Greencore trading in line as first-half profit falls

Convenience food manufacturer Greencore reported a 20.1% increase in group revenue in its first half on Tuesday, reaching £925.8m.

The London-listed company put the growth down to a 15.6% increase in food-to-go revenue and a 28.5% increase in other convenience categories' revenue.

However, despite the overall revenue growth, Greencore's adjusted operating profit for the 26 weeks ended 31 March was down to £11.8m, from £17.2m in the same period last year.

The adjusted operating margin also declined to 1.3% from 2.2% in the first half of 2022.

Greencore put the decrease in profit down to inflationary pressures and elevated costs, which it partially mitigated through cost efficiencies and other measures.

It said it expected to recover the lag in inflation and improve its reported operating profit in the second half.

The company reported a loss before tax of £6.2m, swinging from a £1m profit in the first half of 2022, due to finance costs and lower operating profit.

Adjusted earnings per share fell to 0.5p, from 1.8p in the previous year.

Greencore said its net debt remained flat year-on-year at £219.4m, while its 12-month free cash flow conversion rate decreased to 42.4% from 71.2%.

The firm’s net debt-to-EBITDA ratio improved to 1.9x from 2.1x, with the firm describing “substantial” undrawn headroom on debt facilities.

Looking ahead, Greencore said it expected to recover or mitigate the remaining expected in-year commodity inflation and the lag in recovery from the first half.

The company's profit conversion and overhead inflation recovery are supported by the ‘Better Greencore’ programme.

Greencore said it would kick off a £10m share buyback program on 30 May, with the board intending to update on the capital returns policy at the time of year-end results.

Despite a challenging UK consumer spending environment, the company said it remained focussed on improving profitability and returns, and expected to achieve a full-year outturn in line with current market expectations.

“We are pleased to have delivered strong revenue growth in the seasonally quieter first half of the year, and it is a clear demonstration of Greencore's ongoing resilience in what is a difficult consumer spending environment,” said chief executive officer Dalton Philips.

“While much of the top line momentum has been driven by recovery of inflation, it is encouraging to have achieved good manufactured volume growth, which speaks to the enduring structural demand for the categories in which we operate.

“We are confident that we will continue to build on the momentum in the business in both revenues and efficiencies as we enter our peak seasonal trading period, and we expect to deliver a full year outturn in line with current market expectations.”

Philips said the company remained confident in the long-term potential for the business, with its immediate priority being to rebuild profitability and returns in order to create a platform on which to build for future growth

“Critical to this rebuild strategy will be a combination of rigorous management of our customer, product and asset portfolio, and a reset approach to operational excellence, supported by continuing our unwavering approach to inflation recovery and cost management.”

At 0935 BST, shares in Greencore Group were up 3.17% at 78.2p.

Reporting by Josh White for Sharecast.com.