommending that the interim dividend be maintained at the prior year level of 5.05 cent per share.

Outlook

The performance and prospects for Convenience Foods continue to be encouraging. Despite an inflationary raw material and labor cost environment and the negative impact of the fire at Manton Wood, we expect to deliver good progress in Convenience Foods this year and believe the division is well positioned for further growth.

The anticipated recovery in global malt markets is now established and we are pleased with how Greencore Malt is performing in this environment. We expect that the current performance of the business will return Greencore Malt to acceptable levels of profitability and will deliver a strong profit improvement in FY07 and beyond.

Review of Operations

The Ingredients, Agribusiness and Related Property division has made a very strong start to the year. Operating profits from continuing operations are up 305% to EUR 8.2m, driven by turnover growth of 19.5% and much needed improvements in margin performance. All our ingredient businesses have delivered significant sales and operating profit growth. Malt accounts for almost 60% of divisional turnover and the strong recovery of that business has been central to the divisional performance in the first half of the year. We believe that the Group's property team has made considerable progress during the first six months of the year in adding value to our significant Related Property sites.

Malt Recovery

The anticipated and much needed recovery in the malt industry cycle began to emerge in the late summer of 2006 and has continued into 2007. The drivers of this recovery are:


- A better balance between industry capacity and demand:

Globally, the combination of robust beer consumption and a slowdown in the growth of malt capacity has led to a better balance between supply and demand in global malt markets. The restructuring of our Malt business in FY05 and FY06 played a significant part in delivering this balance within the UK and Ireland (markets where Greencore is the clear industry leader).

- A more benign energy price environment:

Malt is an energy-intensive industry and energy inflation of more than 50% had a significant impact on industry performance in FY05 and FY06. Whilst energy prices remain high, the inflationary pressures of recent periods were not a factor in the period under review.

- Concerns regarding barley quality and availability:

A catalyst for industry recovery was the reduction in availability of quality malting barley across global malt markets, a trend that became evident in late summer 2006. This barley scarcity was driven by a combination of reduced barley sowings (with farmers devoting more land to other uses) and poor harvests across the key barley markets. This drove up barley and malt prices as customers tried to secure the raw materials necessary for beer and whiskey production. Current indications are that concerns regarding the availability of quality barley across the key global markets may extend into 2008.

Helped by restructuring investments in FY06, Greencore Malt's operational efficiency and excellent performances across its three core geographies have enabled the business to capitalize on these industry changes and to deliver significant but necessary operating profit improvements in the first half of FY07.

Financial review

The results have been prepared in accordance with International Financial Reporting Standards (IFRS).

Group operating profit (pre-exceptionals) of EUR 40.0m grew 24% compared with the first half of last year. Strong profit before tax (pre-exceptionals) growth of 38% to EUR 35.4m also reflects a reduced net finance charge, driven by (i) an increase in the net pension financing credit to EUR 5.1m (versus EUR 3.7m in the first half of FY06), (ii) a benefit of EUR 1.2m related to income arising on the increase in the present value of EU aid receivable and (iii) a net gain of EUR 3.6m (versus EUR 3.4m in the first half of FY06), resulting primarily from the impact of marking-to-market our trading derivatives. Continuing adjusted EPS for the first half of FY07 (stripping out exceptional items and the EUR 3.6m gain, primarily resulting from marking-to-market our trading derivatives) was 12.1 cent versus 9.2 cent (stripping out discontinued Sugar and related activities) in FY06. This is based on a weighted average number of ordinary shares of 198.6m in the period (first half of FY06: 195.5m).

Comparable net debt (excluding the impact of marking-to-market all derivative financial instruments and related debt) at March 30, 2007 was EUR 393.0m. This is a reduction of EUR 30.3m from March 2006, reflecting, in part, an improved working capital position following the Group's exit from sugar processing. The underlying focus on cash generation remains in place. Net interest costs on comparable net debt were EUR 15.4m (first half of FY06: EUR 15.2m).

