Greencore’s new chief executive says the business is better prepared to withstand the impact of a recession than most.
Dalton Philips, who took over at the helm of the Dublin-headquartered food group earlier this year, said sandwich sales, which account for two thirds of Greencore’s turnover, had held up well in previous recessions, largely because of the relatively low price point and the fact that people trade down from more expensive food categories when things are tight.
Mr Philips acknowledged there was concern about the likely impact of a wider downturn in the UK economy, noting “the real bite” would probably come after Christmas.
“The good news is the categories we operate in are resilient,” he said, noting sandwiches were still seeing volume increases of 8 per cent every week.
“What’s driving that is the value in a sandwich,” he said. “So whilst you are seeing about a 14 per cent increase in people bringing or preparing pack lunches at home, we’re still not seeing it bite our volumes,” he said.
Greencore is the largest seller of sandwiches in the UK and Ireland, supplying most of the main retail multiples.
Mr Philips was speaking as the company reported a 22 per cent rise in operating profit to £52.1 million (€60.3 million) for the 12 months to September 30th, 2022. Reported group revenue also increased by 31.3 per cent to £1.7 billion.
The company said the revenue growth was driven by a combination of increased volumes, a double-digit percentage increase in underlying pricing, and increased revenue in its Irish ingredients trading business.
Greencore has been fine-tuning its business, reverting to its core convenience food enterprise, since it was forced to exit the US market in 2018.
On the impact of Brexit and the more pronounced labour shortages in the UK, Mr Philips said the workforce situation in Greencore was “materially better than it was a year ago”.
The company’s latest report also referenced an “IT security incident” that resulted in temporary unauthorised access to part of its systems. The group incurred net costs of £1.9 million as a result of the incident.
This included insurance recovery of £8.6 million against the business impact and costs relating to the incident.
In terms of outlook, Greencore said its revenue performance in the early weeks of its current financial year “has broadly held up”.
“We remain cautious about the potential impact of the recessionary environment and cost-of-living factors on consumer spending through the year ahead, the impact of which has not yet been fully absorbed by the consumer,” it said.
“We expect that 2023 will be a year of further substantial inflation and are working closely with our customers on recovery and mitigation.
“We continue to make decisions on customer contracts which are no longer economic, with a heightened focus on our ability to recover inflation.”
Mr Philips, who joined the group recently from the DAA, said the company “has made great progress in recovering from a very challenging period with revenue, profits, leverage and returns all improving significantly”.
“My first few weeks in the CEO role have confirmed to me the fantastic capability and potential of this business,” he said.
“Our leading market positions, close customer relationships, well invested facilities and intense focus on efficiencies give us confidence as we continue to navigate our way through the challenges of the current macroeconomic climate.”