15th Mar 2006 14:38
Greencore Group PLC15 March 2006 GREENCORE TO EXIT IRISH SUGAR PROCESSING OPERATIONS CONTACT:DAVID DILGER, CHIEF EXECUTIVE OFFICER TEL: +353 (0)1 605 1045PATRICK COVENEY, CHIEF FINANCIAL OFFICER TEL: +353 (0)1 605 1003SEAN BRADY, CHIEF EXECUTIVE, GREENCORE SUGAR TEL: +353 (0)59 916 5001BILLY MURPHY, DRURY COMMUNICATIONS TEL: +353 (0)1 260 5000MARK GARRAWAY, COLLEGE HILL TEL: +44 (0)207 4572020 The Board of Greencore Group plc ("Greencore") today (Wednesday, March 15, 2006) announces thatfollowing an extensive review of the new EU Sugar regime and the EU sugar environment, its sugardivision will not process sugar in 2006 (or in any subsequent year). THE DECISION The decision of the EU Council of Ministers on November 24, 2005 effectively spelled the end of sugarbeet growing and processing in Ireland. Greencore had hoped to be able to undertake 'one morecampaign' in 2006/2007 but unfortunately, and despite considerable efforts on the part of manyparties, it is not feasible to do so. Greencore would incur unacceptable losses if it processed sugaragain. Such losses would be driven by: - a sustained deterioration of EU industrial sugar markets- payment of a EUR25 million restructuring levy (confirmed in the Regulation of February 22, 2006) in an environment where the recovery of this levy from sugar customers is uncertain- reduced sales due to the EU-imposed temporary quota cut of 11.6% (agreed on March 3, 2006)- significant operational risks associated with running 'one more campaign' The continued uncertainty over the availability of a full beet supply could have exacerbated theselosses further. Given all of these factors, Greencore will not process sugar again and as determinedby the EU sugar regime reform mechanism, the Group intends to renounce its quota and present arestructuring plan to the Irish Government to secure the aid to which it is entitled. It is envisaged that the sugar factory at Mallow will close in May. The employees of Greencore Sugarare being advised of the fact that there will be no further campaign at briefings this afternoon andGreencore Sugar will be engaging in the appropriate information and consultation process with itsemployee representatives in the coming weeks. Greencore Sugar remains committed to serving its customers. It has sufficient stocks of sugar tofully service Irish industrial sugar and retail customers until November 2006 and is putting plans inplace to supply these customers under the Siucra and McKinney brands thereafter. Commenting on the decision, David Dilger, chief executive of Greencore said: "It is a very sad day for everybody involved in sugar processing and beet growing in Ireland, notlessened by the inevitability of closure due to the EU sugar regime change. The Board regrets that ithas no alternative but to take this course of action. Since the EU sugar regime change was announced,we have worked really hard with our staff and our growers in a determined effort to have one lastcampaign. However, the regime change has turned an efficient, profitable operation with dedicatedemployees into a loss making processing business with no viable future. This is a difficult time forall associated with sugar processing and beet growing in Ireland. I would especially like to thankour workforce and our growers for their tremendous endeavour and commitment over many years". FINANCIAL EFFECTS Greencore generated operating profits of approximately EUR25 million from sugar processing in the yearended September 30, 2005. In the current financial year, operating profits from sugar processingactivities are expected to reduce to approximately EUR15 million, reflecting the sustaineddeterioration in EU industrial sugar markets and the loss of profits generated from the sales of seed,chemicals and fertiliser associated with growing another crop. The gross cost associated with an exit from sugar processing is expected to amount to approximatelyEUR168 million, comprising anticipated redundancy costs, site decommissioning and associated costs ofapproximately EUR61 million, and fixed asset impairment of approximately EUR107 million.Approximately one third of the estimated gross costs will be cash costs. These exit costs will be partially offset by the receipt of compensation from the EU temporaryrestructuring fund. The total restructuring aid payable to Ireland amounts to EUR146 million. Thefinal EU regulation (of February 22, 2006) sets out the process for confirming the allocation andpayment of this compensation. In essence, the 'Member State' is charged with allocating therestructuring aid based on the restructuring plan submitted by Greencore and in accordance with thespecific requirements of the regulation. Given the 'Member State' role in allocating therestructuring aid, there is some risk to the level of aid that Greencore will receive. However, theGreencore Board, having taken independent legal, economic and financial advice has determined that theGroup is entitled to 90% (EUR131 million) of this restructuring fund, with the remaining 10% (EUR15million) to be reserved for Irish beet growers and machinery contractors. On this basis, the Boardwill recognise a receivable of EUR124 million (the present value equivalent of EUR131 million) in itsaccounts for the half-year ended March 31, 2006. A net charge of EUR44 million will be reflected inthe interim financial statements for the six months ended March 31, 2006. THE FUTURE Greencore has advised the Irish Government of its intention to cease processing and renounce quota.As required by the EU regulation, Greencore intends to submit a comprehensive restructuring plan.Under the regulation, a decision to approve or reject the Greencore restructuring plan is requiredfrom government by September 30, 2006. The restructuring aid is then to be paid in two tranches - 40%in June 2007 and 60% in February 2008. Sugar processing has flourished in Ireland for nearly 80 years. Greencore Sugar has a highlyeffective workforce, strong operational capability and a culture rooted in processing excellence. Itscontribution to Irish agribusiness has been considerable. However, while unfortunate, this decisionis not unexpected. EU sugar regime reform has always had the potential to threaten sugar industriesof relatively small scale, especially where there is a reliance on sugar beet that for climatic andother reasons was uncompetitive in a EU context. Greencore has been reshaping its portfolio for sometime (in part to diversify in advance of anticipated EU Sugar reform) and has built a high performingconvenience food division. In 2005, this division grew to account for 62% of Group continuing profit,up from 25% in 2000, and it continues to perform well this year. ENDS CAROLINE BERGINGROUP COMPANY SECRETARYST STEPHEN'S GREEN HOUSEEARLSFORT TERRACEDUBLIN 2 MARCH 15, 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Greencore