Greencore shares slide as M&S sandwich supplier counts cost of Bakkavor takeover
Food manufacturer Greencore counted the cost of its mammoth deal with rival Bakkavor as integration expenses plunged the firm to a loss in the first half of the year.
The FTSE 250 firm – which is a supplier to countless supermarket giants including Tesco, Sainsbury’s and M&S – was weighed down by upfront costs associated with the integration, which led to it sliding to a loss of £13.4m.
Shares dived over four per cent to 229.55 as trading started on Wednesday morning.
It came despite revenue growing 3.2 per cent to £1.3bn on the back of rising prices amidst inflation. The firm said it had already combined management structures with Bakkavor, with the target of notching £80m in annual savings within three years.
But a whopping £60.6m transaction fee relating to the integration helped take a bite out of its bottom line.
Greencore – which made the infamous Red Diamond Strawberry and Creme Sandwich for Marks and Spencer last year – has loaded up on debt as a result of the deal, rising £681.4m to £817.6m.
But its leverage ratio – a financial metric that measures how much a company relies on borrowed money to finance its assets and operations – sat at 2.3x, a figure slightly safer than the 2.5x the market was expecting.
Darren Shirley, equity analyst at Shore Capital, said Wednesday’s updates on the “combining of two large firms” marked “outstanding, albeit necessary, achievement – demonstrating excellent control”.
Greencore puts US operations on sales block
Dalton Phillips, the firm’s chief executive, said the business was monitoring “macro developments and inflationary impacts from the events in the Middle East”.
Greencore pointed towards a deal with supermarkets where it doesn’t have to absorb all the risk when the cost of ingredients goes up. For about three-quarters of the food bought, it has a “joint agreement” with the suppliers. If ingredient prices rise, the supermarkets automatically agree to pay a higher price for the finished products.
As the food producer turned attention to further growth ambitions, it unveiled plans to put its US operations up on the sales block.
“While the US business continues to perform strongly, we are exploring a potential sale of the business,” Greencore said on Wednesday.
The division made £5.5m in pre-tax profit during the half-year and contributed £4m in net profit to Greencore’s bottom line.
The decision to offload the division comes as Greencore doubles down on ambitions to be “the UK’s leading manufacturer of fresh convenience foods” following the Bakkavor integration.
It expects any sale of the US operations to be completed within a year of a deal being reached.