International
Markets: Greencore reports 6% rise in half-year profits; Glanbia's chief to retire
By Finfacts Team
May 21, 2013 - 12:56 PM

Glanbia plc, the global nutritional solutions and cheese group, today announced that John Moloney, group managing director, has notified the board that he wishes to retire by the end of 2013, having been due to retire in 2014. Siobhán Talbot, group finance Director, has been appointed as John Moloney's successor.  She will become group managing director designate from June 1, 2013 to ensure a smooth transition of the leadership of the Group.

Talbot joined Glanbia 1992 and is a fellow of the Institute of Chartered Accountants in Ireland.

Moloney said he feels that after 12 years at the helm and over 25 years with the group, it is the ''right time'' for all concerned to pass the leadership of the company to someone new.

Greencore, the UK-listed company, that mainly operates in the UK and US, today reported half year revenues of £572.9m sterling, up 0.9% on the same time last year. Group operating profits for the six months to the end of March rose by 6.3% to £33.7m and earnings per share increased by almost 11%.

Patrick Coveney, Chief Executive Officer, commented: “We have made good progress on our strategic agenda during the first half of the year, despite the fact that market conditions throughout the period proved very challenging. In the UK, we have completed the Uniq integration with the restructuring of the desserts business and the disposal of the Minsterley facility, and the integration of International Cuisine is progressing well. In the US, MarketFare and Schau have been integrated and, since the end of April, we are supplying Starbucks from four of our six facilities there.

However the UK retail environment remains under severe pressure and this was exacerbated in Q2 by the horsemeat scandal, which has temporarily driven the ready meals market lower."

Results detail [pdf]

Liam Igoe of Goodbody commented: "Greencore’s headline results were ahead of our forecast (+8.9% in EPS terms). The key positive variances were in operating profits (both Convenience Foods and Ingredients & Property) and interest. As expected, lfl sales in the UK were negative (-1.3%) arising from the impact of the horsemeat scandal on sales of ready meals. Other UK food divisions were mixed in terms of lfl sales but positive overall. US sales more than doubled to reflect the acquisitions last year and the initial roll-out of products into Starbucks.

Overall, the impact of the horsemeat scandal was less than feared. Chilled meals H1 sales from Greencore increased by 10.7% on a headline basis because of the International Cuisine business but fell 5.9% on an lfl basis, with the fall concentrated in the January-March period. Quiche performed well within Prepared meals with growth in excess of 4.5%. The largest division, Food to Go, saw flat sales in the period (+0.1%) in a generally slower growth market (broader food-to-go -0.2%). Grocery & Frozen foods saw revenue increase 4.5% due in part to increased sales to discounters, though Cakes & Desserts fell 2.9%.

Sales in the US more than doubled in H113. There has been a sea-change in this business over the past year consisting of: (i) further streamlining of the legacy supermarket business by the elimination of loss-making lines; (ii) the acquisitions of Schau (for $17m on June 21 2012) and Marketfare (for $36m on April 17 2012) and (iii) the new $50m Starbucks’ contract. Greencore has now rolled out its product offering into over 1300 Starbucks’ outlets in the US (some 12% of its US estate). Sales to these outlets are targeted to deliver $50m in sales in FY14.

While Greencore’s H1 EPS was well ahead of our forecast, the UK market environment remains difficult. However modest lfl sales growth in the core UK market is likely, partly due to easier (weather-related) comps. Nevertheless our assumed 2% lfl growth for the year may not be exceeded. We are unlikely to make any material changes to our forecasts and expect to retain our forecasts at EPS level, therefore, at 13.8p."

All eyes looking to Bernanke and the Fed tomorrow to add some much needed stimulation; Yen remains the main focus, helped by an about-turn from Japan’s economy minister partially retracting yesterday’s comments.

