Greencore cements return to profitability

Greencore (GNC) is inching closer to a long-awaited recovery, with the food producer’s revenues rising above pre-Covid levels and profitability now back in the black, driven by 48 per cent higher sales of ‘food to go’, bringing in £502mn in the past six months. 

Executive chair Gary Kennedy said he had seen “encouraging momentum in revenue and profit conversion in the first seven weeks of H2” as Greencore enters high season for chilled and prepared foods. 

The shares regained 4 per cent on results day, but still trade at less than half its pre-Covid price. Greencore has faced a litany of issues, including low labour retention rates and cost inflation, which are far from over judging by the high single-digit inflation rate in the six months to the end of March. 

The inflationary environment remains volatile, but the company said it had “substantially recovered” the input cost inflation seen at the end of last year, and Greencore expects a full year out-turn in line with market guidance.

Meanwhile, management is investing in a long-term turnaround strategy, including automation in its factories, called ‘Better Greencore’ with £8mn invested in the last six months to March, and another £24mn to go from now to 2023. 

House broker Shore Cap said Greencore emerges as a “deep value play”, and forecast that adjusted pre-tax profits will more than triple over the next year, from £20mn to £62mn by the end of 2022. “We have not been so positive on Greencore for some years,” analysts said, noting its commitment to return £50mn to shareholders over the next two years.

Nevertheless, there are challenging times ahead as food prices continue to spiral, which will undoubtedly test new chief executive Dalton Philips when he takes the reins in September. We stay on Sell for now.

Last IC View: Sell, 127p, November 30, 2021.