FRIDAY INTERVIEW:Patrick Coveney, chief executive of Greencore
PATRICK COVENEY doesn’t look like someone who eats ready meals. As thin as the proverbial rake, he looks like he could run from Dublin to his native Cork without too much trouble. But as chief executive of Greencore – one of Britain’s biggest manufacturers of ready meals, sauces and cakes – he regularly samples his own products.
“I would have two or three [ready meals] a month,” he says. “We had, last Sunday week, the family-sized Tesco lasagne. Last night [Tuesday] I had the Tesco Finest steak Diane. The other products we use a lot would be the cooking sauces. We make a point of buying some of our cakes that are listed here.”
Given his lean physique, Coveney would be a good advertisement for ready meals, which are often sneered at by celebrity chefs. Having ditched the company’s sugar heritage, convenience foods are now Greencore’s bread and butter, and Coveney makes a stout defence of their nutritional value.
“In response to a lot of criticism, the product specs in the ready meals area have been dramatically improved in the last three or four years, such that, actually, some of the products are at least as healthy as stuff being prepared at home,” he argues. “They’ve less salt, less fat and less preservatives. If you eat any one food type continuously, that’s going to have issues for your health.”
Greencore has certainly got its teeth into the market. It is the world’s biggest sandwich maker, and the number-one seller of Italian ready meals in Britain. It also sells about one in three (mostly frozen) Yorkshire puddings across the Irish Sea; is a big supplier of Christmas cakes to supermarkets; and produces a range of chilled and ambient sauces.
It has also dipped its toes into the US market, buying a business in Boston last year that has current annualised sales of $150 million (€100 million). Coveney hopes to raise this to $1 billion within five years, and has an eye on further acquisitions.
Convenience foods last year accounted for just under €800 million of Greencore’s €1.1 billion turnover, although this was 9.4 per cent down on the previous year. The operating profit was flat at €46 million, but its margin increased by 50 basis points to 5.8 per cent.
It’s a high-volume, low-margin business that doesn’t exactly set pulses racing.
A criticism from the investment community is that Greencore’s annual accounts always seem to be weighed down by exceptional items and that the company puts a gloss on its results by highlighting figures on a constant currency basis.
This was a feature of this week’s results, which highlighted its sales, operating profit and earnings performances on a constant currency basis rather than taking into account the 13 per cent hit that resulted from sterling’s weakness against the euro last year.
On exceptionals, Coveney admits: “I would like us to have less of this restructuring. It’s a small achievement rather than a big one, but we’ve had no restructuring in the second half of the year [fiscal year 2009].
“You could argue that it’s a stick to beat myself with, but my team, my board and I are not planning to have any restructurings in 2010 and 2011. What we need is a highperforming UK convenience business and a high-performing one in the US.”
That said, Greencore expects to close the €19.6 million sale of its water business to Highland Spring Ltd by next April. This will be something of a monkey off Coveney’s back. In 2008, Greencore uncovered a €12 million fraud at the Scottish mineral water division over the previous two years that forced the company to restate its accounts and saw its share price nosedive.
This happened on Coveney’s watch as chief financial officer (CFO), and was revealed not long after he became chief executive.
Did he consider resigning? “No,” he says without hesitation. “The view I took was that, first of all, this was my fault. It happened on my watch, a lot of it while I was CFO. But while I was responsible for it happening, I also thought I was pretty well equipped to actually fix it, and that’s what I got on with.
“What you find is that, if somebody within a finance function sets out to deliberately conceal costs, and operates with two sets of books, they can get away with it for a while. The comfort I take from it is that we did find it ourselves.”
So water has become the latest business to be offloaded. Sugar had gone in 2006, and other, smaller non-core divisions have also been gradually offloaded.
Its malt business – the mainstay of its €304 million sales ingredients arm – is effectively on the blocks, with three companies thought to have made approaches to buy it. Malt is said to have a price tag of about €120 million.
Coveney says the disposal of malt will only happen if the right deal comes along, but admits that he does not see the business forming part of Greencore’s long-term future.
“The issue for us in malt is that it’s a very different business to convenience foods – not that it’s not a good business. As we go forward in the medium term, the focus of our business will be on convenience foods. While I’m clear on where we’re going, we don’t have any financial reason to dispose of our malt business, so it’ll only be if something emerges that is absolutely compelling for us and our shareholders to transact.
“I would be surprised if, three years from now, we’re not much more closely aligned around our portfolio of convenience foods.”
