Irish food groups battle record costs, weak pound

Reuters, Wednesday May 28 2008
(Adds IAWS, Origin results, analyst comment)
By Andras Gergely
DUBLIN, May 28 (Reuters) - Irish food group Greencore posted a rise in half-year profit on Wednesday but said record input prices and currency movements would crimp full-year results, while baker IAWS forecast growth despite rising costs.
Dublin-based Bread and pastries maker IAWS said its bakery business had retained its competitive edge in the inflationary environment, putting the group on track for continued growth and earnings in line with market expectations.
Greencore, which ranks itself as Britain's biggest sandwich maker, said earnings might drop slightly this year due to currency translation losses, but it was managing raw material inflation by cutting costs and raising prices.
"The entire food manufacturing industry has wrestled with unprecedented levels of raw material inflation in the last 12 months," Greencore Chief Executive Patrick Coveney said.
"The total level of inflation we're experiencing is broadly comparable to last year's operating profit in our business," Coveney told Irish radio RTE.
The rapid rise in the price of commodities such as rice, which has almost tripled in Asia this year, has sparked riots in some poor nations, while high food prices in developed countries are stoking inflation concerns.
Greencore said on Wednesday that its earnings per share in the half-year to March 28 had risen 7.4 percent to 13 euro cents, with sales up 2.5 percent at 648.7 million euros.
Full-year earnings for the group, which makes prepared meals for the likes of Weight Watchers, are seen flat or a touch behind last year, however.
"But on a constant currency basis we'll record growth," Chief Financial Officer Geoff Doherty told Reuters.
Greencore, which earns most of its profit in sterling, said that if the euro remained between 0.78 and 0.80 against the pound, the translation effect year-on-year would cut group operating profit by about 11 million euros ($17.3 million) and profit before tax by about 8.5 million euros for the full financial year.
COMMODITIES BOOM
Greencore said its Convenience Foods division was seeing increased volatility in sales patterns and expected modest profit growth "albeit at a level below existing market expectations" on a constant currency basis for the full year.
"Given the significant sterling translation hit (80 percent of profits) and a time lag in recovering significant price inflation, we are reviewing our numbers," Davy analyst Barry Gallagher said of the whole Greencore group.
IAWS said revenue rose 34.7 percent in the first nine months of its business year and predicted it would meet the market's current earnings expectations for the full year.
The maker of Cuisine de France pastries and La Brea breads said sales in the nine months to April 26 were 1.9 billion euros ($3 billion), up 19.2 percent once the impact of acquisitions and currency movements had been excluded.
Origin Enterprises, the food and agri-nutrition business that IAWS listed as a separate company in June, said its revenue rose 27.9 percent in the period.
Origin sought to tap further into the commodities boom by buying Masstock, an agronomy services provider in the UK and Poland, in January.
Shares in Greencore, which fell by 8 percent on Tuesday ahead of its results, had risen 2.5 percent by 0930 GMT to 3.31 euros, below an earlier high at 3.4 euros. IAWS shares were up 0.7 percent and Origin's up 0.4 percent, while the wider Irish market was down 0.5 percent. (Editing by Will Waterman)