Final Results
Greencore Group PLC
05 December 2006
PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR ENDED 29 SEPTEMBER 2006
Greencore Group plc, one of Europe's leading convenience foods producers, today
announces a strong performance for the year ended 29 September 2006.
HIGHLIGHTS
• Transformation from a predominantly Irish agribusiness to a leading
European convenience foods producer completed
• Strong performance in Convenience Foods - comprising 92.4% of continuing
Group operating profits
- Operating profit growth of 5.7% to Euro69.0m
- Turnover growth of 8.3% to Euro901.4m
- Strong operating margins of 7.7% (FY05: 7.8%), despite more than
Euro5m of energy cost increases
- Excellent second half sales (up 8.4%) and margin (8.4%) performance
• Fundamentally reshaped Ingredients, Agribusiness and Related Property
division:
- Operating profits (including discontinued operations) of Euro27.6m
(FY05: Euro36.7m)
- Decision taken to exit sugar processing in Ireland
- A decline in Malt performance, but a positive trajectory already in
place for FY07
- Exciting developments and momentum in the management of Group
property assets
• Net exceptional charge of Euro67.1m, principally due to costs associated
with the exit from sugar processing
• Adjusted EPS(1) of 31.1 cent (FY05: 32.5 cent)
• Final dividend maintained at 7.58 cent
• Comparable net debt of Euro385.4m, a reduction of Euro14.3m since
September 2005 and a reduction of Euro37.9m since March 2006, despite
one-off sugar restructuring costs.
• Positive outlook for FY07 and beyond
Commenting on the results, David Dilger, Group chief executive officer, said:
'Greencore has been transformed in recent years and is now one of Europe's
leading producers of convenience foods. The performance of our Convenience
Foods division in 2006 has been excellent, with sales growing at twice the
market rate and operating margins broadly maintained, despite significant
inflationary cost pressures.
'The strength of our Convenience Foods business has substantially mitigated the
negative impact of EU sugar regime reform, a reform that not only significantly
reduced sugar profits in 2006, but led us to exit sugar processing entirely.
'The Group is well positioned to deliver substantial value to shareholders over
the coming years primarily through continued profit growth and cash generation
in Convenience Foods. The Group also has exciting plans to unlock the value
contained in our property portfolio.'
(1)Before exceptional items, inter-company foreign exchange and the marking to
market of all derivative financial instruments and related debt
For further information, please contact:
David Dilger
Group Chief Executive +353 1 605 1045
Patrick Coveney
Chief Financial Officer +353 1 605 1018
Eoin Tonge
Group Capital Markets Director +353 1 605 1036
Billy Murphy or Anne Marie Curran
Drury Communications +353 1 260 5000
Rory Godson or Victoria Brough
Powerscourt +44 207 236 5615
About Greencore
• Greencore is one of Europe's leading producers of convenience foods as
well as an established ingredients and agribusiness supplier with operations in
Ireland, UK, The Netherlands and Belgium
• Greencore is Europe's largest sandwich manufacturer, producing more
than 200 million sandwiches per annum
• Greencore is the UK's largest Christmas cake manufacturer with a 31%
market share
• Greencore is the UK's largest producer of customer branded mineral
water with 180 million units per annum
• Greencore is the leading Malt producer in Ireland, UK and Belgium
• Greencore retains significant property assets in Ireland and the UK
SUMMARY
The year under review has been a key period in the transformation of Greencore.
The end of sugar processing in Ireland means that Greencore has now completed
its transformation from principally an agribusiness into one of Europe's leading
convenience foods companies.
The Convenience Foods division continues to perform strongly with operating
profits up 5.7% to Euro69.0m. This growth was underpinned by turnover growth of
8.3%, more than twice the underlying total food market growth rate of 3.4%(2),
whilst keeping operating margins broadly in line with the prior year level (7.7%
versus 7.8% in FY05). This margin performance was achieved despite divisional
energy cost increases of more than Euro5m year on year. The division benefited
from excellent business performance in the second half of the year, when
operating profits grew by 8.6%.
This result reflects a clear strategy and strong operational performance:
• Leadership of growing, concentrated product categories: Greencore has
No.1 or No.2 positions in all of the product categories where it competes. In
addition, in FY06 seven of our nine businesses grew above their respective
market growth rates;
• Broad channel exposure: Sales to non-multiple customers grew by 26%
in FY06;
• An increased commitment to branded products: Greencore has developed
an emerging set of licensed and owned brands that, over time, will become more
central to our business. In FY06, 'branded' products accounted for 12% of
sales;
• Relentless focus on Total Lowest Cost ('TLC'): Real operational cost
reduction that totalled more than 2% of sales;
• Aggressive product development and mix management: More than 50% of
our FY06 product range is less than one year old - this delivers consumer
excitement and maintains margin for ourselves and our customers;
• Well-invested food facilities delivering excellent operational
performance: Customer service levels averaged 99% across the division in FY06.
The Ingredients, Agribusiness and Related Property division delivered total
operating profits of Euro27.6m, consisting of continuing operating profits of
Euro5.6m and discontinued operating profits of Euro22.0m. The year under review
saw dramatic developments in this division. Regulatory change in the EU sugar
regime posed an insurmountable challenge to the competitiveness of the sugar
industry in Ireland. The Group responded to this challenge by committing early
to exit sugar production in Ireland and strongly defending the Group's
entitlement to restructuring aid under EU law.
As anticipated, over-capacity in European malt markets and significant energy
price inflation adversely impacted on the performance of our Malt business. We
are, however, currently seeing a significant improvement in the malt cycle that
commenced in the last quarter of FY06. During the year, we also significantly
increased our focus on unlocking the value from the Group's property assets.
The Group continues to prioritise cash generation. Despite incurring
exceptional cash costs, primarily associated with the exit from sugar,
comparable net debt at the year-end totalled Euro385.4m, an improvement of
Euro14.3m on September 2005 and an improvement of Euro37.9m on March 2006.
