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Challenging First Half For Greencore Group

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Challenging First Half For Greencore Group

Challenging First Half For Greencore Group
May 23
10:49 2018

Greencore Group, a leading manufacturer of convenience food in the UK and US, has reported revenue of £1.239 billion for the 26 weeks ended 30 March 2018, up by 22.6% versus first half of 2017. Adjusted operating profit of £59.7 million was 8.0% higher than the corresponding period in 2017, primarily driven by the acquisition of Peacock Foods. Adjusted operating margin was 4.8% – down by 70 basis points on the prior year, due primarily to the investments in the UK ready meals business and the increased proportion of group profits generated in the lower margin US division.

During the first half, Greencore’s core Convenience Foods UK & Ireland business deepened its leadership position in the food to go category, both by extending several long-term partnership agreements with key customers, expanding the scope of the sole supply model and by securing new business wins. Greencore’s market share of sandwiches in the UK grocery channel remains strong at 60%.

Reported revenue in the Convenience Foods UK & Ireland division increased by 7.2% to £734.9 million despite the challenging trading environment. Pro forma revenue grew by 8.2%, reflecting continued volume growth in the Food to Go business and increased pricing in the other parts of the division. Adjusted operating profit increased marginally to £47.1 million as volume growth particularly in the Food to Go business was offset by the residual impact of commercial investments made in the ready meals business during FY17, and adverse weather. Largely as a result of these factors, adjusted operating margin in the period fell by 40bps to 6.4%. Food to Go, comprising sandwich, sushi and salad activities, accounted for over 55% of divisional revenue in the first half of 2018.

The streamlining and efficiency programme that was announced in November 2017 is expected to deliver annualised gross benefits of up to £15 million and will help underpin operating leverage progression during the second half of this year and into FY19. Greencore incurred exceptional costs of £9.6 million on this overall programme in the period.

Patrick Coveney, chief executive of Greencore.

Greencore continued to refine its business portfolio in the UK during the first half. In February the group sold its cakes and desserts business in Hull to Bright Blue Foods. The planned closure of the desserts manufacturing facility in Evercreech has also proceeded to plan and is expected to complete in the summer of 2018. Together these initiatives mark Greencore’s exit from the UK cakes and desserts sector.

Patrick Coveney, chief executive of Greencore, comments: “The first half of FY18 has been challenging for Greencore and its shareholders. While we delivered strong revenue growth in both the UK and US, profit growth was impacted by the challenges experienced in the original part of Greencore’s US division. As a result of the significant strategic, network and organisational measures that we have taken in order to address these challenges, we believe that our US business is now much better positioned to deliver an improved performance in the second half of the year and beyond. We anticipate strong organic growth for the remainder of FY18.”

Greencore anticipates good organic growth in the seasonally more significant second half of the financial year. UK profit conversion will be driven by strong year on year performance in Food to Go and US profitability will be supported by strong year on year performance in the former Peacock Foods business.

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