Interim Results

Greencore Group PLC 25 May 2004 GREENCORE GROUP PLC CONTACT MS C.M. BERGIN TELEPHONE: +353 1 6051029 FAX: +353 1 605 1104 INTERIM STATEMENT 26 MARCH 2004 FINANCIAL HIGHLIGHTS - 4% overall like-for-like sales growth, with 6% in the Convenience Food division - Profit before tax* down 3% to €30.1m - Headline EPS* down 5% to 13.4 cent - Underlying EPS** up 1% - 3% growth in like-for-like profits in the Ingredients & Agribusiness division - Net interest down 21% to €17.3m - Net debt down €36m from March 2003 (€48m excluding currency translation) BUSINESS HIGHLIGHTS - Price increases have been achieved to offset substantially all of the significant raw material inflation in the UK convenience food categories, although the time lag has impacted H1 results - UK chilled ready meal capacity further extended to support ongoing growth - Excellent processing campaign at Irish Sugar - Sale of UK bakery business since half-year end * before exceptional items and goodwill amortisation * * headline EPS adjusted for constant currency and disposals Commenting on the results, Greencore Group Chief Executive, David Dilger, said: 'The Group has made good progress in the first six months of the financial year and has capably dealt with the key cost challenges faced by the entire sector. Results for the second half of the financial year will reflect the benefit of the price increases and cost savings achieved to date. Furthermore, we have aggressively managed our debt programme and, as a consequence, the Group's interest charge in the second half is expected to be significantly below the comparable figure of last year. Overall, the Group remains confident of a successful outcome for the full year.' Tuesday, 25 May 2004 For further information, please contact: David Dilger, Chief Executive Tel: +353 1 605 1002 Patrick Kennedy, Chief Financial Officer Tel: +353 1 605 1003 Billy Murphy, Drury Communications Tel: +353 1 260 5000 INTRODUCTION The Group made strong progress in the first six months of this financial year across a range of fronts: - Like-for-like sales growth of 6% was achieved in our Convenience Food division, with 9% in the Group's UK chilled food activities, driven by the positive fundamentals of that sector to which we have referred before. Particular advances were made in our chilled ready meal category where further additional capacity was successfully introduced to cater for ongoing growth. - Price increases with an annualised value of €17m have been implemented; these have successfully countered the most significant level of raw material inflation in the UK food industry in many years. However, as I referred to at the Annual General Meeting, there has been an inevitable time lag between the cost increases and price increases, which has negatively impacted results for the first half. - Our Ingredients & Agribusiness division grew like-for-like profits by 3%, with an excellent sugar campaign and strong performance from the Group's agribusinesses more than offsetting barley price increases experienced in our malt business. - Our interest charge reduced by a further €4.6m, or 21%, reflecting ongoing reductions in the amount and cost of the Group's indebtedness. - Net debt at the end of March 2004 was €461m, €36m below the level of March 2003, or €48m lower excluding the impact of currency translation. - Since the half-year end, the Group has successfully disposed of its UK bread activities for €30m, €18.5m of which was received on completion. This disposal marks the culmination of the Group's objective to realise the capital employed in its UK bread business and allows the Group to sharpen its focus on its successful convenience food activities. REVIEW OF OPERATIONS Convenience Food* Like-for-like sales in the first half in the Convenience Food division grew by 6%, with a particularly strong performance in the Group's UK chilled food activities, where like-for-like sales increased by 9%. The lag in recovering increased raw material prices exerted downward pressure on margins, with continuing operating profit falling from €29.6m to €24.5m. On a constant currency basis, the reduction was €3.7m. In the Preliminary Results announcement last November and, subsequently, at the Annual General Meeting in February, I indicated that raw material cost inflation in the UK food industry was running at a higher rate than had been experienced for a number of years. This arose because of the simultaneous occurrence of very poor harvests arising from the exceptionally dry summer weather, the weakening of sterling, an avian flu epidemic in Continental Europe and increased consumer demand for protein products. These factors led to significant inflation in a range of the key inputs of the Group's UK convenience food operations, including flour, egg, dairy produce, poultry and red meat. Input costs in the first half of the financial year were, on average, 5% above the levels of the previous year on an annual spend of €350m. A concerted initiative was put in place across the Group's UK convenience food activities to recover this inflation, with a particular focus on those categories most impacted. These included quiche, sandwiches, cakes and desserts, frozen savoury products, ready meals and bread. To date, price increases with an annualised value of some €17m have been implemented; whilst further increases are still necessary in individual categories, the level already achieved offsets substantially all of the cost inflation experienced to date. The time lag between cost increase and price increase amounted to between three and four months in the period under review and, therefore, impacted Group profitability by c.