STERLING WEAKNESS and food price inflation led to a 14 per cent drop in pretax profits at convenience food group Greencore in the six months to the end of March.

The company’s new chief executive, Patrick Coveney, said the group had made gains in market share despite the “testing environment”. But a 10 per cent swing in the value of sterling against the euro and difficulty recovering some cost increases in its grocery business meant pretax profits fell from €34.8 million to €30 million.

Greater price sensitivity could play to Greencore’s advantage, Mr Coveney said, because consumers in its main market, the UK, and its main target market, the US, were shifting away from out-of-home consumption to home eating, which would help its sales.

Group sales rose 2.5 per cent to €648.7 million and by more than 10 per cent on a constant currency basis – before the effects of currency translation – compared to the same period last year. Adjusted earnings per share increased 7 per cent to 13 cent.

Operating profits in its convenience foods division, which accounts for more than two-thirds of Greencore’s business, fell 12.5 per cent to €27.9 million after it was translated from sterling to euro. Some 80 per cent of its revenues and costs are in sterling.

Greencore estimates that it will see price inflation of €57 million in its convenience food division this year. Input costs rose by €22 million in the first half and it recovered €19.5 million of this. But margins in its convenience food division fell by half a percentage point.

Operating profits in Greencore’s ingredients and property division jumped 61 per cent to €13.2 million as the food group capitalised on higher malt prices.

Greencore’s share price fell 5 per cent yesterday to €3.07, closing down 16 cent. The firm will award an interim dividend of 5.3 cent, up 5 per cent on last year. Mr Coveney said food prices would continue to rise by double digits:

“We’re in an era now where food is going to get progressively more expensive, and the consequences for the food industry are very significant . . . You see people shopping with calculators in a way that you haven’t for 10 years.” Greencore, which earns the bulk of its revenues from manufacturing food for supermarkets in the UK, has won new contracts to supply chilled foods and bottled water to Marks Spencer.

Mr Coveney said its recent purchase of Home Made Brand Foods in the US would help it build a substantial convenience foods business there.