EU cuts may cost Greencore €5m in cashflow

Food group Greencore admitted yesterday that cuts in EU supports for sugar production could reduce its cashflow by between €4 million and €5 million.

The European Commission is considering cutting price supports for white sugar by up to 39 per cent. It had previously been expected to reduce them by 33 per cent.

Last week, analysts estimated that this could wipe up to €20 million off Greencore's profits. Chief executive David Dilger yesterday said that the company could not realistically say what the impact would be until the EU's agriculture ministers make a final decision next November.

However, he said that it believed the reforms could reduce the overall sugar production quota in Europe by 4.5 million tonnes, out of a total of 17 million tonnes.

If the current proposals are implemented, the company believes that it could reduce its earnings before interest and tax (EBIT), a measure of the cash it generates, by between €15 million and €16 million.

The company will make savings of between €6 million and €7 million a year from consolidating its sugar production in one facility in Mallow, Co Cork, and closing its factory in Carlow.

This will generate further savings of €4 million in capital expenditure, meaning it is likely to have total savings of around €11 million. However, this will still leave it with a €4 million to €5 million shortfall in EBIT if the proposed EU changes are implemented.

Mr Dilger made it clear that the company and beet growers would face price cuts. "The price cuts here are going to be deep," he warned.

The group yesterday reported that profits before tax for the six months to March 25th, 2005, were up 8 per cent to €32.6 million from €30.1 million during the same period last year.

Headline earnings per share (eps) were up 6 per cent to 14.2 cent from 13.4 cent. However, analysts had been predicting earnings growth of around 10 per cent for the period.

A poorer than expected performance in the agribusiness and food ingredients division was blamed for the lower than expected growth. Mr Dilger said that the division, which includes its sugar and malt businesses, had been hit by excess supplies of malt in European markets.

A poor harvest in Ireland compounded this, as the company had to pay high prices for its raw material, malting barley, and suffered a squeeze on margins.

However, its convenience food division grew strongly, turning in an operating profit of almost €30 million, an increase of 23 per cent on the 2004 first half.

Convenience food now accounts for two-thirds of operating profits, a reversal of the position five years ago.