€5m in the first half of the year. Looking forward, the benefit of the price increases and cost savings will be more pronounced in the second half of the year as the time lag falls away. Furthermore, whilst there remains pressure for increases in the costs of certain key inputs, the Group will attempt to offset that by reductions elsewhere. Demand for quality convenience food continued to grow in the first half, although different categories had different levels of sales growth, impacted by their customer profile. Whilst exploiting the organic growth potential of existing offerings is critical, in excess of 500 new products were introduced in the period, as categories continued to expand successfully their product range and develop new channels: the Group's chilled soup operation continues to grow, whilst several categories, most notably ambient sauces, frozen desserts and cakes, increased their food service sales. However, customer orders and therefore deliveries for certain key Christmas products were later than usual in 2003, resulting in lesser sales in several accounts in both the ambient sauce and pickles and cakes categories. The good progress in the latter months of 2003 at the Group's UK chilled pizza operation, which I referred to in the Preliminary Announcement last November, has continued. Further operational improvements have been made and the business also has a strong pipeline of new product opportunities. I also referred last November to inefficiencies at the Group's cakes and desserts facility in Hull, which were being addressed. I am happy to report significant progress in eliminating these, particularly since the end of the Christmas cake production campaign. The Group continues to invest in capacity enhancement and in operational improvement opportunities to supplement its existing modern facilities. Notable investments in this regard in the first half included further capacity enhancement at two of the Group's chilled ready meal facilities, the completion of the rebuilding of the Group's principal frozen savoury products facility and investment in automation in the sandwich category, which will improve both productivity and product quality. Ingredients & Agribusiness The division had a satisfactory first half. Although like-for-like sales increased only marginally versus the previous year, continuing operating margins improved from 8% to 8.3%, and continuing operating profit grew by 2% from €19.7m to €20m. On a like-for-like basis, operating profits grew by 3%. Profits improved at all of the businesses within the division, with the exception of the Group's malting activities. Although quota sales in the period were lower than the prior year, Irish Sugar benefited from an excellent processing campaign. The Group's agribusinesses benefited from increased grain prices and good margin management. The profitability of the Group's malt activities was below last year's record levels. As indicated in the Preliminary Announcement last November, barley prices in the latter part of 2003 increased in line with international grain prices, whilst these increases were not fully reflected in higher malt prices, most particularly in export markets. Barley prices have since declined, although malt export prices remain low. Associates Share of profit of associates, net of share of interest, increased significantly from €2.9m to €3.4m. This reflected improved profitability at each of the Group's associate interests. * Following the disposal of the Group's bread operations, the Board has decided for reporting purposes to combine the results of its remaining Ambient Grocery activities with its Chilled and Frozen division into one Convenience Food division. FINANCIAL REVIEW Like-for-like sales grew by 4%, with growth of 6% experienced in the Convenience Food division. Whilst operating margins improved in the Ingredients and Agribusiness division, they declined overall due to the time lag in recovering raw material cost inflation. This, coupled with the negative translation impact of a stronger euro/sterling average exchange rate and a reduction in discontinued operating profit, led to a decline in total operating profit from €50.1m to €44m. Share of profits from associates increased, whilst net interest declined by 21% from €21.9m to €17.3m, reflecting ongoing reductions in both the amount and cost of the Group's indebtedness. Accordingly, most of the €6.1m reduction in operating profit was made up, and profit before tax declined by only €1m to €30.1m. The tax charge of €3.9m on ordinary activities compares to €4m in the first half of last year, with the effective rate remaining at 13%. Headline earnings per share (adjusted to eliminate exceptional items and amortisation of goodwill and finance facility costs) declined by 5% to 13.4 cent. Underlying earnings per share, which calculates continuing earnings at constant exchange rates, increased by 1%. Basic earnings per share increased from 6.3c to 7.0c. An interim dividend of 5.05c per share will be paid, which is in line with last year's level. Qualifying shareholders will again be offered the option of receiving dividends in the form of cash or shares. Net debt increased from the level at the end of September 2003 by €31m to €461m. This was a result of the seasonal uplift in working capital at Irish Sugar of €35m which is a consequence of the timing of its annual processing campaign, and the negative