GREENCORE HAS announced that it is to sell its loss-making bottled water division to British water company Highland Spring in a deal worth almost €20 million (£17.5 million).
The decision to sell the business was anticipated – the division generated a pre-tax loss of €4.5 million in the year ended September 25th, 2008.
The business also became mired in controversy last year when it emerged that a cost concealment fraud had taken place within the division. Three executives were dismissed, and the episode resulted in a €4 million loss being recorded in the Irish group’s full-year 2008 results.
Under the terms of the deal announced yesterday, Greencore will receive an initial payment of £10 million (€11.2 million) from Highland Spring on completion of the deal. A further payment of £3 million is deferred until the second anniversary of completion, while the remaining £4.5 million will depend on the future performance of the business.
Greencore’s mineral water division, which has its headquarters in Glasgow, was established in 1997 and is one of the largest suppliers of bottled mineral water to the UK market, holding about 40 per cent of the market. The company sources its water from two sites in the UK – a facility near Lennoxtown in west Scotland, and a 40-acre site at Blaen Twyni in the Brecon Beacons National Park in Wales.
Greencore said it intends to use the proceeds from the sale to reduce group borrowings, although it is also expected that the money will be channelled into the company’s US expansion.
The company has indicated that it intends to focus its energies into expanding its convenience foods business, particularly in the US.
The acquisition announced yesterday will establish Highland Spring as the largest bottled water supplier in Britain.
In a statement yesterday, Highland Spring said the deal includes the transfer of Greencore Water’s entire workforce of 124. It says it hopes to double the current sales volume of the business and it will embark on a long-term investment strategy to achieve this.
It is expected that the deal will be completed by April 2010.
Greencore’s share price closed just over 2 per cent lower at €1.37 in Dublin yesterday. The company is due to release its preliminary results for the year to September 25th, 2009 next Wednesday.
