Ireland: The over-capacity in EU malt markets had an influence on Greencore Group plc results

Greencore Group plc, the No.1 malt company in Ireland and UK, announced on November 22 that a significant over-capacity in EU malt markets and the uncertainty surrounding EU sugar regime led to a reduction in divisional operating profits of 11.2% to EUR 41.4m.

However, the division continues to achieve excellent operational performance and generates significant cash for Greencore. The Group's associate businesses performed solidly this year, with the share of profits (net of interest) up 5.2% to EUR 4.1m.

Greencore said in a statement that international malt prices are approaching a low point in the cycle, driven, in large part, by over-capacity in the industry. The pricing impact, along with significant increases in input costs and, in particular, energy increases of more than 30%, had a negative impact on the profitability of the Group’s malt business. Greencore Malt has responded by closing three of its smaller less efficient maltings – Ipswich, Carnoustie and Banagher. Other maltsters are now starting to follow but the required rebalancing of industry capacity will not happen overnight. Greencore Malt’s initiatives in the UK and Ireland, allied to strong operational performance, leave the Group well-positioned to benefit from an upturn in the malt cycle.

Greencore Group plc, announced on November 22 a strong performance during the year ended September 30, 2005.

FINANCIAL HIGHLIGHTS

Profit before tax* up 6.4% to EUR 77.7m
Headline EPS* up 4.3% to 33.8 cent
Like-for-like sales growth of 7.5% in Convenience Foods
Like-for-like operating profit growth of 16.4% in Convenience Foods
Net interest down 6.5% to EUR 30.4m
Exceptional charges - EUR 65.4m for the fundamental restructuring of Greencore Sugar; EUR 40.0m provision for Pizza disposal
Net debt at EUR 398m, with a strong underlying trajectory of debt reduction
* before exceptional items and amortization

Commenting on the results, Greencore Group Chief Executive David Dilger said: "These results demonstrate solid underlying performance. We have taken hard decisions in 2005 and this coming year may well require further decisions, particularly given impending EU sugar regime reform.

"We are especially pleased with progress in Convenience Foods, where we now have high performing businesses right across the range of our operations, and believe that the extensive restructuring required since our acquisition of Hazlewood is now complete. This division has the strategic and operational model to succeed in the convenience food market and I am confident that we will make further progress in the coming year."

Greencore made significant progress in 2005. Profits before tax, amortization and exceptionals grew by 6.4% and headline earnings per share grew by 4.3%. In addition, both divisions delivered significant change and are now better positioned to capitalize on changing market circumstances.

The Convenience Foods division has performed strongly, with like-for-like profits up 16.4% to EUR 67.7m. The Group competes in attractive categories, and the strategy of aggressive product innovation, broadening channel exposure and commitment to 'Total Lowest Cost' has driven like-for-like sales growth of 7.5% and sustained healthy margin performance. This represents excellent progress, with the division now accounting for 62% of Group continuing operating profit, up from 56% in 2004.

The Ingredients and Agribusiness division faced a particularly challenging market environment in 2005. The uncertainty surrounding EU sugar regime and significant over-capacity in EU malt markets led to a reduction in divisional operating profits of 11.2% to EUR 41.4m. However, the division continues to achieve excellent operational performance and generates significant cash for Greencore. The Group's associate businesses performed solidly this year, with the share of profits (net of interest) up 5.2% to EUR 4.1m.

The Group incurred exceptional charges totaling EUR 103.6m (net of tax) in this period. The largest component (EUR 65.4m) relates to the cost of restructuring Greencore Sugar and consolidating the full processing operation at Mallow - a critical project which generates significant annual savings, positions the Group in the top-quartile of European sugar processors and gives the Group the operational strength to respond to the impending EU sugar regime reform. This project was delivered with little disruption to Greencore Sugar's processing business. The Group also took a charge of EUR 40.0m to provide for costs associated with disposing of the loss-making Pizza business in the UK in October 2005, thereby removing a business that had been a drag on the performance of Convenience Foods.

Once again, the Group demonstrated its strong cash generative characteristics. Net debt at the end of September 2005 was EUR 398m, EUR 11m above the level of September 2004. However, this increase was driven by approximately EUR 50m of one-off items associated principally with the Sugar restructuring and the acquisition of the Oldfields' sandwich business. The underlying trajectory of debt reduction remains firmly in place.

OUTLOOK

Greencore expects to hear, within a matter of days, the conclusions of the EU's review of the sugar regime. The Group will then carefully evaluate the competitive consequences for Ireland's sugar growing and sugar processing sectors prior to determining the best possible route forward for the industry and its key stakeholders. The consolidation of Greencore Sugar's processing in Mallow and its continued strong operational performance provides the Group with a highly competitive manufacturing cost base. This, together with access to a competitive and sustainable supply of sugar beet will be an essential precondition for profitability and, ultimately, for the very survival of Greencore Sugar in any new sugar regime.

In the Malt business, having taken out significant capacity and with other players now following suit, Greencore is better positioned than most to manage through what is expected to be a challenging year.

Greencore is a leading convenience food and ingredients group. The Group has operations in Ireland, the United Kingdom, and Continental Europe. Greencore's ordinary shares trade in Dublin and London, and information can be accessed on Bloomberg under the symbols GNC ID and GNC LN respectively and on Reuters under GNC.I and GNC.L. Additional information is available on Greencore's Internet site: www.greencore.com.

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