The other leg to the business – albeit a crook one – is property. Having closed Irish Sugar, Greencore was left with two large industrial sites in Mallow, Co Cork, and Carlow town, comprising about 620 acres between them.
At the time of the closure, the Irish Farmers’ Association valued the land assets at €187 million based on a study carried out by Finnegan Menton, an estate agent. Its book value was just €40 million.
Coveney describes the various blue-sky valuations that were floated at the time as “pipedream stuff”. “There was never any economic logic to that,” he adds.
As Coveney tells it, Greencore couldn’t have sold the sites at the time even if it had wanted to. Under the terms of its voluntary wind-down of Irish Sugar, the company was required to “remediate” both sites.
“There were some serious legal and environmental obligations placed upon us to do that,” he says, adding that the total cash costs of this work and redundancies is about €60 million.
There is about 12 months of tidy-up work left to go, Coveney says.
But shouldn’t the company simply have cashed in its chips?
“There are a lot of decisions that, with the benefit of hindsight, you could have made differently,” Coveney says. “I think we would have struggled to meet the price expectations that were floating around at the time because of the requirements of delivering the restructuring plan. We are where we are.”
So Greencore will wait for the property market to rebound. “I don’t know when that will be, it might be a very long time. [We want to] minimise the cash investment we make in the lands and then, when the market comes back, effect an elegant exit.”
There is better news in the south of England, where Greencore owns 123 acres in Littlehampton, which sits on the coast between Portsmouth and Brighton. Greencore has teamed up with other local land owners to seek planning permission for 1,800 residential units. A decision is expected some time next year.
So how much will this land be worth? “The book value is about €30 million and we’d be confident that any exit would be more than that.”
Coveney is a polished performer. This might be a result of his 10 years as a management consultant with McKinsey, or his Oxford education. Or both.
He was one of seven children born to Hugh and Pauline Coveney, and spent his first 12 years growing up in the Cork suburb of Blackrock. The clan then moved to a farm in Minane Bridge on the outskirts of the city. Coveney describes it as a “happy” and “supportive environment”.
“It was one which had lots of competitive aspects to it, not in a negative, tension-filled way, but my father was very demanding of his children – and did that more in terms of the opportunities he put in front of them, as opposed to the pressure.”
Sport was another big feature of growing up. Coveney played under-age for Munster and Ireland as a second row forward, represented Oxford, and even had a couple of seasons with the London Irish first team.
Would he have liked to be a professional? “Ah no, I wouldn’t have been good enough. I played in the semi-pro era where we got cars and decent expenses but not a salary and, importantly, you were able to have a real job.”
His father was a former lord mayor of Cork and represented Cork South Central in the Dáil for Fine Gael, serving as a minister for defence and for marine.
He died in an accident while out walking his dogs in 1998. Coveney was working in London with McKinsey at the time.
“It was a huge shock to all of us,” he recalls. “The consolation I take from it is that my father died at the peak of his health. So the memories that we all have of him are of a very healthy, very action-orientated, successful, driven, engaged man.”
He also believes it “removed a crutch” from the children and focused their minds on what they wanted to achieve from life.
Media speculation at the time centred on whether he or his younger brother Simon would run in the subsequent by-election.
“There was some general pressure put on the elder children in the family to consider, in the time-honoured Irish tradition, standing for Fine Gael,” Coveney says. “But Simon was the one with the enthusiasm to do it, and he had the full support of all of us to do that.”
Coveney has no political ambitions of his own. “My primary involvement in politics is in supporting Simon. Beyond that, I’m not actively involved.”
He feels Fine Gael’s time might be nigh. “By the time there’s an election, there’s likely to be a change. I think that’s healthy. By 2012, it will be 30 years since Fianna Fáil lost an election, and I think there will be a mood for change then.”
And what ministry would his brother like? He chuckles before proffering an answer. “I haven’t a clue. I know he likes the current spokesmanship [communications, energy and natural resources] he has.”
Coveney has chosen a corporate path with Greencore. “My skillset and training are around being a professional manager. I’m more that than an entrepreneur.”
ON THE RECORD
Name: Patrick Coveney
Job: chief executive of Greencore
Why in the news?Greencore reported full-year results this week for fiscal year 2009.
Age: 39
Family: wife Emma and four children
Lives: Dublin
Hobbies: golf and running
Something you might expect:Huge fan of Ireland and Munster rugby, in that order.
Something that might surprise:He drives a Mini Cooper despite being 6ft 6in tall.
