Greencore returned to profit as Covid-19 restrictions unwound

Convenience food group Greencore returned to revenue and profit growth as restrictions to deal with the ongoing coronavirus pandemic were unwound in the UK.

The the Ireland-based but London-listed group also said it anticipated restarting capital returns to shareholders in 2022, but noted supply chain pressures were a challenge in the second of its financial year.

Revenue for the year to September 24th rose 4.8 per cent to more than £1.3 billion (€1.5 billion) as food-to-go categories returned to growth. Volume and revenue surged in the second half of the financial year, and by the end of September were back to pre-Covid levels, chief executive Patrick Coveney said. "We've been positively surprised by the speed at which volume and revenue have come back," he said.

Pre-tax profit was £27.8 million, recovering from a loss of £10.8 million the previous year.

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“Greencore has weathered the storm and emerged strongly from a difficult period,” Mr Coveney said.

“Following a challenging first half, we made good progress in rebuilding revenues, cashflows and profitability in H2 [the second half of the year] and are confident of maintaining this positive trajectory in the year ahead, particularly in the seasonally important second half.”

Looking ahead, Greencore said trading in the early part of its new financial year has been “encouraging”, with strong demand in food to go and other convenience categories as mobility among consumers has gradually returned.

Ongoing challenges

It noted ongoing challenges from rising costs, supply chain and labour challenges but, despite this, the group expects to generate an outturn for the year in line with current market expectations, provided there are no further Covid-19 related restrictions of mobility or lockdowns in the UK. Mr Coveney said there had been no immediate reaction from consumers to the discovery of the omicron variant of Covid-19 .

Profitability will be weighted towards the second half of the year.

However, it will be without Mr Coveney, who is set to leave his role as chief executive in March after 14 years at the helm, to head-up airport caterer SSP.

“The strong recovery of the UK food to go market, as well as solid performance in other convenience food categories, underpins this confidence. New business wins achieved last year are contributing to our momentum, and we anticipate delivery of profits for the year ahead in line with current market expectation,” he said.

Greencore said its adjusted operating profit was £39 million, up from £32.5 million a year earlier. Adjusted earnings before interest, tax, depreciation and amortisation (ebitda) was up more than 8.5 per cent to £92.3 million.

Adjusted operating margin was 5.2 per cent in the second half of the year.

Improved profitability boosted free cashflow of £72.2 million as Greencore’s volumes bounced back. Net debt was reduced to £183.1 million

At the end of the year, Greencore had cash and undrawn committed bank facilities of £433.6 million, with the group exiting its temporary covenant waiver period.

Balance sheet

Greencore chairman Gary O’Donovan said the priority for Greencore’s capital management was strengthening its balance sheet, reducing debt and investing sufficient levels of capital to ensure the business operated in an acceptable economic fashion.

“With strong free cashflow and a significant reduction in leverage achieved in 2021, the group enters the new financial year on a robust financial footing,” Mr Coveney said. “Greencore has a strong position in the dynamic UK convenience food market and, with demand remaining strong in the early stages of [our 2022 financial year] , has confidence in its medium-term prospects.”

The group is likely to resume returning capital to shareholders this year. “We are also signalling that we want to retainthe flexibility to figure out what balance of dividend or buyback is appropriate at the time in which we do that,” Mr Coveney said, adding that would be down to both internal company and market circumstances.

Greencore is also facing labour force pressures, in line with the rest of the food industry. Mr Coveney said it was down to the speed at which demand had returned, the unwinding of Covid supports, the impact of Covid-related absences, and shortages caused by immigration policies. “We are not immune from this and have a higher vacancy rate than we would like,” he said. “But we are working our way through that in line with our plans.”

That had led to tighter ranges, but Mr Coveney said it had also enabled thr group to drive up overall volumes.