DIVIDEND
The directors recommend a final dividend of 7.58 cent. If approved by
shareholders, this will result in a total dividend of 12.63 cent which is in
line with last year's level.
(2)Source: TNS
OUTLOOK
Greencore is now a fundamentally different business to that of twelve months ago
with its key focus now on driving forward its successful convenience foods
business.
Despite significant increases in input price inflation, we believe that the
strong strategic and operational model that we have put in place positions
Convenience Foods well for continued growth through FY07 and beyond.
A recovery in the EU malt market should deliver a trading improvement in the
Malt business and that, allied to the exciting property opportunities that we
are pursuing, represents a positive outlook for Ingredients, Agribusiness and
Related Property.
The Board believes the Group is well positioned to deliver substantial value to
shareholders over the coming years.
OPERATIONAL REVIEW - Convenience Foods
2006 2005 Change
Eurom Eurom
Turnover (Continuing Operations) 901.4 832.6 +8.3%
Operating Profit (Continuing Operations)* 69.0 65.2 +5.7%
* before exceptional items
The Convenience Foods division accounted for 92.4% of continuing operating
profits in FY06. The division performed strongly to deliver full year turnover
growth of 8.3%, operating profit growth of 5.7% and healthy operating margins of
7.7%, despite challenging pricing and input cost environments. The demanding
objectives that we have set in the key areas of operational cost reduction,
channel and customer diversification, innovation and operational performance
continue to be achieved.
Financial highlights for the year include:
• Strong margin performance
The division delivered operating margins of 7.7% for the full year,
broadly in line with the FY05 figure of 7.8%. This was achieved despite energy
cost increases, year on year, of more than Euro5m - equivalent to 60 basis
points of margin reduction.
• Turnover growth at more than twice underlying rate
The division has continued to deliver strong organic growth. Turnover
growth was 8.3% for the year, a level that is more than double the overall food
market growth rate of 3.4%(2).
• Strong second half performance
The division performed better in the second half of FY06. As highlighted
in the Group's interim statement of 7 June 2006, operating profit growth of 2.2%
for the first half of the year was achieved against a very strong comparative
period. Strong trading through the summer against a more typical comparative
period led to operating profit growth of 8.6% in the second half - driven by
sales growth of 8.4% as well as modest operating margin improvements.
• Robust performance across the full division
The strong sales performance extended across the division, with seven of our
nine category businesses growing above their relevant category growth rate(2).
The main exception was Greencore's Grocery business, which delivered a solid
performance relative both to historic levels and our expectations, but suffered
when compared with its FY05 performance - a period in which its successful
response to a fire at a competitor's facility helped deliver above normal sales
and profit.
The Board is pleased with the financial performance of Convenience Foods in
FY06. The division has now reported five consecutive half-year periods of
operating profit growth. This consistent underlying delivery reflects both the
clear choices that the Group has made on where it competes and the strong
capabilities that we have built across the businesses to successfully execute
our strategy.
1. Well chosen categories
Greencore believes in the fundamental attractiveness of the convenience foods
market - it is at the core of our strategy. We actively seek out No.1 or strong
No.2 market share positions in product categories with concentrated ownership.
In seven of our nine convenience foods categories we hold the No.1 position and
we are the No.2 player in the other categories(2). Furthermore, we compete in
categories that are growing faster than the overall market and that deliver high
economic returns both for our customers and for Greencore.
Greencore's success, to date, has been driven by these specific market, segment
and format choices. For example, in Mineral Water, where Greencore leads the
customer brand market with a 34% market share, annual market growth was 6% and
our growth was 10%. In Cakes, where the overall market grew at 6%, the
Celebrations Cakes segment grew at 13% and our growth was nearly 18%(2).
(2)Source: TNS
2. Balanced channel exposure
A core feature of the Greencore model is the balance that we seek across
channels and customers. In FY06, two thirds of our business was conducted
through the multiple channel. Within that channel, the relative share of
individual customers has remained broadly stable and reflects the market share
of those retailers in the UK grocery market. The quality of our relationships
with these customers remains central to our business model. Excellent customer
service underpins these relationships with customer service levels across the
Group averaging 99% for the year.
We are also committed to building a material non-multiple business reflecting
the fact that nearly a quarter of total food and beverage spend in the UK is now
focused on out-of-home consumption(2). This is a dynamic and vibrant channel
characterised by higher levels of growth and greater movements of business than
the multiple channel. In FY06, our sales to non-multiple channels grew by 26%.
Our Greencore Food-To-Go operation drives much of this strategy. In FY06, this
business delivered individually ordered fresh sandwiches and other chilled
products to approximately 7,000 individual outlets six days per week.
3. A commitment to being the lowest cost competitor
Greencore is committed to being the Total Lowest Cost (TLC) competitor in
convenience foods. The TLC imperative is as much about culture and leadership
as it is about process and efficiency. Over the past three years, this culture
has been deeply embedded at all levels of our business. In FY06, we had nearly
200 TLC initiatives running across the division. Taken together, these
initiatives have delivered operational cost improvements that total in excess of
2% of sales, or more than Euro18m of divisional operating profits.
Included in the TLC programme this year were a number of initiatives across all
categories focused on waste reduction. As a result, total waste across the
division reduced by more than 10%. In addition, the division's 'Lean Greencore'
programme saw approximately 600 process leaders complete training in lean
principles that, in turn, directly resulted in nearly 100 new cost reduction
projects. This was supported by many discrete projects and investments directed
at increased automation, productivity improvement and efficiency enhancement.
Purchasing efficiency is also critical to our TLC effort and this year saw
nearly 350 individual initiatives (in addition to the main TLC initiatives) to
drive savings through supplier concentration as well as product and packaging
re-engineering.
