Greencore swings to H1 loss, cites Bakkavor acquisition costs

(Sharecast News) - Food producer Greencore slumped on Wednesday after saying it swung to a first-half operating loss due to costs related to its £1.2bn acquisition of rival Bakkavor. In the half year to 27 March, pro-forma adjusted operating profit rose 15.3% from the same period a year earlier to £73.3m, with revenue up 3.2% to £1.3bn.

However, the company swung to an operating loss of £13.4m from a group operating profit of £38.1m a year earlier. This was mainly due to the acquisition of Bakkavor, with increased exceptional items relating to one-off transaction and integration costs of £60.6m.

Greencore said the market was subdued in the first half as consumer confidence and demand were dented by external factors such as apprehension in the lead-up to and following the Autumn budget, and prolonged inclement weather in the second quarter.

Nevertheless, volume performance was robust, it said, with manufactured volume growth in the legacy Greencore business of 0.3%, outpacing a flat grocery market.

Greencore continued to win new business with customers in salads, sushi, ambient grocery, and desserts and said it will begin to be onboarded into the network throughout the third and fourth quarters.

The company also said that while it continues to perform strongly, it is exploring a sale of its US business.

Greencore expects to deliver full-year adjusted operating profit in line with current market expectations of £232m, or a range of between £227m and £241m.

Chief executive Dalton Philips said: "The integration of Bakkavor is progressing well and to plan - and we are focused on bringing our 4,000-plus product portfolio and enhanced capabilities to our customers. We are firmly on track to deliver our target of annual cost synergies of at least £80m within three years post-acquisition.

"While we continue to monitor macro developments and inflationary impacts from the events in the Middle East, we remain confident in the short-term mitigations we have in place and the outlook for the business."

At 0940 BST, the shares were down 5.8% at 225.80p.

Russ Mould, investment director at AJ Bell, said: "The first set of results since sandwich maker Greencore's merger with Bakkavor at least provided some hints that the tie-up could end up being a winning combination, to rival tuna and mayo or ham and mustard.

"However, the significant costs associated with the deal have scarred these results, leading to a first-half loss, and organic growth in Greencore's legacy business was marginal at best.

"Management flagged a subdued market environment and while the decision to exit the US and concentrate on the UK may be the right one in the long term, there is clearly concern Greencore might have to sell the operations across the Atlantic on the cheap to get a deal over the line.

"On a brighter note, the Bakkavor integration is proceeding as planned and some of the group's key categories like sandwiches, sushi and pizza are outperforming the wider grocery market. Margins also ticked higher, to suggest management are running a relatively tight ship."

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