Greencore's profits could be hit harder by a new EU sugar regime than the market had expected if proposals mooted this week are adopted.
A senior EU source indicated on Wednesday that a new proposal on sugar reform would recommend a larger cut in prices over a shorter period than had earlier been suggested.
The source said EU agriculture commissioner Mariann Fischer Boel was ready to put forward a 39 per cent cut in the support price for white sugar.
Thisa could knock up to €23 million off Greencore's profits, according to Merrion Stockbrokers.
Previous indications had pointed to a price cut of 33 per cent. Merrion said Greencore had suggested that it could lose up to €20 million in profit under such a scenario.
Firm EU proposals should be published before the end of June.
Merrion estimates that Greencore's sugar business currently generates between €20 and €25 million in profits, or about 20 per cent of the group's total operating profits.
As the broker points out however, any loss in profits for Greencore will be balanced against the cost savings the group will draw from reducing the size of its sugar business.
The company has long been reducing its dependency on sugar, specifically because of imminent reform of the sector.
At the start of this year, it decided to consolidate its sugar manufacturing into one facility in Mallow, Co Cork, leading to the loss of 200 jobs.
Greencore is expecting to spend between €20 and €25 million on the closure before asset sales and says the move will generate cost savings of up yo €7 million in a given year. Extra cashflow benefits of €4 million per year are also anticipated.
Even with these savings, the end of the current regime is likely to act as a drag on growth at Greencore over the next few years, according to Merrion analyst, Robert Brisbourne.
Shares in Greencore closed unchanged at €3.27 last night.
Irish sugar growers have meanwhile expressed total opposition to the new proposals, warning that they will wipe out the Republic's sugar industry.
Jim O'Regan, chairman of the sugar beet section of the Irish Farmers Association, said the move would be akin to handing the business over to Brazil, where most sugar farming is done. Even with a price cut of 37 per cent, an Irish farmer would be producing beet at below cost of production, according to Mr O'Regan.
He said sugar growers from small EU producers will meet in Bologna in central Italy next Tuesday to formulate a united response to the EU plans. - (Additional reporting, Reuters)
