Greencore PLC: Announces Q3-2021 Trading Update

Dublin / IE. (gg) Greencore Group PLC, a leading manufacturer of convenience food in the UK, issues a trading update for the third quarter 2021, covering the 13 weeks from 26 March to 25 June.

Performance

  • Strong revenue momentum in Q3 with Group pro forma revenue 53.1 percent above prior year levels and only 2.8 percent below equivalent pre-Covid levels in Q3/2019. Progressive improvement in monthly trading with Group pro forma revenue in June 1 percent above comparative pre-Covid levels in FY19
  • Pro forma revenue growth in food to go categories 91.1 percent above prior year levels and 3 percent below the equivalent pre-Covid levels in Q3/2019
  • Positive Adjusted Operating Profit for the quarter, in line with management expectations

Strategic Developments

  • Strong execution on new business wins and extending customer relationships, supplementing underlying revenue growth in Q3
  • Significant progress in driving improved cash generation and balance sheet strength, with debt reduction, improved leverage metrics, lower annual cash contributions agreed for pension scheme funding from FY22, and the successful refinancing of the Group’s Private Placement Notes due in October 2021
  • Good progress on the Group’s sustainability objectives, in particular the launch of fully recyclable sandwich skillet trials for customers in September 2021

Outlook

  • Revenue momentum has remained encouraging in the first three trading weeks of July
  • Notwithstanding the supply chain and labour challenges impacting the broader UK food industry at present, the Group is confident in its ability to deliver strong year on year profit and cashflow progression in the second half of the year
  • The Group now expects to generate an FY21 Adjusted Operating Profit outturn of between GBP 36m and GBP 40m, versus previous guidance of above FY20 levels of GBP 32.5m
  • Given strong cashflow momentum, Net Debt (excluding lease liabilities) at the end of FY21 is anticipated to be below GBP 240m with Net Debt:Ebitda comfortably below 3x, as measured under financing agreements
  • Greencore will report its FY21 results on 30 November 2021

Chief Executive’s Statement

Commenting on the performance, Patrick Coveney, Chief Executive Officer, said: «We are encouraged by the improvement in revenue, profitability and cash flow momentum in Q3 and the early weeks of Q4. Against the backdrop of the UK economy reopening fully, we are rebuilding our economic model effectively and sustainably with all stakeholders, supported by our long-standing customer relationships and further enhanced by the new business wins we have secured this year. The performance is underpinned in particular by the energy and dedication of our people. We are also delighted to have made progress in creating a fully recyclable sandwich skillet, a key commitment of our sustainability strategy. We have a strong position in the dynamic UK convenience food market and are confident about our medium-term prospects.»

Trading Performance

Revenue Revenue Growth (versus FY20)
mio.GBP Q3 9 months
Reported Pro forma Reported Pro forma
Group 360.2 +49.7% +53.1% -1.7% -0.6%
Food to go categories 236.5 +91.1% +91.1% -0.7% -0.7%
Other convenience food categories 123.7 +5.9% +11.1% -3.2% -0.4%

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 Pro Forma Revenue Growth (versus FY20)
April 2021 May 2021 June 2021 Q3 2021 July 2021
Group +66% +60% +40% +53% +28%
Food to go categories +129% +111% +62% +91% +42%
Other convenience food categories +13% +10% +10% +11% +6%

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 Pro Forma Revenue Growth (versus FY19)
April 2021 May 2021 June 2021 Q3 2021 July 2021
Group -7% -4% +1% -3% -2%
Food to go categories -16% -10% -4% -9% -7%
Other convenience food categories +14% +11% +13% +13% +14%

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The UK trading environment improved markedly in Q3 as the economy reopened and mobility restrictions were eased, supporting demand growth in food to go categories in particular. In addition to the underlying market recovery, the Group benefitted from its strong market position in the grocery retail channel, its customer and format mix, and its portfolio across food to go and other convenience categories. The Group worked closely with customers to reactivate product ranges and formats during the period. Group revenue growth in Q3 was also supported by an increasing contribution from new business wins.

Reported Group revenue in Q3 was GBP 360.2m, an increase of 49.7 percent on the prior year. On a pro forma basis revenue increased by 53.1 percent in the quarter, and was only 2.8 percent below the equivalent pre-Covid levels in Q3/2019. In June 2021, pro forma revenues were approximately 1 percent above equivalent pre-Covid levels. In the first three trading weeks of July, pro forma revenues were approximately 2 percent below equivalent pre-Covid levels.

Revenue in the Group’s food to go categories was GBP 236.5m in Q3, representing growth of 91.1 percent on a reported and pro forma basis. Pro forma Q3 revenue was 9.3 percent below equivalent pre-Covid levels in Q3/2019. Revenues recovered progressively through the quarter against improving prior year comparatives. In the first three trading weeks of July, revenues from the Group’s food to go categories were 7 percent below the equivalent pre-Covid levels in FY19.

Reported revenue in the Group’s other convenience food categories totalled GBP 123.7m in Q3, an increase of 5.9 percent on a reported basis, and a 11.1 percent increase on a pro forma basis.

Q3 inflation trends in the Group’s main UK cost components were broadly as anticipated. Supply chain and labour challenges are increasing across the UK food system and the Group is working closely with customers and suppliers to mitigate these challenges and to maintain strong operational service levels.

The Group’s improving profitability and strong cashflows supported a reduction in Net Debt (excluding lease liabilities) and an improvement in leverage metrics during Q3. As such the Group comfortably met with the Net Debt: Ebitda covenant test at June 2021 of 5.0x. As at the end of Q3, the Group had committed debt facilities of GBP 570.1m with a weighted average maturity of 3.0 years.

In July 2021, the Group successfully completed a refinancing of its near-term debt with its lending syndicate that improves the maturity profile of the Group’s debt and lowers annual interest costs. The Private Placement Notes of USD 65m, which mature in October 2021, are being replaced by a new three-year term loan facility of GBP 45m, maturing in June 2024.

During the quarter the Group also concluded the latest triennial assessment of the valuation and funding plan for its principal UK legacy defined benefit pension scheme. The Group expects the annual cash funding requirement for all schemes to be modestly below previously guided levels of GBP 15m, inclusive of the cash contributions that were deferred over the course of the pandemic.