Greencore back in profit in tough labour environment

Greencore (GNC) returned to profit on the back of ‘food to go’ growth and new business penetration. The Dublin-headquartered convenience food manufacturer, which sells to supermarkets and retailers, jumped back into the black as demand grew post-lockdowns, but labour challenges remain a concern.

Food to go revenue – from products such as sandwiches and salads – was up by 38 per cent in the fourth quarter to reach £842m for the year. New business delivered over a third of the quarter's growth, and chief financial officer Emma Hynes said new business “was a bridge to building back these revenues” after demand suffered during lockdowns.

Meanwhile, a mixture of debt and equity actions helped shore up the balance sheet. A share placing at the tail end of last year brought in net proceeds of £87m. Debt agreement updates included the refinancing of short-term debt, which lowers interest charges.

Labour issues have been acute for the food industry, and Greencore is no exception. The group utilised the government’s job retention scheme until July 2021. Hynes noted that retention was proving challenging at plants, but that progress is being made.  

Analysts at house broker Shore Capital expect revenue for this fiscal year to exceed pre-pandemic levels. However, they also forecast negative free cash flow yield for the same period and that adjusted profit before tax will continue to lag fiscal year 2019 for the foreseeable future. 

With revenue up, net debt down, and Hynes confirming the hope of returning cash to shareholders in some form in fiscal year 2022, Greencore is making positive noises. But, on current projections we are not yet ready for a recommendation upgrade. Sell.

Last IC View: Sell, 147p, 19 May 2020