BUSINESS OPINION:JUDGING THE effectiveness of any damage limitation exercise is far from easy, but based on its share price, Greencore's efforts to alleviate concerns over the €21 million fraud at its Scottish mineral water business are not working too well, writes John McManus.

As of Friday evening, Greencore shares were down by 56 cent from their closing price on Tuesday, the day before the news broke. It represented a decline of over 20 per cent in a period when the Iseq managed to tread water.

When you consider the extent to which the Iseq is dominated by financial shares, the sell-off in Greencore seems an excessive response to an event the company thinks will knock €9 million off this year's operating profits, which brokers estimate will be in the region of €80 to €90 million.

The various broking houses in Dublin appear to have taken the company's guidance at face value and trimmed their earnings forecast by the 4 cent per share that Greencore estimates will be the cost of sorting out the mess.

It's not good news, but it hardly seems to justify wiping the best part of €100 million off the company's market capitalisation last week.

The sell-off seems all the more surprising given that Greencore appeared to handle the whole thing quite deftly.

Patrick Coveney, the chief executive of some 12 weeks standing, came out with his hands up and accepted responsibility, whatever that actually means in this day and age.

The company has set out in detail how and why it proceeded in the way it did after the fraud came to light. It can with some conviction say that it informed shareholders and the market as soon as practically possible.

In addition, the individual at the centre of the fraud no longer works for the company, and three other line managers have left.

The company has instigated a root-and-branch review of its internal controls and external audit processes with the help of an independent firm of auditors. The company's relationship with auditors PricewaterhouseCoopers is understood to be under review.

It's hard to see what more the the company could reasonably be expected to do at this stage, but it clearly does not seem to have been enough.

The explanation for the rout would appear to be the damage that the news has done to confidence in Greencore's strategy and its management.

As NCB analyst Paul Mead put it rather succinctly last week: "the discovery of this level of internal fraud within a key division recently expanded via acquisition to overcome capacity issues, is a major setback to Greencore's new management team. It is likely to weigh heavily on its share price until confidence in Greencore's group-wide internal control systems and its numbers are fully re-established - which will take time".

And that is putting it nicely. The real fallout from last week's news is that it casts serious doubt over Greencore's ability to carry through its strategy of expansion in the convenience and chilled foods market, mainly through acquisition. Greencore's management bought something of a pig in a poke in Scotland and the question on investors' minds must be have they bought any others - or will they buy some more?

It is not the sort of question that you want to be asking the management of a company that has enough on its plate dealing with huge increases in the price of raw materials and waning economic growth in many of its markets.

And to top it all, the upside around its extensive Irish property portfolio is getting smaller by the day.

Regaining the confidence of the market will be difficult. And as Coveney is one of the first to admit, it is not helped by the fact that he was the group's chief financial officer for much of the period during which the fraud went undetected. He was responsible for making sure that the internal controls worked and that the internal and external auditors were doing their jobs.

Obviously, the question of whether or not Coveney's position is tenable arises, but there seems little appetite for such a gesture at this stage, but that could change if it emerged that some specific action, or lack of action, on his part contributed to the fraud going undetected.

Outside of this, his resignation would only add to the uncertainty surrounding the company and its management. Coveney looks like he will get - and in fairness is probably entitled to - a chance to sort out the mess, which is not entirely of his own making.

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