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Article Excerpt
PATRICK COVENEY, CEO, GREENCORE GROUP PLC: We're online are we on the conference call? Great, okay.
Good morning everyone and welcome everyone to the Greencore preliminary results for financial year 2008. We're joined by a group here in the Conrad Hotel in Dublin and we've also got people on a conference call, and we have some people joining by web link as well.
I'm joined here by two of my colleagues, Geoff Doherty, the Chief Financial Officer for the Greencore Group and Tony Hynes, our Chief Operating Officer; and together we're going to spend 35 to 40 minutes walking through the highlights and key themes from our results. We'll then take questions from people here in the room and questions from people who are joining us by conference all or on the web.
As we look at this, what we think we've done here is to deliver results which will reflect a very resilient performance in a challenging economy and a challenging industry context.
Geoff will walk through the financial results in a few minutes, but let me just draw a couple of highlights from them.
Our portfolio has delivered constant currency growth in sales up 13%, operating profit at 6% and adjusted earnings per share a nudge over 1%. Our Group continues to have a well resourced and well financed balance sheet. That's important. It enables us to absorb market volatility. It enables us to award shareholders with a modest increase in full year dividend. And it gives us the resources to deliver our strategy and drive growth.
From a business context what you see, first of all, is our portfolio working. The performance of our Ingredients business has more than offset, on a constant currency basis, declines that you see across parts of our Convenience Foods Division.
In addition, as everyone knows, we were hit with a very disappointing cost concealment issue in our water business in June. We have now, insofar as we can, it having happened, fully resolved it in terms of accounting for it, learning the right lessons, and putting changes into our water business and moving our Group forward in terms of an independent set of management processes and an enhanced control environment.
And finally the highlight that I draw is the significant progress that we've made on our development agenda. And I'll talk more about this in the business review section in a few minutes. But we're delighted with the momentum that we have, particularly in relation to our -- to the growth of our Convenience Foods business in North America.
With that, let me hand over to Geoff and I'll come back and follow up on the business review and strategy and outlook.
GEOFF DOHERTY, CFO, GREENCORE GROUP PLC: Thanks Patrick. Well, from the outset, just before I get into the detailed financials themselves, there are two important terms of context, which are critical in terms of understanding the financial performance of the year.
The first is comparative information has been restated for the impact of the water cost concealment issue, which Patrick alluded to. I'll deal with that in detail in a second.
And then secondly, exchange on translation has impacted significantly year-on-year by about 12%. And just to be specific on that, our translation in FY '07 was a raise of 67.5p to the euro, whereas in FY '08 it was 76.5p, so a 12% move in the exchange rate year-on-year.
With those two points made, as Patrick alluded to in the summary, we've recorded good constant currently growth across all key metrics, with 13% sales growth; 6% at the operating profit level and 1% on adjusted EPS.
After the impact of currency translation, sales were up 3%, operating profit was a tad under 5% behind our -- just moving down through the financials themselves, interest is up slightly as a result of pension finance items, which I'll deal with separately and in more detail as we go through the slides.
Our effective tax rate was 16% in FY '08, which is a tad down from 16.5% in FY '07.
So moving on from that and to deal with, from the outset, the impact of the water restatement, the first point to make here is that this is consistent with the announcement that we made in June in respect of this issue. A loss has been taken through operating profit within the Convenience Division result for FY '08 of EUR4 million.
in respect of the prior year in FY '07, we have a restatement of EUR10 million, which is the difference between the profit which was reported as EUR7.3 million in FY '07 and the restated loss of EUR2.8 million, which is a restatement in total of EUR10.1 million of operating profit in FY '07.
And then in the period prior to that, in FY '06, the remaining year, if you like, impacted by this issue, we have an after tax amount of EUR5.2 million taken through opening reserves, coming through from FY '06. So all told, the after tax impact for the period prior to FY '08 is about EUR12 million.
