Shares in Greencore closed just one cent lower yesterday as investors shrugged off worries about the impact of EU sugar reform on the company's business.
A draft EU document, details of which emerged late on Wednesday, shows the European Commission proposing a 40 per cent cut in EU sugar prices and a 16 per cent reduction in quotas to 14.6 million tonnes from 17.4 million. It is also proposing to scrap the safety-net intervention scheme in the first reform of the European sugar regime since its introduction in 1968.
Greencore shares shed more than 2 per cent in early trade but later recovered to close just one cent lower at €3.15. They outperformed most of their European counterparts as Greencore chief executive Mr David Dilger said the company was already planning for lower prices and lower quotas.
But he described the sweeping proposals set out in the draft document as "a first shot in a long process" and a move to condition expectations by Brussels bureaucrats.
"There will be quota changes and price changes but the final proposal will be radically different to what we are looking at now," he told The Irish Times yesterday.
He declined to comment on whether the proposed reforms could force Greencore to close one of its two sugar facilities and consolidate processing at a single site. Greencore's sugar division, Irish Sugar, has facilities at Carlow and Mallow, each with a processing capacity of approximately 9,000 tonnes of beet per day.
However, shares in Germany's Suedzucker, Europe's top sugar refinery, fell 5 per cent yesterday as the company said the EU proposals could force it to shut refineries.
"Such proposals will make it of critical importance to produce in the best beet production areas in Europe," a Suedzucker spokesman said. "Suedzucker will take action on this."
Shares in other European sugar companies also fell yesterday. They included Associated British Foods - which owns the Silver Spoon brand - and Britain's Tate & Lyle, as well as Dutch food group CSM.
However, brokers noted sugar now accounts for less than a quarter of Greencore's profit, following the group's diversification into the convenience food sector in recent years.
Merrion Stockbrokers pointed out that Irish farmers are paid around €50 per tonne for sugar beet and would still be able to produce profitably at around €36 per tonne.
"Thus Greencore should be able to pass on part of any price decrease to the farmers," Merrion said. It added that Greencore is also targeting savings of €3 million per year by 2007 through increased automation and further labour-saving measures within the sugar beet factories.
Irish Sugar is the Republic's only sugar processor, processing almost 1.4 million tonnes of sugar beet each year, sourced from approximately 3,600 Irish growers. It produces the entire Irish quota of 199,208 tonnes of sugar annually and supplies the great majority of the market requirements for sugar in the Republic.
Separately, Greencore announced that it had co-opted Mr David Simons as a non-executive director, with effect from July 1st.
Mr Simons is chairman of Littlewoods and has extensive experience in the UK retail sector, having worked as chief executive of British supermarket chain Somerfield.
He has also held a number of senior positions with other retail companies, including Storehouse, House of Fraser and Toys R Us.
