Food-to-go now accounts for 50% of Greencore’s UK business and is worth around £500M a year, growing by about 13% in the last quarter of 2013, chief executive Patrick Coveney said. Chilled prepared foods such as ready meals account for around 25% while its grocery business accounts for 25%.
“We expect our food-to-go business to grow faster and become progressively larger within the UK business over time,” said Coveney. “Our portfolio in food-to-go enormously over-indexes in the small stores.”
In a note released last month, Investec analyst Nicola Mallard said: “Greencore is building a reputation as a quality operator in the UK chilled food space.” Her comments followed Greencore’s release of a positive set of results for the past year, which she described as showing good growth in a difficult year in 2013. She said Greencore had delivered on its key objectives of driving progress in the UK, developing its portfolio and improving scale in the US.
Challenging year
Commenting on Greencore’s results last year ended September 27, Shore Capital analyst Darren Shirley said they were “robust in a challenging year”. Earnings before interest and tax (EBIT) was £76.5M (but up 8.6% on the previous year) on group revenues of £1,197M (up 3%). Shirley said this showed “a commendable performance set against a range of challenges”.
Greencore’s US business, which last year made sales of around $200M, benefited particularly from the acquisition of the MarketFare and Schau businesses in 2012/13 and Greencore's concentration of activities in the food-to-go category with key customers 7-Eleven and Starbucks, he added.
Shirley predicted improving margins in Greencore’s UK Convenience Foods business, but noted a “more robust margin” in the “underperforming cake facility”. Overall, he predicted a “brighter outlook” for the UK over the coming year, despite the loss of £20M in sales of traditional British ready meals to one key customer.
Key features
“We believe management’s focus on deleveraging over the past 12 months has been one of the key features underpinning Greencore’s stock re-rating,” said Shirley. The group's net debt was down £25M at £232M.
Shirley’s comments followed a series of positive announcements by other City analysts, including Damian McNeela of Panmure Gordon, who predicted Greencore was well positioned to deliver a further 9% earnings per share growth in the 2014 financial year.
Greencore was affected in the early part of 2013 by horsemeat contamination, following lab results – later called into question – that showed low levels of horsemeat in beef bolognese sauce in ready meals supplied to Asda stores. This affected UK ready meal sales from the second quarter onwards. It reacted quickly by introducing beef supply chain changes and checks to prevent the incident recurring.