Food manufacturer Greencore has felt the full weight of its blockbuster merger with rival Bakkavor, as integration costs dragged the company into the red during the first half of the year. The FTSE 250 business, which supplies major supermarket chains including Tesco, Sainsbury's and M&S, was burdened by substantial upfront integration expenses, pushing it to a loss of £13.4m.
Integration Costs Hit Bottom Line
Greencore is headquartered in Dublin, while Bakkavor has sites across the UK, including in Somerset, Wiltshire, Aston in the West Midlands, Crewe in Cheshire, Barton in West Lancashire, and across the East of England and the South East. Shares tumbled more than four per cent to 229.55p when markets opened on Wednesday morning. This came despite revenues climbing 3.2 per cent to £1.3bn, buoyed by inflation-driven price increases. The company confirmed it had already unified management structures with Bakkavor, with an ambition to achieve £80m in annual savings within three years.
However, a sizeable £60.6m transaction charge linked to the integration took a considerable chunk out of its bottom line. Greencore, the firm behind last year's now-notorious Red Diamond Strawberry and Creme Sandwich for M&S, has taken on significantly more debt as a result of the acquisition, with borrowings rising £681.4m to £817.6m. Its leverage ratio stood at 2.3x, marginally more reassuring than the 2.5x analysts had anticipated.
Monitoring Macro Developments
Dalton Phillips, the firm's chief executive, said the business was monitoring macro developments and inflationary impacts from events in the Middle East. Greencore highlighted an arrangement with supermarkets designed to shield it from bearing the full brunt of rising ingredient costs. For roughly three-quarters of its food purchases, it operates under a joint agreement with suppliers. When ingredient prices climb, supermarkets automatically consent to paying more for the finished goods.
US Operations Put Up for Sale
As the food manufacturer set its sights on future expansion, it announced intentions to put its US operations on the market. While the US business continues to perform strongly, we are exploring a potential sale of the business, Greencore said on Wednesday. The American arm delivered £5.5m in pre-tax profit over the six-month period and added £4m in net profit to Greencore's overall results.
The move to divest the division reflects Greencore's renewed focus on becoming the UK's leading manufacturer of fresh convenience foods in the wake of the Bakkavor integration. It anticipates completing any sale of the US operations within 12 months of striking a deal.