These operational and efficiency improvements enabled us to offset input price
inflation, as well as improve terms with our customers, without sacrificing our
commitment to quality and margin performance. We expect to deliver similar
levels of cost reduction going forward.
4. Aggressive innovation, especially in the areas of premium and health
Innovation is the lifeblood of our convenience foods business. It is how we
deliver excitement to consumers and customers while sustaining margins. At the
end of September 2006, more than 50% of our portfolio comprised products that
are less than one year old. For example, in response to significant changes in
consumer and customer preferences in the Chilled Meals category, we have
replaced or refreshed all of our lines, the majority being new products and the
remainder being changes in packaging.
Health remains important to the Group's innovation agenda with various
initiatives delivering cleaner ingredients and healthier choices. One example
is in the area of salt reduction where we have reduced the average salt content
in our quiche and prepared meal products by 38% and 31% respectively.
2Source: TNS
The license agreement that we put in place with WeightWatchers(R) in June 2005
has been a particularly important initiative. Greencore has since launched a
range of chilled prepared meals produced under license from WeightWatchers(R),
and over the course of FY06, we have built distribution through all of the major
UK and Irish retailers. In a little over a year, we have built a retail brand
with strong margins, delivering retail sales of approximately Euro25m. Already,
we have a 10% market share in the total healthy
chilled meals sector, including the number one selling individual product. We
have already begun to roll out this brand to a number of our other convenience
foods categories.
5. A decentralised model that bestows 'true ownership' to the businesses
Greencore businesses 'own' their P&L and Cash Flow statements - that is the
'Greencore way'. This enables our front-line leaders to make the daily
trade-offs between commercial, operational and financial demands necessary to
drive profit and cash performance.
6. Robust financial discipline
Rigorous management of our resources, in particular our fixed and working
capital investments, is a core feature of how Greencore competes. There was
Euro34.2m invested in Convenience Foods in FY06. This spend is tightly managed
and focuses on driving efficiency improvement projects, such as our new
automated lines in Sandwiches and the real-time on-line data capture systems in
Cakes, or facilitating entry into new market sectors, such as our move into the
filled baguette, snack salad and WeightWatchers(R) prepared meal markets.
The relentless focus on these strategic and operational imperatives is critical
to our continued success, given some significant market challenges:
• A challenging retail environment
UK multiples continued to drive retail price deflation across many categories,
particularly in the first half of this year, placing even greater importance on
our cost reduction and innovation processes. While there is some recent
evidence of retail price inflation returning to selected food categories, the
overall pricing environment remains challenging.
• Significant input price inflation
The energy price increases of 2005 and 2006 have been widely reported across the
food industry. In FY06, the division incurred energy cost increases of more
than 50% (adding more than Euro5m to our cost base). We do not anticipate
similar levels of price inflation in FY07. However, farm gate prices increased
sharply in the later part of the year impacting the cost of a wide range of raw
materials and commodity ingredients. To absorb these inflationary pressures, we
are pursuing a combination of further operational cost reduction and, where
appropriate, selected price increases.
OPERATIONAL REVIEW - Ingredients, Agribusiness And Related Property
2006 2005 Change
Eurom Eurom
Turnover (Continuing and Discontinued 450.5 492.5 -8.5%
Operations)
Operating Profit (Continuing and 27.6 36.7 -24.7%
Discontinued Operations)*
* before exceptional items
In the year under review, the Ingredients, Agribusiness and Related Property
division was subjected to unprecedented change. The Group has exited sugar
processing, with FY06 representing the final year of operations. This brings an
end to more than 80 years of sugar processing in Ireland. As anticipated,
over-capacity in European malt markets and significant energy price inflation
adversely impacted on the performance of Greencore Malt. Management of the
Group's 970 acres of property assets has been refocused under Board level
leadership, delivering a positive profit contribution in FY06 and creating a
strong platform for significant value enhancement in the future.
The division delivered total operating profit (pre-tax) of Euro27.6m, consisting
of continuing operating profits of Euro5.6m and discontinued operating profits
of Euro22.0m. This represents a fall of Euro9.1m (24.7%) on FY05 levels, driven
by upheavals in the EU sugar market both in anticipation of and following the
introduction of the new EU sugar regime, and by a significant fall in profits at
Malt, which absorbed energy cost increases of approximately Euro4m.
1. Exit from sugar processing
The decision of the EU Council of Ministers in November 2005 effectively brought
an end to the sugar industry in Ireland. In March 2006, Greencore announced its
intention to exit sugar processing and put in place a process to wind down its
sugar operations, prepare a restructuring plan and claim its entitlement to
restructuring aid in accordance with EU regulations. In July 2006, the Irish
Government announced its decision in relation to the allocation of the
Euro145.5m of EU restructuring aid (in the context of a separate additional
Euro123m to be paid to beet growers over the next seven years as part of the
single farm payment scheme and Euro44m in diversification aid also allocated for
growers). Greencore rejected that decision and was granted leave to seek a
judicial review of the decision in the High Court. On 31 July 2006, Greencore
formally applied for restructuring aid by renouncing its sugar quota and
submitting a restructuring plan to the Irish Government.
Greencore subsequently agreed with the Irish Government that, conditional upon
Greencore's restructuring plan being approved, the Group would amend the plan to
reflect any lawful decision of Government taken pursuant to the outcome of our
legal proceedings. On 19 September 2006, the Government deemed Greencore's
restructuring plan to be eligible for restructuring aid. This decision ensures
that the payment of EU aid can begin in June 2007. Legal proceedings continue
with a trial date likely to be fixed shortly.
As the Board set out in its Interim Statement, the financial effects of exiting
sugar are severe.
• Profit impact
Pre-tax profits from total sugar operations totalled Euro22.0m (including
related activities also discontinued by the Group), a fall of Euro5.3m on FY05
but better than expected due to a stronger than anticipated operating and
commercial performance.
