Strong improvement in trading and cashflow momentum in Q3
Greencore Group plc (“Greencore” or the “Group”) a leading manufacturer of convenience foods in the UK, today issues a trading update covering the 13 weeks from 26 March 2021 to 25 June 2021 (“Q3” or “the quarter”).
- Strong revenue momentum in Q3 with Group pro forma revenue 53.1% above prior year levels and only 2.8% below equivalent pre-COVID levels in Q3 19. Progressive improvement in monthly trading with Group pro forma revenue in June 1% above comparative pre-COVID levels in FY19
- Pro forma revenue growth in food to go categories 91.1% above prior year levels and 3% below the equivalent pre-COVID levels in Q3 19
- Positive Adjusted Operating Profit for the quarter, in line with management expectations
- 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
- 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 £36m and £40m, versus previous guidance of above FY20 levels of £32.5m
- Given strong cashflow momentum, Net Debt (excluding lease liabilities) at the end of FY21 is anticipated to be below £240m with Net Debt:EBITDA comfortably below 3x, as measured under financing agreements
- Greencore will report its FY21 results on 30 November 2021
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.”
Q3 Trading 1,2
|Revenue||Revenue Growth (versus FY20)|
|Reported||Pro forma||Reported||Pro forma|
|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%|
|Pro Forma Revenue Growth (versus FY20)|
|April 2021||May 2021||June 2021||Q3 2021||July 20212|
|Food to go categories||+129%||+111%||+62%||+91%||+42%|
|Other convenience food categories||+13%||+10%||+10%||+11%||+6%|
|Pro Forma Revenue Growth (versus FY19)|
|April 2021||May 2021||June 2021||Q3 2021||July 20212|
|Food to go categories||-16%||-10%||-4%||-9%||-7%|
|Other convenience food categories||+14%||+11%||+13%||+13%||+14%|
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 £360.2m, an increase of 49.7% on the prior year. On a pro forma basis revenue increased by 53.1% in the quarter, and was only 2.8% below the equivalent pre-COVID levels in Q3 19. In June 2021, pro forma revenues were approximately 1% above equivalent pre-COVID levels. In the first three trading weeks of July, pro forma revenues were approximately 2% below equivalent pre-COVID levels.
Revenue in the Group’s food to go categories was £236.5m in Q3, representing growth of 91.1% on a reported and pro forma basis. Pro forma Q3 revenue was 9.3% below equivalent pre-COVID levels in Q3 19. 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% below the equivalent pre-COVID levels in FY19.
Reported revenue in the Group’s other convenience food categories totalled £123.7m in Q3, an increase of 5.9% on a reported basis, and a 11.1% 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 £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 $65m, which mature in October 2021, are being replaced by a new three-year term loan facility of £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 £15m, inclusive of the cash contributions that were deferred over the course of the pandemic.
1 Pro forma references throughout this Trading Update are on a constant currency basis. Reported revenue has been adjusted to reflect the disposal of Premier Molasses Company Limited (Premier Molasses) in Q1 2021. The adjustment excludes from reported revenue, the revenue generated by Premier Molasses for the nine month period to 26 June 2020 and the revenue generated in FY21 up to the date of its disposal
2 July 2021 performance based on three trading weeks to 16 July 2021