Dublin / IE. (gg) Greencore Group PLC, a leading manufacturer of convenience foods in the UK and US, this week announced a business and trading update. The key highlights are:
- Restructuring of the US network to match capacity to commercial pipeline
- Changes in the US leadership model and team
- Updated FY-2018 outlook for Adjusted EPS1 of 14.7p-15.7p to reflect business developments and current exchange rates
US Network and Commercial Update
The acquisition of Peacock Foods in December 2016 greatly enhanced the scale, operational capabilities and financial performance of Greencore US. Since then the Group has been actively seeking to align the manufacturing network of approximately 2.5m square feet with current and prospective commercial opportunities. In its FY-2017 results and FY-2018 Q1 trading update, the Group noted continued low capacity utilisation at some of the original Greencore US sites. The Group is now restructuring its US network to reflect the commercial pipeline and to address these utilisation challenges.
- Rhode Island: Current fresh production at the Rhode Island facility will cease, effective from 25 March 2018. The facility will be retained for potential repurposing. The Rhode Island facility represented approximately 4 percent of the Group’s US manufacturing footprint and 2 percent of its pro forma revenue in FY-2017. This decision will address the operating losses of the site that have continued into FY-2018.
- Jacksonville: In August 2017 the Group announced its intention to repurpose the Jacksonville facility following the loss of a supply contract. While capacity utilisation has been low through the first half of FY-2018, we now anticipate that new business wins will increase volumes and site utilisation from Q4 FY-2018.
- Minneapolis: At the point of the Peacock Foods acquisition, capacity utilisation and site economics were weak at the Minneapolis site. Over the past 12 months the Group has delivered several pieces of new business to the site, such that utilisation has improved steadily through FY-2018.
Greencore continues to make progress on its US commercial pipeline, most particularly with its current large Consumer Packaged Goods (CPG) customers. Plans are well advanced which, if successful, would secure significant new business at several sites in the Midwest region. The Group anticipates that such new business would contribute revenue and earnings from the first half of FY19. The timing of these wins represents a delay versus previous expectations. Any incremental capital and cash costs related to the delivery of this new business are not expected to be significant for the Group.
Changes in the US leadership team
The Group has restructured its US leadership team to drive near term performance and to exploit its growth agenda.
- New leadership model: Patrick Coveney, Group CEO, will take a direct role in the strategic, organisational and commercial leadership of Greencore US, spending approximately half his time in the US. Chuck Metzger, COO of Greencore US, has assumed day-to-day responsibility for the US business and will report to Patrick. Chris Kirke, outgoing CEO of Greencore US, is leaving the Group to return to the UK and will work with Chuck, Patrick and the team to ensure a smooth transition.
- New senior personnel: Since January, the Group has made important additions to the US senior team, with four senior hires in the areas of Commercial, Finance, Strategy and HR. These planned additions, combined with the existing Peacock Foods operational skills, and further investments in growth capability, significantly strengthens Greencore in the US.
FY-2018 Outlook
In the UK, the Group continues to anticipate good organic revenue growth and a modest improvement in operating leverage in FY-2018, notwithstanding softer volume growth in Q2 primarily due to poor weather.
In the US, the core CPG business has continued to perform in line with expectations. The network and commercial developments announced in this update give the Group confidence in improved financial performance through the second half of FY-2018 and into FY19. However, the weak performance of the Group’s underutilised original sites in the first half of FY-2018, combined with the timing of new business contributions, and the current GBP/USD exchange rate, will reduce the expected rate of US profit growth in FY-2018.
The one off cash costs of resetting the US network and the management restructure are anticipated to be approximately £3m. The Group may take a non-cash, asset impairment charge to the FY-2018 Income Statement for the network restructuring. The scale of such a charge would be determined by the prospective future use and value of these network assets.
For FY-2018 the Group now anticipates Adjusted EPS in the range of 14.7p-15.7p, with approximately two thirds of that contribution delivered in the second half. This contrasts with current market expectations of 15.7p-16.6p. The Group also anticipates that it will continue to progress towards its benchmark leverage ratio of approximately 2x Net Debt to Ebitda by the end of the fiscal year.