The Group's tax charge on continuing operations (excluding associates) was EUR 7.0m. The effective tax rate on continuing operations was 22.5%. The amount of cash taxation continues to be well below the tax charge.

In the period under review, the Group made an exceptional gain (net of tax) of EUR 3.1m from the disposal of agri-businesses whose activities were closely related to sugar processing.

Significant capital investment was made in the period. Capital expenditure amounted to EUR 22.5m of which 85% was invested in Convenience Foods.

The fair value of total plan assets relating to the Group's defined benefit pension schemes (excluding associates) increased to EUR 561.2m at March 2007 from EUR 539.9m at September 2006. The present value of total pension liabilities for these schemes increased to EUR 596.4m from EUR 591.5m over the same period. This is reflected in a reduction in the net pension deficit (before related deferred tax) to EUR 35.2m at March 2007 (from EUR 51.6m at September 2006). The primary Irish scheme, the Greencore Group Pension Scheme, had a surplus (before related deferred tax) of EUR 46.4m.

Malt business restructuring

Greencore Malt closed three maltings during 2005 and continued restructuring this business during 2006 with EUR 4.6m of exceptional costs incurred in relation to that restructuring.

Malt legal settlement

The Group settled an outstanding claim related to Greencore Malt at EUR 4.9m (net of costs).

Dividends

An interim dividend of 5.05 cent (2006: 5.05 cent) per share is payable on October 5, 2007 to the shareholders on the Register of Members as of June 8, 2007. The ordinary shares will be quoted ex-dividend from June 6, 2007. The dividend will be subject to dividend withholding tax, although certain classes of shareholders may qualify for exemption.

The liability in respect of this interim dividend is not recognized in the balance sheet of the Group for the half year ended 30 March 2007 because the interim dividend had not been approved at this balance sheet date (but was subsequently declared by the directors of the Company).

Earnings per ordinary share

The calculation of the Group's basic earnings per ordinary share for continuing operations is based on a profit of EUR 27.6m (H1 2006: profit of EUR 19.6m; full year 2006: profit of EUR 49.0m) and on 198.6m ordinary shares (H1 2006: 195.5m; full year 2006: 196.2m) being he weighted average number of ordinary shares in issue in the period. The calculation of basic earnings per ordinary share from discontinued operations is based on a profit of EUR 3.1m (H1 2006: loss of EUR 35.1m; full year 2006: loss of EUR 49.5m).

Diluted earnings per ordinary share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potentially dilutive ordinary shares. The calculation of the diluted earnings per ordinary share for continuing operations is based on a profit of EUR 27.6m (H1 2006: profit of EUR 19.6m; full year 2006: profit of EUR 49.0m) and on 199.1m ordinary shares (H1 2006: 196.2m; full year 2006: 196.9m) being the weighted average number of ordinary shares in issue assuming conversion of all potentially dilutive ordinary shares. The calculation of diluted earnings per ordinary share from discontinued operations is based on a profit of EUR 3.1m (H1 2006: loss of EUR 35.1m; full year 2006: loss of EUR 49.5m).

The Group's adjusted earnings per share is after the elimination of the exceptional items reported in note 3, inter-company foreign exchange gains/(losses) and the movement in the fair value of derivative financial instruments and related debt adjustments. The Group separately presents adjusted earnings per share for continuing operations and discontinued operations.

The calculation of adjusted earnings per ordinary share from continuing operations is based on a pre-exceptional profit of EUR 27.6m (H1 2006: EUR 21.3m; full year 2006 EUR 47.2m) adjusted for inter-company foreign exchange and the fair value of derivative financial instruments and related debt totaling EUR 3.6m (H1 2006: EUR 3.4m; full year 2006: EUR 5.7m). The calculation of adjusted earnings per ordinary share from discontinued operations is based on a pre-exceptional profit of nil (H1 2006: EUR 8.6m; full year 2006 EUR 19.4m). The weighted average number of ordinary shares in issue during the period was 198.6m (H1 2006: 195.5m; full year 2006: 196.2m).

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