Justin Doyle, Investec Bank Ireland, said today:

• "FX markets remained extremely quiet over the past 24 hours with volumes in the bottom 50th percentile for the past 12 months. All eyes looking to Bernanke and the Fed tomorrow to add some much needed stimulation;
• Of note was Chicago Fed’s Charles Evans speaking yesterday, in which he was thought to strike a more dovish tone than usual. While he expects to see 'self-sustaining (U.S.) growth' at "escape velocity" in 2014, he did add that the Fed is missing on both inflation and employment targets and he wants to see further asset purchases until the job market improves. Two more FOMC voters speak today in the form of St Louis Fed’s Bullard and the NY Fed’s Dudley;
• In terms of currencies, the Yen remains the main focus, helped by a familiar about-turn from Japan’s Economy Minister Mr. Amari partially retracting yesterday’s comments on JPY: ‘can’t say when correction from strong Yen will end’ versus 'correction of the strong Yen is largely complete' the previous day!
• In the UK today the only show in town is the CPI, PPI & RPI, all out at 09:30 with a 0.1% increase in CPI expected to 0.4% mm leaving it still above target in the medium term."

Economic View: International tax spotlight on Ireland; Dermot O'Leary, chief economist of Goodbody, comments - - "An uncomfortable spotlight will continue to be shone on Ireland today as the international debate on corporate tax practices of large multinationals intensifies. There is no suggestion that anything illegal is occurring but companies located in Ireland are being repeatedly mentioned in structures that aim to minimise the amount of tax paid in countries such as the UK and the US. Some of the companies mentioned are large employers in Ireland.

Last week, the spotlight centred on Google’s operations in the UK in a Parliamentary Committee hearing. Today, Apple Chief Executive, Tim Cook, will testify in front of the Senate sub-committee on how they manage to pay little tax on their international operations. In a report, released yesterday ahead of the hearing, two Irish subsidiaries are mentioned as key to the whole process, while, according to the Irish Times, the report claims that Apple has negotiated a tax rate of 2% with the Irish Government. We find this point hard to believe, but it may be the case that the company is using a series of tax structures to reduce the effective rate of tax that it pays.

Deficiencies and loopholes in international tax law have allowed companies to use these types of structures to minimise their tax bills. Indeed, tax avoidance has been around for decades. Nevertheless, the scale of attention that it is now receiving from various committees, the European Commission and even the G8 is greater than ever before.

From Ireland’s point of view, these companies have very legitimate operations with thousands of employees located here. However, the tax practices have had the effect of legitimately inflating sales in these Irish operations. Although, the tax benefits to the Irish government have been small, this has had an effect on the headline macro statistics. Ireland is keen to highlight that it has a transparent tax regime, but the recent international attention is threatening that image. This story has more to run."

Apple has special Irish tax rates; 'Stateless' companies based in Ireland

Banks 1: Q1 mortgage drawdowns 26% lower; Eamonn Hughes and Colm Foley of Goodbody comment - - "The Irish Banking Federation (IBF) published its Q1 mortgage drawdowns dataset yesterday, showing €331m of drawdowns in the quarter, down 26% yoy. Whilst mover-purchaser loans were down 14% yoy in the quarter, First-Time Buyer loans were down 29% yoy. The strong decline in the latter would tally with the strong growth in Q412 lending on the expiry of mortgage interest relief in the last Budget, which may well have drawn forward business from the opening quarter of 2013. Nevertheless, the IBF indicates in its accompanying statement that lenders are reporting a healthy pipeline of interest and it anticipates this to be reflected in the April approvals data which is due to be published soon.

Data from the property register shows that the value of transactions for Q113, currently at €873m, is 7% ahead of the same quarter last year. This suggests that the proportion of cash purchases has increased to c65% of transactions in Q1 from c46% in the final quarter of 2012 and 50% for the same quarter last year. Underlying momentum remains positive in volume terms, transactions up 12% on the same period last year, although they are 50% lower than Q42012 further emphasising the distorting impact of the expiration of mortgage interest relief at the end of 2012.

Recent approvals data had been guiding to a lower drawdowns figure for the quarter, however, a 26% decline is still a material retracement. Our mortgage assumptions have growth of €1bn for 2013, so the Q1 performance is already starting to provide a bit of a headwind to that assumption. So we will need to see a reasonable pick-up in approvals in Q2 to get our estimates back on track."