translation movement on the sterling element of the Group's indebtedness of €12.6m. Significant capital investment was made in the period, as referred to above. Net capital expenditure amounted to €24.2m, compared to depreciation of €22.7m. Net cash of €2.1m was received in respect of taxation, reflecting the modest amount of tax payable across the Group, a tax refund received in Continental Europe and a payment received for losses surrendered to an associate company. OUTLOOK Since the acquisition of Hazlewood, the Group's convenience food activities have experienced average annual like-for-like sales growth of 6%, and the potential for further top-line growth remains strong. Consumer demand for quality convenience food continues to grow, whilst our retailer customers continue to expand their space dedicated to our product range. However, top-line growth on its own is not sufficient; margin management is also crucial to delivering value for shareholders and is dependent on the quality of the market position of our businesses. Through its disposal programme, the Group has prioritised businesses that not merely have attractive growth prospects, but also market leadership positions in sectors where ownership is concentrated and demand is broadly in balance with supply. The Group's success over the last six months in achieving price increases across many of its categories is due to the quality of these market positions. The Group continues to manage ongoing challenges: the UK retail environment is increasingly competitive, European sugar processors are experiencing increased levels of competition and in the longer term possible regime reform, and international malt prices remain low relative to the long run malt cycle. Nonetheless, the quality of our market positions, a relentless focus on the cost base and the strong cash generative nature of our portfolio will underpin progress in the current financial year and beyond. In addition, as referred to above, results for the second half of the financial year will reflect the benefit of the price increases and cost savings achieved to date. Furthermore, we have aggressively managed our debt programme, and as a consequence, the Group's interest charge in the second half is expected to be significantly below the comparable figure of last year. Overall, the Group remains confident of a successful outcome for the full year. E F Sullivan Chairman 25 May 2004 Greencore Group plc Consolidated Profit and Loss Account (Unaudited) Half Year Ended 26 March 2004 Half Year to 26 March 2004 Half Year to Ordinary Amortisation Total 28 March Notes activities 2003 €'000 €'000 €'000 €'000 Turnover Continuing operations 2 669,149 - 669,149 666,486 Discontinued operations 44,242 - 44,242 77,333 -------------- -------------- -------------- -------------- 2 713,391 - 713,391 743,819 -------------- -------------- -------------- -------------- Operating profit before goodwill amortisation and exceptional items Continuing operations 2 44,504 - 44,504 49,264 Discontinued operations (456) - (456) 872 -------------- -------------- -------------- -------------- 2 44,048 0 44,048 50,136 Goodwill amortisation - (10,701) (10,701) (10,701) Exceptional items 3 - - - (2,927) -------------- -------------- -------------- -------------- Operating profit 44,048 (10,701) 33,347 36,508 Share of operating profit of associated undertakings 3,540 - 3,540 3,032 -------------- -------------- -------------- -------------- 47,588 (10,701) 36,887 39,540 Exceptional items Profit on sale/termination of operations 3 - - - 576 -------------- -------------- -------------- -------------- Profit before interest and taxation 47,588 (10,701) 36,887 40,116 Net interest payable (17,295) - (17,295) (21,925) Amortisation of issue costs of finance facility - (1,266) (1,266) (2,291) Share of interest payable - associates (162) - (162) (138) -------------- -------------- -------------- -------------- Profit before taxation 30,131 (11,967) 18,164 15,762 Taxation (3,887) - (3,887) (3,335) -------------- -------------- -------------- -------------- Profit after taxation 26,244 (11,967) 14,277 12,427 Minority interests (982) - (982) (650) -------------- -------------- -------------- -------------- Profit attributable to Group shareholders 25,262 (11,967) 13,295 11,777 Dividends 4 (9,630) - (9,630) (9,537) -------------- -------------- -------------- -------------- Retained profit 15,632 (11,967) 3,665 2,240 ======== ======== ======== ======== Adjusted earnings per ordinary 5 13.4c 14.1c share Basic earnings per ordinary share 5 7.0c 6.3c Diluted earnings per ordinary share 5 7.0c 6.2c Dividend per ordinary share 4 5.05c 5.05c Greencore Group plc Consolidated Balance Sheet At 26 March 2004 26 March 28 March 26 September 2004 2003 2003 (Unaudited) (Unaudited) (Audited) €'000 €'000 €'000 Fixed assets Intangible assets 359,647 381,075 370,348 Tangible assets 568,527 540,955 557,633 Financial assets 14,517 16,437 16,141 -------------- -------------- -------------- 942,691 938,467 944,122 -------------- -------------- -------------- Current assets Stocks 200,486 187,443 137,424 Debtors 99,782 119,961 123,062 Cash and bank balances 93,122 99,846 103,494 -------------- -------------- -------------- 393,390 407,250 363,980 Creditors Amounts falling due within one year 485,862 388,417 767,770 -------------- -------------- -------------- Net current (liabilities)/assets (92,472) 18,833 (403,790) -------------- -------------- -------------- Total assets less current liabilities 850,219 957,300 540,332 -------------- -------------- -------------- Creditors Amounts falling due after more than one year 510,880 621,295 198,802 Provisions for liabilities and charges 39,676 44,013 40,874 Development grants 772 1,513 1,510 -------------- -------------- -------------- 551,328 666,821 241,186 -------------- -------------- -------------- Net assets 298,891 290,479 299,146 ============== ============== ============== Capital and reserves Called up share capital 122,202 122,058 122,103 Capital conversion reserve fund 934 934 934 Share premium account 87,700 87,280 87,370 Profit and loss account/other reserves 82,129 74,969 83,084 -------------- -------------- -------------- Shareholders' funds - equity interests 292,965 285,241 293,491 Minority interests - equity interests 5,926 5,238 5,655 -------------- -------------- -------------- 298,891 290,479 299,146 ============== ============== ============== Greencore Group plc Consolidated Cash Flow Statement Half Year Ended 26 March 2004 Half Year to Half Year to 26 March 28 March 2004 2003 (Unaudited) (Unaudited) €'000 €'000 Operating activities Operating profit 44,048 50,136 Depreciation (net of grant amortisation) 21,964 23,105 Changes in working capital (35,753) (4,115) Other movements (1,589) 6,662 Capital expenditure (net) (24,194) (19,438) -------------- -------------- Cash flow from operating activities 4,476 56,350 Dividends from associates 4,900 2,621 Returns on investments and servicing of finance (21,105) (16,001) Taxation 2,122 3,575 Proceeds on issue of share capital 111 124 Equity dividends paid (9,219) (13,739) -------------- -------------- Net cash flow (18,715) 32,930 Translation differences (12,644) 33,184 -------------- -------------- Movement in net debt in period (31,359) 66,114 Net debt at start of period (430,049) (563,173) -------------- -------------- Net debt at end of period (461,408) (497,059) ============== ============== Greencore Group plc Statement of Total Recognised Gains and Losses Half Year Ended 26 March 2004 Half Year to Half Year to Full Year to 26 March 28 March 26 September 2004 2003 2003 (Unaudited) (Unaudited) (Audited) €'000 €'000 €'000 Profit for period attributable to Group shareholders 13,295 11,777 31,511 Exchange adjustments (4,620) 9,194 11,902 -------------- -------------- -------------- Total recognised gains for the period 8,675 20,971 43,413 ============== ============== ============== Notes Half Year Ended 26 March 2004 1. Basis of preparation The interim statement for the six months to 26 March 2004 is unaudited and was approved by the Board on 24 May 2004. The information has been prepared on the basis of the accounting policies set out in the Group's Annual Report for the year ended 26 September 2003. The balance sheet information on page 7 for 26 September 2003 represents the audited balance sheet from the Group's full accounts for that year on which the Auditors issued an unqualified audit report and which have been filed with the Registrar of Companies. 2. Analysis of results by activity Turnover Operating profit* Half Year Half Year 2004 2003 2004 2003 €'000 €'000 €'000 €'000 Total Group Convenience Food 470,021 496,076 24,009 30,534 Ingredients and Agribusiness 243,370 247,743 20,039 19,602 -------------- -------------- -------------- -------------- 713,391 743,819 44,048 50,136 -------------- -------------- -------------- -------------- Continuing Activities Convenience Food 426,933 422,059 24,465 29,599 Ingredients and Agribusiness 242,216 244,427 20,039 19,665 -------------- -------------- -------------- -------------- 669,149 666,486 44,504 49,264 -------------- -------------- -------------- -------------- * pre goodwill amortisation and exceptional items 3. Exceptional items There are no exceptional items in the current period. The prior period exceptional charge comprises a cost of €2.9m in respect of commissioning costs at the Group's new chilled pizza facility. In addition, a net surplus of €0.6m was recorded on the closure of certain Group facilities in the United Kingdom. 4. Dividends The interim dividend of 5.05c (2003: 5.05c) per share is payable on 30 September 2004 to shareholders on the Register of Members, as at 4 June 2004. The ordinary shares will be quoted ex-dividend from 2 June 2004. The dividend will be subject to dividend withholding tax, although certain classes of shareholders may qualify for exemption. 5. Earnings per share The calculation of earnings per share is based on earnings of €13.3m (2003: €11.78m) and on 189.0 million ordinary shares (2003: 188.3 million) being the weighted average number of ordinary shares in issue in the period. The calculation of adjusted earnings per share is after adjusting for exceptional items, goodwill and facility fee amortisation. The diluted earnings per share has been calculated on the basis of 191.1 million ordinary shares (2003: 188.7 million). The calculation of earnings per share excludes 4.9 million treasury shares arising from the share repurchase programme. 6. Information The interim report is being sent by post to all registered shareholders. Copies are also available to the public from the Company's registered office at St. Stephen's Green House, Earlsfort Terrace, Dublin 2 and from its registrar Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18. C.M. Bergin Group Company Secretary Greencore Group plc, St. Stephen's Green House, Earlsfort Terrace, Dublin 25th May, 2004. This information is provided by RNS The company news service from the London Stock Exchange

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