• Gross costs of exit
In preparing our detailed restructuring plan, we have been able to estimate exit
costs more precisely than we could when we issued our Interim Statement. Gross
exit costs are now expected to total Euro164.8m (net of tax), a modest decline
on the Euro167.5m figure indicated in the Interim Statement. Of these costs,
Euro115.0m reflects the write-off of Greencore Sugar assets with the remainder
largely cash costs and principally associated with redundancy, demolition,
environmental and remediation. Cash costs of Euro11.2m were incurred in FY06.
• Receipt of EU restructuring aid
These exit costs will be partially offset by the receipt of EU restructuring
aid. The Board (having taken independent legal, economic and financial advice)
believes that Greencore is entitled to Euro130.9m of EU aid - representing 90%
of the EU aid available to Ireland. However, this entitlement is currently
subject to the outcome of the judicial review process. The FY06 financial
statements recognise an asset of Euro95.9m of EU aid (reflecting the present
value of the Euro98.4m allocated to Greencore in the Government's decision of
July 2006). In addition, the financial statements disclose a contingent asset
of Euro32.5m (representing the difference between the Board's view of
Greencore's entitlement and the Government's decision). The EU restructuring
aid will be paid in two tranches - 40% in June 2007 and 60% in February 2008.
Note 4 to the financial statements sets out the accounting treatment for the net
costs associated with the exit from sugar processing.
Looking forward, Greencore remains committed to serving its sugar customers. Our
joint venture with Nordzucker AG, Sugar Partners, started to trade in October
2006 taking on all the customer commitments of Greencore Sugar and preserving
much of the value of the Siucra and McKinney brands. However, the contribution
to Group profits from this activity is not expected to be substantial.
2. Malt performance and restructuring
Malt experienced a very difficult year in FY06. International malt prices
reached a low point in the cycle last winter driven, in large part, by industry
over-capacity. That negative pricing impact, allied to energy cost increases of
approximately Euro4m, had a negative impact on the profitability of the Group's
malt business. Last year, we took the step of restructuring our portfolio of
malting assets, resulting in the closure of three maltings. This year, we have
restructured our core operations in the UK and Ireland, the net costs of which
totalled Euro4.5m. The Malt business also benefited from a legal settlement
receipt of Euro4.9m (net of costs). Both the restructuring costs and legal
settlement have been treated as exceptional items (see Note 4).
The combination of a better balance between supply and demand, a weak barley
harvest across Europe affecting malt prices and more stable energy prices has
led to a recovery during the final quarter of FY06. This industry recovery,
along with our strong operational capability, high quality malting assets and
leading market positions (clear No.1 market share position in Ireland, UK and
Belgium), should deliver a considerable trading improvement in FY07.
3. Property
Greencore has always been involved in developing and trading surplus property
assets within the Ingredients and Agribusiness area. This continued in FY06
with the disposal of a property to a related party and the sale of a surplus
property asset within the Malt business. Cumulatively, profits on the disposals
of surplus properties were up modestly on those delivered in FY05.
The Group retains significant property assets. The management of, and approach
to, our property assets changed during the year. We have centralised the
management of all significant properties under the Group development director.
In addition we have put in place a set of 'site-specific' expert teams and also
enhanced the quality of our central property team, now operationally led by a
property specialist. Our property team is focused on maximising the value
available to shareholders from all of the Group property assets.
The Group has three primary sets of property in Ireland:
Carlow - 'Carlow Gateway' (333 acres): In November 2006, the Group submitted a
comprehensive master plan to Carlow and Laois County Councils proposing a
transformation of the former Irish Sugar site into an exciting mixed use
development for the town of Carlow, 'Carlow Gateway'. This submission was made
at the invitation of the respective Councils as part of their strategic plans
for the area. We understand that the Councils will make a decision on their
strategic plans and any associated rezoning decisions during FY07.
Mallow (396 acres): Cork County Council recently sought submissions for a
Special Local Area Plan for the town of Mallow and its environs. As part of
that process, we expect to submit a comprehensive master plan for our former
sugar processing site in Mallow. As in the case of the Carlow property, we
understand the Council will make a decision on their Local Area Plan during
FY07.
Irish ingredients and agri-business (approximately 120 acres): The Group has
more than 15 smaller sites in Ireland that offer potential for added value. For
example, in FY06 the Group successfully brought one of these sites
(approximately 40 acres) through the first phase of its development cycle. Our
property team is now working on a detailed planning application as part of the
next development stage in relation to this site. We continue to tightly monitor
the economic performance and potential of all of these properties relative to
their opportunity cost.
In addition, the Group has 123 acres in North Littlehampton in West Sussex that
were part of the Hazlewood Foods acquisition. The North Littlehampton area is
one of 9 regions competing for a residential rezoning decision in West Sussex
and Greencore is leading a consortium of landowners to present a consolidated
landholding for rezoning the area. There is an extensive period of consultation
and engineering assessment to take place over the next two years. A decision on
the preferred options and selection of sites for potential zoning is due in
December 2008. There will follow a further period of two years to facilitate
submissions to the Secretary of State with formal adoption of a zoning decision
due in December 2010.
Operating profits in the Group's other ingredients and agribusinesses and the
Group share of profits from associates were modestly down.
FINANCIAL REVIEW
1. Basis of preparation
The results have been prepared in accordance with International Financial
Reporting Standards (IFRS). The Group issued the restatement of its 2005
financial information to IFRS on 5 May 2006. IFRS has resulted in the following
key changes to the Group income statement:
• Discontinued operations are now shown as one line item below taxation
• Pension accounting changes result in the Group recognising current
service costs as part of operating profit, with returns on assets and the
finance costs of liabilities being recognised in the finance income and finance
costs lines, respectively
• Financial derivatives must be marked-to-market, with most movements in
mark-to-market from one period to the next being recognised in the income
statement
• Goodwill is no longer amortised
• Dividends are no longer recognised until such time as they have been
approved
2. Earnings
Group operating profit (pre-exceptional) totalled Euro74.6m for FY06 (Euro74.7m
in FY05). Profit before tax (pre-exceptional) of Euro59.4m was up 11.6% on FY05
(Euro53.2m). This figure is inclusive of a net gain of Euro5.7m, primarily
resulting from the impact of marking-to-market our trading derivatives.
