NOT QUITE a dream start. Only 12 weeks after he took the top seat in Greencore, Patrick Coveney has disclosed a €21 million fraud in the mineral water unit of the convenience food company. It's an unenviable state of affairs and he's not denying it for a second.
"It's a real blow for us," he said yesterday. "This shouldn't have happened. But it having happened, what we've had to do is diagnose the extent of it and understand the mechanics of it."
In his seventh-floor office overlooking St Stephen's Green, Mr Coveney accepted it was a particular disappointment to him personally that he was chief financial officer for the bulk of the fraud period. Appointed chief in December in succession to David Dilger and in office since April, he said he won't shy away from the issue. "I'm responsible ultimately for this having happened and I'm responsible ultimately for fixing it."
Greencore believes the former financial controller of its mineral water plant engaged in a "deliberate concealment of costs" over three years at its water plant at Campsie Spring in southwest Scotland. This business, which has €40 million in annual revenues, produces own-brand water for major supermarkets in Britain.
Concern first surfaced on June 6th during a routine internal audit process initiated in April. An inquiry followed, leading to the dismissal of the three managers with direct responsibility for the former financial controller, who is understood to have left Greencore of his own volition in April.
It seems the impact of these irregularities was to keep the unit's profits in line with previous performance and with peer companies of similar scale, and Mr Coveney said "we have not found any evidence of personal enrichment".
Greencore's pre-exceptional operating profit of €74.6 million in 2006 will be reduced by €4 million, the equivalent profit last year of €91 million will be cut by €8 million and day-to-day profits in the current fiscal year will be down €9 million. For the year to September, this is likely to knock 4 cent per share from a consensus forecast for adjusted earnings per share of 28.2 cent. Ouch.
Mr Coveney accepted the irregularities in 2006 and 2007 were not uncovered in annual reviews of the company's individual business units by its internal auditor and external auditors PricewaterhouseCoopers. "Both were fully clear," he said.
Still, he disputed the suggestion that this means the company's systems are simply not robust enough. "It's not my view and it's not the view of our board that we have a lax control environment."
He spent much of yesterday on the phone to shareholders and said he acknowledged their disappointment and the sense of a "temporary hit" to confidence in the company. However, he said the firm offered reassurance that it has "bottomed out the issue" and had demonstrated a robust process in the way it had dealt with the problem, diagnosed it and managed it.
None of that, however, can disguise a 14.87 per cent drop in the company's share price, enough to reduce its market capitalisation by more than €73 million.
The man who feels the most pain in that decline is 29.5-per-cent-investor Liam Carroll, Greencore's biggest shareholder and a man said to have designs on its valuable property portfolio.
Did Mr Coveney speak with him personally? "What we've sought to do is to proactively talk to all of our significant shareholders directly," he said. "At the very least they're entitled to hear directly from the company what's happened, why it happened and what we're going to do about it."
A happy situation it is not, but Mr Coveney said he has no choice but to deal with it. "There are lessons for us, no question about it," he said. "This shouldn't have happened."
