Patrick Coveney - Greencore

A couple of small points I have for my sins relinquished the duties of the Dublin Chamber of Commerce presidency about a month ago, so if you've got any complaints about litter in Dublin or Liam Kavanagh is your man, not me, going forward. Harb, it was a real pleasure to follow on from you. Some of this you may know and some of it you might, but there are some strong commonalities for me between Aercom and indeed yourself. We shared a chairman for some time, Ned Sullivan, Cherry Green Court, through much of the period that I'm going to talk about in a second, and we also share a history in that we were both at one point, namely our businesses rather than ourselves, although it sometimes feels like the latter, owned by the Irish State, and that I think brings with it a sense for many, many people in Ireland that they still own you, and you get a level of scrutiny around your business which for the most part is interesting and helpful, but sometimes can be challenging too. When I was first asked by Danny to come and talk today, I had anticipated talking a little about Greencore, a lot about the opportunities as I saw them for Ireland in food and agri going forward, but given what has unfolded across the European food industry in the last seven weeks, I think frankly it wouldn't make any sense for me not to address some of those issues explicitly, both in terms of what's happening, what I think is going to happen, and what that will mean for the evolution of the food supply chain going forward. So I do want to get into that, but before doing so, I think it's worth describing a little where Greencore comes from.

And why we are such an important stakeholder in that in the UK and beyond. Many of you will know, in fact I think almost all of you who were in primary school in Ireland will know the history of Greencore. I certainly learned when I was in primary school in Cork the names and locations of the four Irish Sugar factories, and indeed we were the first high-profile case study as a business when we were privatized in 1991. Our business has changed enormously since then. The, I guess, one test for that is that of the portfolio businesses that we have today, less than 1%, in other words less than 1% of our assets were part of the portfolio of assets that were privatized by the Charles Haughey government of 1991, so that will give you a sense for just the fundamental new nature of the business that we have. And in the five years that Oliv you referred to in which I've been CEO of the business, we've changed enormously too. We have sold 10 of our business units, we've acquired 10 more. Of the 24 manufacturing sites that we have around the world, 14 are new to our group in the last five years. Of the 150 senior managers that we have in the group, more than 60 are new to our group in the last 18 months. We have effectively a brand new board, a new chairman, three new non-executive directors, and somewhat frighteningly, I am the second longest serving director on the Greencore group board now. And all of that has fed into the culture of the business that we have today. We've gone in that period from being a business whose heritage and culture was driven by being in a relatively slow moving food ingredient sector to being in a value added fast moving convenience food sector. We've gone from being a business that was centered around the island of Ireland in terms of its trading interests to a much more international one. We've also frankly gone from being a business that had a sense of paranoia and a feeling that it was under attack to one that's much more balanced and mature and self-confident in how it looks at the world. And we've gone from a business that was run in very, very narrow financial terms to one that's much more strategic and developmental in its focus.

And what that means is that we have a strong and growing business. We will have revenues this year of a little more than one and a half billion euro, we'll have operating profits of over 100 million, we employ 12,000 people, 11 and a half thousand of which are in the UK at peak, makes us the largest Irish employer of people in the UK. And when I think about the opportunities for growth in Europe, I'm very struck by the opportunities for growth in the UK. We had like-for-like growth in Britain last year of seven and a half percent, that's more than 100 million of organic growth in a very tough overall macroeconomic context. And importantly for us, we're developing our business with the skills that we've built in Ireland and in the UK in the United States, and we've just, we'll probably hit about a quarter of a billion dollars of revenue in the States this year. And as recently as last month, we've signed up a multi-regional supply agreement with Starbucks which will be the bedrock of what we do in America, I think, for the next decade. The centerpiece of all of that is the food offerings that we've got. We feed about 50 million people a week, we provide more than 500 million sandwiches in the year, we do more than 200 million jars of cooking sauce, we provide between three and four million families in Britain with their Christmas cake every year. So we are right at the heart of the food consumption occasion or set of occasions in the markets in which we operate. And our business plays on very important and we think enduring changes in consumer behavior. So one of those is the need for instant gratification or instant access to food. You might not know this, but between six and eight million people in Britain every day skip their lunch in order to work. Eight in ten of the workers in the city of London consume their lunch at their desk. They're the needs into which we put our product, and we do that while recognizing some quite profound changes around healthy eating as well. So 50% of people when they choose their lunch in Britain today are looking for that occasion to deliver one of their five a day fruit and veg requirements, and 40% of our consumers in the food to go are looking for products that are either low calorie or low fat. So that's the space in which we're in.

We concentrate on delivering food into local markets. That's the unit of delivery by which the food value chain works, but importantly the way in which we assemble that food is done on a much more regional or global basis. So we might provide 1.2 or 1.3 billion pounds worth of food into the UK, but we are sourcing that from 13 different EU countries and from 500 different suppliers, including Ireland where we source more than 100 million euro worth of product a year, would be our second largest source country of ingredients going in. So the security and integrity of the food value chain is absolutely critical not only to our business but to the type of industry in which we now sit. And that's why the impact and the changes and the challenges that have come to light around the food value chain in Europe is just so important to us and so important to other players in the global food industry. So what's happened here is that you've seen three or four pretty significant trends come together at one time. The first is the emergence of genuine but I think relatively isolated criminality in the European food value chain. So it's driven by the fact that there is a legitimate horse meat slaughtering and horse meat consumption set of markets across Europe, but that operates in a context whereby the product that comes out of those slaughterhouses sells at less than a fifth of the price of corresponding beef product, and that's created an incentive for the criminal mislabeling of food which in a global and multi-country supply chain has spread widely across that. Alongside that you've got a dramatic increase in species specific testing that has enabled all of us and all of the commentators on the food industry to get to grips very quickly with what's going on. And on top of that, all of this is happening in an environment over the last five years where the trust in institutions, be it regulators, be it governments, be it large multinational companies, is at an all-time low. And so those things together have fed through to some very, very significant changes which we think have unfolded and have come to light in the last month.