Our adjusted EPS for FY06 (stripping out exceptional items and the Euro5.7m gain
primarily resulting from marking-to-market our trading derivatives) was 31.1
cent versus 32.5 cent in FY05. This is based on a weighted average number of
ordinary shares of 196.2m (FY05: 193.3m).
3. Finance
Comparable net debt (excludes the impact of marking-to-market all derivative
financial instruments and related debt) at 29 September 2006 was Euro385.4m, a
reduction of Euro14.3m from the comparable September 2005 figure and a reduction
of Euro37.9m since March 2006. However, this debt movement reflects Euro15.0m
of one-off outflows primarily relating to the exit from sugar processing. The
underlying trajectory of cash generation remains in place.
Net interest cost on comparable net debt was Euro30.7m (FY05: Euro30.5m).
4. Taxation
The Group's tax charge on continuing operations (excluding associates) was
Euro11.4m. The effective tax rate on continuing operations increased to 22.5%
for the year, reflecting the significant share of Group profits earned in the
UK. The amount of cash taxation continues to be well below the tax charge.
5. Exceptional charges
The Group incurred exceptional charges (net of tax) of Euro67.1m in the period
under review (full details of which are contained in Note 4 to the Preliminary
Statement). This total charge comprises four separate areas:
(i) Sugar Euro68.9m (net cost) related to the exit from sugar
processing in Ireland
(ii) Malt Euro4.9m (net benefit) from legal settlement;
Euro4.5m (net cost) from restructuring of UK and Irish
operations
(iii) Chilled Sauces Euro2.0m (net cost) related to the exit from
the Chesterfield facility and the consolidation of that
business into a single site
(iv) UK Pension Euro3.4m (net benefit) reduction in pension liability
due to changes in design of pension benefits
6. Capital Investment
Significant capital investment was made in the period. Capital expenditure
invested in Convenience Foods amounted to Euro34.2m. There was a total
investment of Euro13.7m in our Ingredients, Agribusiness and Related Property
division driven, in part, by capital required to accomplish the final sugar
processing campaign.
7. Pensions
The fair value of total plan assets relating to the Group's defined benefit
pension schemes (excluding associates) increased to Euro539.9m at September 2006
from Euro494.2m at September 2005. The present value of total pension
liabilities for these schemes increased to Euro591.5m from Euro576.1m over the
same period. This is reflected in a reduction in the net pension deficit
(before related deferred tax) to Euro51.6m at September 2006 (from Euro81.9m at
September 2005). The Group has agreed funding proposals in place to address the
relevant deficits.
The primary Irish scheme, the Greencore Group Pension Scheme, had a surplus
(before related deferred tax) of Euro25.0m.
Consolidated Income Statement
Year ended 29 September 2006
2006 2005
Note Pre - Exceptional Total Pre - Exceptional Total
exceptional exceptional
Continuing operations Euro'000 Euro'000 Euro'000 Euro'000 Euro'000 Euro'000
Revenue 3 1,176,784 - 1,176,784 1,105,366 - 1,105,366
Cost of sales (826,666) (181) (826,847) (779,549) - (779,549)
Gross profit 350,118 (181) 349,937 325,817 - 325,817
Operating costs, net (275,508) 1,998 (273,510) (251,133) - (251,133)
Group operating profit 3 74,610 1,817 76,427 74,684 - 74,684
Finance income 7 35,929 - 35,929 33,179 - 33,179
Finance costs 7 (54,002) - (54,002) (58,202) - (58,202)
Share of profit of 2,848 - 2,848 3,559 - 3,559
associates after tax
Profit before taxation 59,385 1,817 61,202 53,220 - 53,220
Taxation (11,447) 10 (11,437) (9,386) - (9,386)
Result for the period from 47,938 1,827 49,765 43,834 - 43,834
continuing operations
Discontinued operations
Profit/(Loss) from 19,398 (68,903) (49,505) 20,600 (104,301) (83,701)
discontinued operations
Result for the financial 67,336 (67,076) 260 64,434 (104,301) (39,867)
period
====== ======= ======= ====== ======= ======
Attributable to:
Equity shareholders 66,620 (67,076) (456) 62,894 (104,301) (41,407)
Minority interests 716 716 1,540 - 1,540
-
67,336 (67,076) 260 64,434 (104,301) (39,867)
====== ======= ==== ===== ======= ======
Basic earnings per share
(cent)
Continuing operations 25.0 21.9
Discontinued operations (25.2) (43.3)
6 (0.2) (21.4)
===== =====
Diluted earnings per share (cent)
Continuing operations 24.9 21.8
Discontinued operations (25.1) (43.1)
6 (0.2) (21.3)
===== =====
Consolidated Balance Sheet
at 29 September 2006
2006 2005
Euro'000 Euro'000
ASSETS
Non-current assets
Intangible assets 353,897 353,814
Property, plant and equipment 385,771 484,595
Investment property 1,003 1,101
Investments in associates 8,216 6,012
Financial assets - 645
Trade and other receivables 56,508 -
Retirement benefit assets 24,981 6,598
Deferred tax assets 24,957 34,962
Total non-current assets 855,333 887,727
Current assets
Inventories 126,774 132,982
Trade and other receivables 154,324 135,460
Cash and cash equivalents 78,967 74,102
Available for sale financial assets 530 -
Derivative financial instruments 389 -
Total current assets 360,984 342,544
Total assets 1,216,317 1,230,271
======== =======
EQUITY
Capital and reserves attributable to equity
holders of the Company
Share capital 126,820 125,116
Share premium 104,137 97,489
Other reserves 2,572 1,944
Retained earnings (54,156) (31,054)
179,373 193,495
Minority interest in equity 3,572 4,382
Total equity 182,945 197,877
LIABILITIES
Non-current liabilities
Borrowings 433,657 473,541
Derivative financial instruments 32,043 -
Retirement benefit obligations 76,603 88,486
Other payables 11,818 8,836
