Greencore disappoints as sales growth slows, little effect seen from Brexit

Convenience food manufacturer Greencore’s third quarter revenues increased by 4% driven by the company’s Food to Go business while it expects no short-term effects from Brexit.

In a trading update the company said revenue increased by 4% to £360.4m for the 13 weeks ending 24 June, and an increase of 3.1 % in constant currency.

For the year to date, revenue increased by 6.7% on the year prior to £1,052m and an increase of 5.9% on a constant currency basis.

The convenience food division’s third quarter revenues increased by 5.4% to £349.9m and was up 4.9% in constant currency.

Third quarter UK revenue was up 5.7%, down from 7.2% in the first half and dragging year to date revenue growth to 6.7%. Growth has largely beem driven by growth from the Food to Go business which, the company said, continued to outperform its market.

The Food to Go business benefitted from new business wins and from new product launches. The company said the new sandwich capacity in Northampton had progressed and it is also adding new production lines at its other UK sandwich facilities, which will be boosted by the previous day's acquisition of The Sandwich Factory from Cranswick.

Greecore's US division reported a 4.1% increase in third quarter revenue than in the prior year and 1% lower on a constant currency basis due to a particularly strong comparator period.

The company said the modest third quarter revenue decline from the US was due to product exits following the closure of the Brockton site and the phasing of shipments in frozen products, but over the financial performance in the US was said to be “encouraging” and in line with expectations.

The FTSE 250 listed company said the referendum result for the UK to exit the EU on the 23 June had created uncertainty regarding its UK economic outlook as the long-term implications are currently unknown, but the short-term impact is likely to be modest.

The company said that its UK businesses import less than a quarter of their ingredients and packaging materials, therefore given forward purchase arrangements, the fall in sterling is not expected to impact profit in the current financial year. However, it said if current exchange rates remain, net debt at the end of the year will be higher than expected at the half year due to translation of US dollar denominated borrowings.

Greencore said: “The group continues to deliver good revenue growth while managing significant levels of change associated with the major capacity and capability investment programmes. We remain confident in our ability to deliver performance in line with market expectations.”

Broker Peel Hunt said the numbers were "slightly soft" but that it was not surprising to see slightly slower UK sales growth given weather conditions in the quarter. With the US lumpy through the current year, up 1% in the first quarter and 20% in the second, "we expect a stronger Q4, particularly with the opening of the new Seattle facility".