So the first is the massive erosion in trust in food, and I choose each of those expressions carefully because the data on this does indicate that we're dealing with a massive erosion in trust in food. It's never been as low as it is today. That is compounding that has been a loss of confidence individually and collectively across different players in the food supply chain. And the consequence of all of that is that in the last month there's been about a 40% drop in the purchase of processed beef. So you've seen a massive switch. I think that will be somewhat temporary in nature, though the first two issues will run much longer in terms of the consumption of processed beef and the purchase of processed beef in the UK and indeed more broadly across Europe. So this is going to need to feed into, I think, a set of pretty far-reaching implications and conclusions. It hasn't been put together in an integrated way yet, and I think it's going to take some time before that will emerge, but when it does, some of the elements of the solution I think will be as follows. The first is the regulatory context. These types of challenges cannot be dealt with by individual member states in Europe. They will require an EU-wide solution. They'll require a solution in terms of common standards, common testing protocols, and common enforcement where there have been breaches of those. But very importantly, there's going to need to be some thought leadership around what all this means as well that I think will need to come from the European context. Secondly, testing is here to stay. I think that's a good thing. I think consumers deserve it. Clearly there's going to be a massive level of testing which is 50-fold at the moment versus where it would have been pre-January across Europe. It won't endure at that level, but you will continue to see species testing appropriately so for some time, and that will build cost into the food supply chain permanently. I think you will see changes in manufacturing practice, and very importantly you'll see changes in supply chain. So there will be a pretty dramatic simplification of food supply chains will unfold here, and you'll see the removal of brokers, you'll see tighter connections from consumers right the way back to specific farms, and the food industry is going to have to configure around that. And I then think you will also see a move to local. So you're going to see new product development and the focus of that is going to connect local farms much more to local consumption. It can't do that entirely because the supply and demand dynamics don't allow that, but you're going to see some changes there. And then you'll get to a stage very, very legitimately where food will quite rightly be exactly what it says on the packet, and I think you'll begin to see that first of all unfold in compliance and secondly unfold in terms of marketing and consumer communication. I think that will be important. So all of that I think will change.

But there's some things that shouldn't change, and there's some important context to this too. The first is that while this has been dramatic and I think there has been a sense of hysteria about it, the actual test results taken specifically and in aggregate are quite encouraging. So 99 and a half percent of all of the beef products tested in Britain, the 5,000 tests over the last month, have come back negative for the presence of horse DNA. This is not actually a pervasive issue, but where it does exist it must be rooted out. And one thing I would say and which I take no consolation is where commentators and governments have said 'well at least this isn't a food safety issue,' I think they missed the point. The point is there is stuff in food that shouldn't be there and we need to get it out. It just so happens that it's safe, but that I can assure you is only a coincidence. I think that sense of context around where we are is important. The second thing that we should recognize is despite the current challenges, in human history food has never been more traceable, safer, or more accurately processed than it is today. This is a problem, but it's a problem in an industry that has got progressively better for a very, very long period of time, and while doing all of that has been progressively more price competitive for consumers and has enabled protein consumption to be delivered much more pervasively across the world than ever before. There's lots of ways I could illustrate that, but probably the simplest is to say when I was born in 1970, 20% of GDP of developed countries was spent on food. Today 8% is. That's the scale of the efficiency and cost competitiveness that the global food industry has been able to deliver, and we shouldn't forget that because in the rush to respond to the specific and legitimate concerns, a lot of the solutions in the near term will default to local sourcing which will be more expensive, and that will leave protein consumption harder for many parts of the world and for many consumers who are under pressure particularly in these tough economic times. And we need to remember that protein consumption for them is important too. So that is how I think about the food industry. There's another just interesting observation that I might finish with, which is that what has unfolded over the last six or seven weeks I think will become increasingly relevant to how Britain thinks about itself and how Britain thinks about its position in the European Union. The axis of change that is driving EU regulation in food right now is being driven by Britain and Ireland, and it's been driven by Britain and Ireland together in a way that will benefit all of Europe. And it's a little ironic actually that perhaps the most perceived Eurosceptic member of the British cabinet is the person who's adopting the most pro-European policies and driving this through right now. And I think you'll, this handling of this and the solution to this which cannot exist within an individual country is an interesting case study I think as Britain reflects on it in time, that'll be relevant to how it thinks about Europe. And it's also crystal clear to us as I think about the food industry that Britain's posture towards Europe and Britain's presence in the European Union is absolutely vital to the Irish food industry as we go forward. We export about 4 billion pounds or 4 billion euros worth of product into Britain every year, and we buy about 3 billion pounds of food from Britain each year. It's no surprise to anyone I suspect that Britain is our biggest market for food. It may well be a surprise for you to know that Ireland is Britain's biggest export market for food. So the trade links between the two countries in relation to food are absolutely critical. And I think as Britain has a debate with itself around its role in Europe, I think we have a very, very important stake in that. And I think what this near-term crisis has taught us is that Britain can have that debate with itself, but it can't have it just with itself as it goes forward. And I think we need to find the right dialogue and the right way of engaging as employers in Britain like Greencore is, but as stakeholders in Britain's consideration of this issue which the entire Irish economy and Irish state is so, we certainly will be playing in Greencore our part in that debate. So thank you very much for listening to me, and I look forward to participating in the Q&A.