Provisions for other liabilities and charges 14,422 14,732
Deferred tax liabilities 42,202 41,373
Government grants 1,182 1,452
Total non-current liabilities 611,927 628,420
Current liabilities
Borrowings 265 325
Derivative financial instruments 1,153 -
Trade and other payables 362,285 382,527
Provisions for other liabilities and charges 33,230 -
Income taxes payable 24,512 21,122
Total current liabilities 421,445 403,974
Total liabilities 1,033,372 1,032,394
Total equity and liabilities 1,216,317 1,230,271
======== =======
Consolidated Cash Flow Statement
Year ended 29 September 2006
2006 2005
Euro'000 Euro'000
Operating profit (pre-exceptional) 74,610 74,684
Profit on discontinued operations (pre-exceptional) 21,991 22,205
Non cash items:
Depreciation 35,509 40,306
Amortisation of intangibles 1,014 940
Employee share option expense 430 153
Amortisation of government grants (243) (606)
Changes in working capital (3,795) (14,822)
Other movements (3,611) (5,470)
Cash flows from operating activities (pre-exceptional) 125,905 117,390
Cash outflows related to exceptional items (15,011) (15,598)
Interest paid (32,767) (32,482)
Tax received / (paid) 395 (2,268)
Net cash inflow from operating activities 78,522 67,042
Cash flows from investing activities
Dividends received from associates 1,205 3,385
Purchase of intangible fixed assets - -
Purchase of property, plant and equipment (47,924) (57,393)
Acquisition of subsidiary - (15,245)
Disposal of property, plant and equipment - -
Disposal of subsidiary and associated undertakings - 9,158
Disposal of available for sale financial assets - 2,626
Interest received 2,139 1,379
Government grants (repaid) / received (27) 427
Net cash outflows from investing activities (44,607) (55,663)
Cash flows from financing activities
Proceeds from issue of shares 1,183 727
Decrease in borrowings (9,527) (3,908)
Decrease in finance lease liabilities (1,944) (366)
Dividends paid to equity holders of the company (17,470) (18,444)
Dividends paid to minority interests (1,586) (1,452)
Net cash outflows from financing activities (29,344) (23,443)
Net increase / (decrease) in cash & cash equivalents 4,571 (12,064)
Reconciliation of opening to closing cash and cash equivalents
Cash and cash equivalents at beginning of year 74,102 86,278
Translation adjustment 294 (112)
Increase / (decrease) in cash and cash equivalents 4,571 (12,064)
Cash and cash equivalents at end of year 78,967 74,102
Consolidated Statement of Recognised Income and Expense
Year ended 29 September 2006
2006 2005
Euro'000 Euro'000
Items of income and expense taken directly within equity
Currency translation differences 50 766
Actuarial gain / (loss) on Group defined benefit pension schemes 11,187 (30,754)
Deferred tax on Group defined benefit pension obligations (1,352) 6,419
Share of actuarial gain/(loss) on defined benefit pension schemes of associates (net) 490 (1,660)
Mark to market of available for sale financial assets (406) -
Cash flow hedges: -
Gains taken to equity 389 -
Transferred to profit and loss for the period (169) -
Deferred tax on cash flow hedge (66)
-
Net income / (expense) recognised directly within equity 10,123 (25,229)
Group profit / (loss) for the financial year 260 (39,867)
Total recognised income and expense for the financial year 10,383 (65,096)
====== ======
Attributable to:
Equity Shareholders 9,667 (66,636)
Minority Interests 716 1,540
Total recognised income and expense for the financial year 10,383 (65,096)
===== ======
Consolidated Statement of Changes in Equity
Year ended 29 September 2006
2006 2005
Euro'000 Euro'000
Total equity at beginning of year 197,877 281,044
Impact of adoption of IAS 32 & IAS 39 (7,414) -
At beginning of year as adjusted 190,463 281,044
Issue of share capital 8,352 7,574
Employee share options expense 430 153
Deferred tax on employee share option expense taken directly in equity (283) 257
Dividends (24,814) (24,378)
Movement in minority interests (870) (137)
Total income and expense for the year attributable to equity holders 9,667 (66,636)
Total equity at end of year 182,945 197,877
====== =====
NOTES TO THE FINANCIAL STATEMENTS
Year ended 29 September 2006
1. Basis of Preparation of Financial Statements under IFRS
The financial statements presented in this preliminary announcement have been
prepared in accordance with International Financial Reporting Standards (IFRS)
and International Financial Reporting Interpretations Committee (IFRIC)
interpretations endorsed by the European Union (EU) and with those parts of the
Companies Acts, 1963 to 2005 applicable to companies reporting under IFRS. The
financial statements, which are presented in euro, rounded to the nearest
thousand (unless otherwise stated), have been prepared under the historical cost
convention, as modified by the revaluation of property, plant and equipment
(these revaluations being considered 'deemed cost' at the date of transition to
IFRS), and the measurement at fair value of certain financial assets and
financial liabilities including, share options, available for sale investments
and derivative financial instruments. The carrying values of recognised assets
and liabilities that are hedged, are adjusted to record the changes in the fair
values attributable to the risks being hedged.
The financial statements for the year ended 30 September 2005, which were
prepared in accordance with the accounting policies generally accepted in the
Republic of Ireland (Irish GAAP) have, with the exception of IAS 32 Financial
Instruments: Disclosure and Presentation and IAS 39 Financial Instruments:
Recognition and Measurement, been restated under IFRS with effect from the
transition date.
