Greencore eyes inflation spike as sales rebound

Patrick Coveney-led sandwich maker benefitted as supermarkets gained food-to-go market share

Greencore chief executive Patrick Coveney. Photograph: Cyril Byrne

Greencore chief executive Patrick Coveney. Photograph: Cyril Byrne

 

Greencore’s chief executive warned on Tuesday that the largest sandwich maker in the UK expects to see a spike in raw material and packaging costs after its financial year to the end of September.

Patrick Coveney also said he expects rising labour costs to remain a challenge for Greencore and its suppliers as the economy continues to open up following strict Covid-19 restrictions. However, he described the inflationary pressures as “acute” and “transitory” on a call with analysts, after the food group reported a robust set of quarterly figures.

The Dublin-based but London-listed food group said it now expects to post adjusted operating profit of between £36 million (€42.2m) and £40 million for the year to September, compared to its previous guidance of a figure above last year’s level of £32.5 million.

The company said that it had “strong” revenue momentum in the third quarter, with pro forma sales soaring 53.1 per cent above prior year levels to £360.2 million. The figure was just 2.8 per cent below equivalent pre-Covid levels of the same quarter in 2019.

The company’s food-to-go business reported 91 per cent annual growth to £236.5 million, though it remained 9.3 per cent below pre-Covid levels in the third quarter of 2019. Other convenience food categories rose by 11.1 per cent on the year to £123.7 million.

Mr Coveney told analysts that the rebound came as more people returned to work in the UK as prime minister Boris Johnson began phasing out Covid-19 restrictions from March, and as its key customers across supermarkets, convenience stores and discount retailers gained market share in the food-to-go segment of the market.

Greencore has also seen a shift in sandwich and salad purchasing from city centre and central business districts to outlets in suburban areas and traditional commuter towns. In addition, new business wins boosted sales during the third quarter.

Meanwhile, the group announced that it will soon start a large trial of recyclable, paper-based sandwich packaging with key customers Sainsbury’s and Co-op. Sandwiches in the new skillets, being developed with packaging group ProAmpac, will have the same shelf life as those in traditional packaging, it said.

“We are encouraged by the improvement in revenue, profitability and cash flow momentum in Q3 and the early weeks of Q4,” Mr Coveney said. Q3 refers to the third quarter.

Rebuilding

“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.”

Mr Coveney said that the group was “confident about our medium-term prospects”.

Mr Coveney said that Covid-related absenteeism is running at about 2 per cent at Greencore, which is higher than where it stood in June but lower than last week, when there was a spike in “pingdemic” test-and-trace notifications across the UK.

Davy analyst Roland French said that the key issue for Greencore will be the extent to which it can rebuild its profit margins in its next financial year as sales volumes recover and the company deals with supply chain challenges and the phase in of new contracts.

Shares in Greencore were up 3.6 per cent in mid-morning trading in London.