Greencore Group plc – H1 FY23 Results

Strong revenue growth – full year expected to be in line with expectations

Greencore Group plc (‘Greencore’ or the ‘Group’), a leading manufacturer of convenience foods in the UK, today issues its results for the 26 weeks ended 31 March 2023.

PERFORMANCE ¹

• Group Revenue increased 20.1% from H1 22 to £925.8m in H1 23:
  • Overall manufactured volume growth including new business, delivered 5.0% of this growth in the period.
  • Food to go revenue increased 15.6% and other convenience categories’ revenue increased by 28.5%, with the increases due to recovery of cost inflation, new business wins and underlying volume growth.
• Inflation significantly increased year on year compared to H1 22 and the majority was recovered or mitigated. Commodity inflation has been largely recovered in the period through commodity trackers and dialogue with customers.  Other operational and fixed cost inflation was primarily offset through cost efficiencies and mitigation activities.  A lag in inflation is expected to be largely recovered in H2.
• Adjusted Operating Profit of £11.8m (H1 22: £17.2m), with Adjusted Operating Margin of 1.3% (H1 22: 2.2%).
• Adjusted Operating Margin was impacted by the denominator effect of elevated inflation. Reported operating profit into H2 is expected to improve in line with the seasonality of the business and recovery of the lag in inflation.
• A loss before tax of £6.2m (H1 22: £1.0m profit) was reported due to lower operating profit and increased finance costs.
• Adjusted EPS of 0.5p (H1 22: Adjusted EPS of 1.8p).
• Net Debt (excluding lease liabilities) was flat year on year at £219.4m at 31 March 2023 (H1 22: £219.3m), with 12-month free cashflow conversion of 42.4% (H1 22: 71.2%). Net Debt: EBITDA of 1.9x as measured under financing agreements (H1 22: 2.1x), with substantial undrawn headroom on debt facilities.
• Group ROIC of 7.5%, compared to 6.3% at H1 22 and 8.4% at the end of FY22.
• Continued value was returned to shareholders in the form of a share buyback programme with £13.2m returned in H1 23 and £25.0m returned in total to date since the Group announced a recommencement of a value return to shareholders in May 2022. A further £10m will be returned to shareholders in the form of a share buyback programme commencing on 30 May 2023, as part of the wider commitment to return £50m to shareholders by May 2024.

STRATEGIC & OPERATIONAL DEVELOPMENTS ¹

• Better Greencore, the Group’s change programme, continued to deliver benefits for the Group and support the mitigation of fixed cost and overhead inflation. The Group remains focused on the delivery of approximately £30m of annualised benefits from this programme by FY24, as previously announced.
• During H1, the Group re-shaped the programme in light of changing commercial conditions and ongoing cost pressures:
  • Following the decision to exit a low margin customer contract in FY23, the capital expenditure component of Better Greencore has been halted as sufficient capacity has been released.
  • The Group introduced additional cost controls and accelerated a headcount reduction programme, which resulted in the reduction of approximately 250 salaried roles at the end of March 2023.
  • The Group also initiated incremental activity on commercial and operational efficiency to support profitability.
• Combined with changes made in FY22, these additional actions are expected to underpin delivery of the benefits targeted by Better Greencore and will conclude the programme in FY23. An exceptional charge of £7.7m was recognised in H1 related to the Better Greencore change programme. This brings the cumulative cost of delivery of the Better Greencore programme to £24.5m, including £0.7m of capital expenditure.
• The commissioning challenges previously disclosed in the Group’s new ready meals facility eased in Q2 23 with improvements in efficiency noted, although the facility continues to operate with excess capacity.
• We made continued progress on the sustainability agenda and improved governance with the establishment of both a management sustainability oversight committee and a Board sustainability subcommittee.
• On 17 April 2023, the Group announced that Emma Hynes will step down from her role as Chief Financial Officer and Executive Director, with effect from 31 May 2023. Further to this, and from 15 June 2023, Jonathan Solesbury will assume the role of Interim Chief Financial Officer. Jonathan has extensive experience in senior finance roles in both the food and beverage industries, including three years as Group Chief Financial Officer with C&C Group plc and 22 years with SABMiller plc.

OUTLOOK^1,2

The Group has recovered or mitigated a significant component of the input cost and other inflation incurred during H1 23 through explicit recovery mechanisms, constructive dialogue with customers and operational and cost efficiencies. The Group is well placed to recover or mitigate the majority of the remaining expected in-year commodity inflation together with the lag in recovery from the first half and is progressing well in this regard. Profit conversion and overhead inflation recovery continues to be underpinned by Better Greencore.

The Group will commence an additional £10m share buyback on 30 May 2023. The Board is conscious of the value some shareholders ascribe to dividends and intends to update on the capital returns policy at the time of year end results.

While the UK consumer spending environment remains challenging, the Group has continued to focus on improving profitability and returns and has taken decisive action across a number of initiatives in the first half to support profitability. The Group expects to generate an FY23 outturn in line with current market expectations.

Commenting on the results, Dalton Philips, Chief Executive Officer, said:

“We are pleased to have delivered strong revenue growth in the seasonally quieter first half of the year, and it is a clear demonstration of Greencore’s ongoing resilience in what is a difficult consumer spending environment. While much of the top line momentum has been driven by recovery of inflation, it is encouraging to have achieved good manufactured volume growth, which speaks to the enduring structural demand for the categories in which we operate.

We are confident that we will continue to build on the momentum in the business in both revenues and efficiencies as we enter our peak seasonal trading period, and we expect to deliver a full year outturn in line with current market expectations.

We remain confident in the long-term potential for the business and our immediate priority is to rebuild profitability and returns in order to create a platform on which to build for future growth. Critical to this rebuild strategy will be a combination of rigorous management of our customer, product and asset portfolio, and a reset approach to operational excellence, supported by continuing our unwavering approach to inflation recovery and cost management.”

SUMMARY FINANCIAL PERFORMANCE ¹

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