As permitted under IFRS 1 First-time adoption of International Financial
Reporting Standards the Group applied the requirements of IAS 32 Financial
Instruments: Disclosure and Presentation and IAS 39 Financial Instruments:
Recognition and Measurement from 1 October 2005.
Full details of the accounting policies adopted by the Group on transition to
IFRS and of the impact on the reported results and balance sheet of the Group on
transition to IFRS, were published on 5 May 2006 and are available on the
Group's website www.greencore.com.
2. Approved IFRS
The Group's accounting policies under IFRS are based on the International
Financial Reporting Standards and Interpretations, issued by the International
Accounting Standards Board (IASB) and on International Accounting Standards
(IAS) and Standing Interpretations Committee interpretations, approved by the
predecessor International Accounting Standards Committee that have been
subsequently authorised by the IAS and remain in effect.
3. Segmental Reporting
The Group's primary reporting segment, for which more detailed disclosures are
made, is by class of business. The Group has two primary reporting segments,
(i) Convenience Foods and (ii) Ingredients, Agribusiness & Related Property.
Revenue Operating Profit
2006 2005 2006 2005
Euro'000 Euro'000 Euro'000 Euro'000
Continuing
Convenience Foods 901,443 832,554 68,967 65,242
Ingredients, Agri & Related Property 275,341 272,812 5,643 9,442
Total continuing 1,176,784 1,105,366 74,610 74,684
Discontinued
Convenience Foods - 76,095 - (5,064)
Ingredients, Agri & Related Property 175,161 219,676 21,991 27,269
Total discontinued (pre interest & taxation) 175,161 295,771 21,991 22,205
Associated Undertakings
Convenience Foods - - - -
Ingredients, Agri & Related Property 44,184 43,189 3,857 4,549
Total - associated undertakings (pre interest 44,184 43,189 3,857 4,549
& taxation)
4. Exceptional Items
Exceptional items are those that, in management's judgement, need to be
disclosed by virtue of their nature or amount. Such items are included within
the income statement caption to which they relate and are separately disclosed
in the notes to the consolidated financial statements.
The Group reports the following exceptional items (net of tax):
2006 2005
Euro'000 Euro'000
Continuing operations
Malt legal settlement (a) 4,930 -
Malt restructuring (b) (4,459) -
Pension curtailment gain (c) 3,365 -
Chilled Sauce business restructuring (d) (2,009) -
Total continuing operations 1,827 -
Discontinued operations
Fundamental reorganisation of Greencore Sugar (e) - (66,038)
Provision for loss on termination of operations (f) - (40,090)
Disposal of interest in subsidiary (g) - 1,827
Exit from sugar processing (h) (68,903) -
Total discontinued operations (68,903) (104,301)
Total exceptional costs (67,076) (104,301)
(a) Malt legal settlement
The Group settled an outstanding claim related to Greencore Malt at Euro4.9m
(net of costs).
(b) Malt restructuring
Following on from the closure of three maltings during 2005, Greencore Malt
focused on restructuring its core operations in both Ireland and the UK. The
exceptional loss represents the costs associated with this business
restructuring.
(c) Pension curtailment gain
In April 2006, a number of changes in benefit design were implemented in respect
of the Hazlewood Foods Retirement Benefits Scheme. These changes included a
shift to a career average revalued basis in respect of accrued benefits with
revaluation set at the level of limited price inflation. It also included the
integration of the scheme with the basic state pension in respect of future
service. These scheme amendments net of related costs resulted in an
exceptional pension curtailment gain (net of tax) of Euro3.4m.
(d) Chilled Sauces business restructuring
Following a strategic review at Greencore Chilled Sauces, a decision was made to
consolidate all chilled sauce manufacturing at the Bristol facility and to close
the Chesterfield factory. The exceptional loss represents the costs associated
with this decision.
(e) Fundamental reorganisation of Greencore Sugar
In January 2005, the Group announced its decision to consolidate all sugar
processing at Mallow and to close the Carlow facility. The costs associated
with this fundamental restructuring totalled Euro66.0m.
(f) Provision for loss on termination of operations
In October 2005, the Group disposed of its UK Pizza business for a nominal
consideration. The exceptional item booked during the year ended September 2005
included a provision to write down all of the assets related to the pizza
business to their recoverable amounts and to cover all costs directly related to
the decision to sell the pizza business.
(g) Disposal of interest in subsidiary
In August 2005 a small non-core, deli-style meat business with operations in
Ireland and Germany was sold, resulting in a profit of Euro1.9m (net of tax
Euro1.8m).
(h) Exit from sugar processing
On 15 March 2006, Greencore confirmed its intention to exit sugar processing in
Ireland, renounce its quota and apply for the EU restructuring aid which is
available under the Council Regulations (EC) No 320/2006 (the Regulation). The
total EU restructuring aid available for the sugar quota renounced by Greencore
is Euro145.5m. This Regulation states, inter alia, that at least 10% of the
restructuring aid shall be reserved for sugar beet growers and machinery
contractors. The Regulation gives the Member State the responsibility to
determine if this percentage is to be increased but imposes on the Member State
the requirement, using objective and non-discriminatory criteria, to ensure an
economically sound balance between the elements of the restructuring plan.
On July 12 2006, the Member State announced that it was allocating 67.6%
(representing Euro98.4m) to Greencore, with the balance of the EU aid to be
allocated to sugar beet growers and machinery contractors. The Board of
Greencore rejected the basis of this allocation. That government decision is
currently subject to a judicial review in the Irish High Court.
On 31 July 2006, Greencore formally applied for restructuring aid by renouncing
its sugar quota and submitting a restructuring plan to the Irish Government.