Bank of Ireland: Some UK customers to avoid mortgage rate increase; Eamonn Hughes added - - "BOI indicated a few months ago that it was set to raise mortgage rates for customers on trackers in its UK operations, with some customers potentially set to see rates charged move from 1.75% over base to 3.99%. The move came into effect this month. The moves were set to impact about 13,500 of the bank’s UK customers, though we note reports in the UK Times this morning that the bank has relented on c.10% of the customers impacted.

It appears that about 1,000 customers have been reprieved by the small print in their contracts whilst about 200 customers who had switched mortgages were not informed of the increases and will not now be impacted.

The re-pricing of the UK mortgage loan book last summer added an estimated 12bps to the overall group net interest margin this year. The additional re-pricing this year, whilst on a smaller number of clients, was at a relatively steep spread increment. Any reprieve for customers will not be welcomed by the bank, but overall the impact is immaterial in a group context."

Banks 3: PTSB chairman leads by example; Eamonn Hughes and Colm Foley of Goodbody further add - - "Permanent TSB is due to host its AGM tomorrow. While we understand there won’t be any accompanying IMS statement, we note commentary this morning (Irish Times) that the chairman and the bank’s non-executive directors are set to take 10% cuts in their annual fees from the start of next month, front-lining the group’s efforts to reduce its remuneration bill by 8%. The CEO is to take a reduction in his pension contributions and the staff have already been informed that the bank intends to wind down its defined-benefit pension scheme.

In recent months, the government produced a report that recommended that remuneration across the banking sector was required to be reduced by 6-10%. Permanent TSB pitched its own target at 8%. The announcement by the board, leading by example, presumably sets the tone of the discussions between staff and management."

Irish mortgage lending falls back in first quarter of 2013: Conall Mac Coille, chief economist of Davy comments - - "Stock markets had a relatively quiet day on Monday, with few macroeconomic data releases. The Euro Stoxx 50 closed up 0.2% and the S&P500 down -0.1%. Irish mortgage lending in Q1 2013 was just €331m, a fresh low. However, this follows the €1bn surge in Q4 2012 as borrowers rushed to take advantage of mortgage interest reliefs. The expiry of those reliefs at end-2012 meant lending was always likely to fall back in Q1.

Stock markets had a relatively quiet day on Monday, with few economic data releases. The Euro Stoxx closed up 0.2% and the S&P500 down -0.1%. The Chicago Fed National Activity index fell, holding back risk appetite and the US dollar. The euro is currently trading at just under $1.29, off recent lows. However, US ten-year bond yields are currently trading at 1.965%, close to recent highs.

Data released by the Irish Banking Federation yesterday showed new mortgage lending falling to a fresh low of €331m in Q1 2013. This is a 26.4% decline compared with Q1 2012. However, new lending was €1.0bn in Q4 2012 as borrowers rushed to avoid the expiry of mortgage interest reliefs. So lending was always likely to fall back sharply in early 2013.

A better comparison is to look at total lending through the last six months, smoothing through the volatility created by the end of interest relief. In aggregate, mortgage lending in Q4 2012 and Q1 2013 was €1.3bn, compared with €1.1bn in the same period through the turn of 2012/2013. So mortgage lending is up 22% over the past six months, albeit from an exceptionally low base.

The cooling-off period in early 2013 may also be evident in the Irish house price index, which fell 2% in Q1 2013, following a 0.8% rise in Q4 2012. Dublin house prices rose 2.6% in Q4 2012, but fell back by 0.7% in Q1 2013. Looking forward, mortgage lending should rebound as the year progresses. In aggregate, Irish banks’ targets suggest that mortgage lending should equal around €4bn in 2013. But this target now looks ambitious following just €331m of lending in Q1. Banks may not have fully factored in the drop-off in mortgage demand in early 2013, due to the expiry of mortgage interest relief, into their expectations for lending in the calendar year."