x Abu Dhabi, UAEThursday 27 July 2017

Irish company caught in horse meat scandal

Greencore was hit hard after it confirmed it had supplied Asda with beef bolognese sauce found to include traces of horse meat.

Greencore, a major meat supplier based in Dublin, was hit hard after it confirmed it had supplied Asda with beef bolognese sauce found to include traces of horse meat.

Asda has withdrawn the product as well as three other Greencore products as a precaution, prompting the food maker to say it was "extremely concerned that the quality of one of its products may have been compromised in this way".

Greencore shares fell 9.5 per cent on Friday, the most in 14 months, to 92.5 pence at the close in London.

The chief executive of Greencore, which had revenues of some £1.6bn (Dh9.12bn) last year and a 28 per cent share of the UK chilled Italian meals market, is Patrick Coveney, the brother of Ireland's minister for agriculture.

The horse meat discovery risks damaging the reputation of Greencore and the popularity of foods it helps to make, such as frozen ready meals.

"The scale of the adulteration to date has proved to be more than a body blow to the food chain," said Clive Black, an analyst at Shore Capital.

"No doubt further disappointment will follow, although new testing procedures are likely to follow this issue, which may be a force for good."

Moody's Investors Service said the crisis risked hurting highly-leveraged companies in the food industry that have "relatively low product diversity".

"The high leverage has been fostered in part because of the interest of private equity owners, who are attracted by the perceived stability of cash flow generation typically exhibited by these kinds of companies.

"These companies, with their ongoing debt service needs, are very sensitive to top-line losses and increased costs and have little tolerance for material event risk," it said.

While the developments create a great deal of nervousness, the underlying investment case for Greencore should not be ignored, said the Investors Chronicle.

"Greencore has a strong balance sheet, a dividend yield of 4 per cent and is trading on a hardly demanding 6.7 times earnings for the 2013 calendar year," it said.

"Furthermore, Greencore has a solid business in the US and the shares are still up on our buy recommendation in May [buy at 72p]."

* with agencies