Greencore subsequently agreed with the Irish Government that, conditional upon
Greencore's restructuring plan being approved, the Group would amend the plan to
reflect any lawful decision of the Government taken pursuant to the outcome of
the legal proceedings. On 19 September 2006, the Government deemed Greencore's
restructuring plan to be eligible for restructuring aid.
The financial consequences to Greencore are as follows:
Euro'000
Write-down and impairment of assets (115.0)
Environmental, remediation, demolition, redundancy & other costs (49.8)
(164.8)
Less: present value of EU restructuring aid receivable which may be regarded as
virtually certain 95.9
Net exceptional charge (post-tax) (68.9)
Restructuring costs
As at 29 September 2006, the costs associated with the exit from sugar
processing are estimated at Euro164.8m.
The Government in announcing its decision in relation to the allocation of EU
restructuring aid included an 'illustrative' allocation of Euro50.0m to the
Greencore Group Pension Scheme. At 29 September 2006, this pension scheme did
not require such an allocation, as it had a net retirement benefit asset of
Euro25.0m (an asset which takes account of the present value of all anticipated
obligations of the pension scheme). The Board believes that the Government was
not entitled to direct the allocation of aid in this manner. Accordingly, the
Group has concluded that such an allocation will not have to be made.
Accounting for the receipt of EU aid
The Group's entitlement to EU Restructuring Aid is estimated to be Euro130.9m.
As of 29 September 2006, the receipt of Euro98.4m is regarded as virtually
certain and the present value of this amount (being Euro95.9m) has therefore
been included in the year-end balance sheet as a receivable and netted against
the related gross exceptional costs in the Group income statement.
The balance of the Group's entitlement of Euro32.5m which cannot at year-end be
reasonably regarded as virtually certain is treated as a contingent asset and
therefore, disclosed but not regarded as a receivable until its receipt becomes
virtually certain.
The Group remains confident of a successful outcome of the judicial review.
Timing of receipt of Restructuring Aid
The EU regulations (320/2006 and 968/2006) set out a timetable for the payment
of restructuring aid in two tranches, 40% in June 2007 and 60% in February 2008.
The related amounts are included in the financial statements as follows:
Euro'000
Current assets - EU restructuring aid receivable 39.4
Non-current assets - EU restructuring aid receivable 56.5
95.9
5. Dividends
The proposed final dividend per share for the year ended 29 September 2006 is
7.58c (2005: 7.58c). This proposed final dividend is payable on 5 April 2007,
to shareholders on the Register of Members at 15 December 2006.
This proposed dividend is subject to approval by the shareholders at the AGM and
has not been included as a liability in the balance sheet of the Group as at 29
September 2006, in accordance with IAS 10 'Events after the Balance Sheet Date'.
An interim dividend of 5.05 cent (2005: 5.05 cent) was paid on 5 October 2006.
6. Earnings per Ordinary Share
The calculation of the Group's earnings per ordinary share for continuing
operations is based on a profit of Euro49.0m (2005: Euro42.3m) and on 196.2m
ordinary shares (2005: 193.3m) being the weighted average number of ordinary
shares in issue in the period. The calculation of earnings per ordinary share
from discontinued operations is based on a loss of Euro49.5m (2005: loss of
Euro83.7m).
The calculation of the diluted earnings per ordinary share for continuing
operations is based on a profit of Euro49.0m (2005: Euro42.3m) and on 196.9m
ordinary shares (2005: 194.2m) being the weighted average number of ordinary
shares outstanding assuming conversion of all dilutive potential ordinary
shares. Employee share options which are performance based are treated as
contingently issuable shares, because their issue is contingent upon
satisfaction of specified performance conditions in addition to the passage of
time. These contingently issuable ordinary shares are excluded from the
computation of diluted earnings per ordinary share where the conditions
governing exercisability have not been satisfied as at the end of the reporting
period. The calculation of diluted earnings per ordinary share from
discontinued operations is based on a loss of Euro49.5m (2005: loss of
Euro83.7m).
The Group's adjusted earnings per share is after the elimination of the
exceptional items reported in note 4, inter-company foreign exchange and the
mark-to-market of all derivative financial instruments and related debt.
The calculation of adjusted earnings per ordinary share is based on a
pre-exceptional profit of Euro66.6m (2005: Euro62.9m) adjusted to exclude (i) a
gain of Euro0.5m (2005: Euro0.1m) related to inter-company foreign exchange and
a gain of Euro5.2m (2005: nil) recognised on the mark-to-market of all
derivative financial instruments together with related debt. The weighted
average number of ordinary shares in issue during the period was 196.2m (2005:
193.3m).
2006 2005
cent cent
Adjusted EPS 31.1 32.5
7. Components of Net Debt and Financing
2006 2005
Euro'000 Euro'000
Net Debt
Current assets
Cash and cash equivalents 78,967 74,102
Current liabilities
Borrowings (265) (325)
Non-current liabilities
Borrowings before fair value adjustment (464,127) (473,541)
Comparable net debt (385,425) (399,764)
Borrowings - fair value hedge adjustment (non-current liabilities) 30,470 -
Total cash, cash equivalents & borrowing (354,955) (399,764)
Finance Costs
Net finance costs on interest bearing cash and cash equivalents and (30,717) (30,507)
borrowings
Net pension financing credit 6,987 5,412
Change in fair value of derivatives 5,157 -
Foreign exchange gain (inter-company) 500 72
(18,073) (25,023)
Analysed as:
Finance income 35,929 33,179
Finance costs (54,002) (58,202)
(18,073) (25,023)
8. Information
The annual report and accounts will be circulated to shareholders on 15 January
2007, prior to the Annual General Meeting to be held on 15 February 2007 in
Jurys Ballsbridge Hotel, Ballsbridge, Dublin 4, Ireland.
By order of the Board, CM Bergin, Company Secretary, 5 December 2006, Greencore
Group plc, St Stephen's Green House, Earlsfort Terrace, Dublin 2, Ireland.
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