The other critical point to make is that substantial progress has now been made on the recovery agenda for this business. The losses of the EUR4 million, which we recorded in FY '08, were recorded predominantly in the period prior to discovery of the issue. So on a run rate basis, we're now no longer making losses in this business and the recovery process is well underway.
So moving on from that and to talk about the main division, our Convenience Foods Division; the -- and I've set out this out in order to give an underlying view of the performance of our food portfolio during the year. I've excluded water, having dealt with the restatement.
And across the metric of sales, we recorded 8% sales growth, which is 4% on price, 2% on volume and about -- a little less than 2% in relation to -- in respect of acquisitions.
One of the key themes -- one of the key issues in terms of the FY '08 performance in Convenience Foods was the recovery of inflation. We had inflation of EUR52 million in this division during the year. By the end of the financial year, we had confronted every cent of that bill. About EUR35 million of it was recovered by a price increase, with the remaining EUR17 million being recovered by purchasing initiatives and our TLC agenda, which Tony Hynes will deal with separately and later on in the presentation.
From an operating margin perspective, we recorded an operating margin of 5.8%. That's consistent with a return on capital in the division of 15%. It compares to an operating margin of 6.4% in FY '07. That's a decline of 60 basis points year-on-year. About half of that was due to the time lag in the first half of our financial year only in respect of our Ambient Grocery business. That's been fully recovered by year end. And the remaining 30 basis points of the margin differential is to do sales mix issues year-on-year.
So moving on from that to our Ingredients Division, this very much was a division firing on all cylinders in FY '08. And not only did we have a strong performance in the key malt business in this division, but every other business from Edible Oils to Molasses to our Drummonds Agri-trading business, all recorded performance in FY '08, which were improvements on the FY '07 performance.
So, across any KPI in this Division we've recorded a strong performance with 30% constant currency sales growth and a 26% increase in operating profit with the contribution from property proceeds in the division less than half in FY '08 than what they were in 2007; so a strong performance in the division.
Moving on from that to deal with finance costs, the key number on this particular slide is the interest line -- the interest cost on our bank financing. This has decreased to EUR29.2 million in FY '08 from EUR30.6 million in FY '07. The key reason for that is lower levels of average debt. We received the final installment of EU restructuring aid of EUR83 million in February 2008. And that more than offset the net acquisitions by EUR47 million during the year; so lower average debt levels being the key driver of the reduction in interest.
The next line is the pension credit. This is calculated under IAS 19. It's a non-cash item and we've seen that reduce of the order of EUR1 million year-on-year between FY '07 and FY '08. This is a composite item which has two sides to it. The first is the expected return on pension assets and the second is an interest cost, which is the discounting of pension liabilities.
This is a long-term item. These are long-term assets to secure long-term liabilities. It's an item that is variable and volatile year-on-year. And it will reduce into 2009, as we've set out in the statement. And the key reason for that is that the expected return on pension assets will be lower in 2009, again than they were in 2008, because pension assets globally have declined significantly.
And this is not a Greencore specific issue. It's right across the piece. Anyone with the defined benefit pension scheme will have suffered a deterioration in asset as a result of that. The -- so that will be stripped out of adjusted EPS from 2009 to give a fairer measure of underlying performance.
In terms of the current service of pension costs they will continue to be reflected through adjusted EPS. It's just on this line, the pension finance line, the non-cash line that will be excluded.
Moving down the finance cost line the present value of receivables is down year-on-year. That's a function of now having received the restructuring aid that's largely associated with that line. And then as before, we strip out the fair value of derivatives, which is essentially the swapping of floating rate debt into fixed. We stripped that out of adjusted EPS, as we have done in previous years.
Moving on from that we recorded a net exceptional gain after tax of EUR9 million in the year under review; from a cash perspective it's a little shy of EUR12 million positive. There are three distinct components to this exceptional item. The first is the EUR18 million -- EUR18.9 million cash and profit item associated with the greater...
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