City snapshot: Greencore raises £90m as coronavirus impact drives annual loss

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Greencore has raised £90m in a share placement as the impact of the coronavirus outbreak led to a double-digit drop in annual sales and a pre-tax loss of more than £10m.

Reporting its full year results for the 52 weeks to 25 September, Greencore group revenues fell 12.5% back to £1.26bn as it was impacted by effect of COVID-19 on food to go categories in the second half of its year.

On a pro forma basis revenue decreased by 14.3%, after adjusting for the acquisition of Freshtime, the exit of longer life ready meals manufacturing at the Kiveton facility in the first half.

Adjusted operating profit fell by 69.2% to £32.5m and adjusted operating margin fell by 470bps to 2.6%, reflecting £10.7m of additional operating costs resulting from the Group’s response to COVID-19.

In total, Greencore incurred £24.6m of coronavirus related costs, including the extra £10.7m of operating costs and a further £13.9m of exceptional charges.

Extra operating costs including £5.5m for furloughed staff, £2.5m of employee recognition payments and £1.9m related to the reconfiguring production areas.

Exceltonal costs including a £4,8m impairment on inventory and equipment, restructuring costs of £2m and a £5.9m charge on interest costs.

That led to a group loss before tax of £10.8m, compared to a profit of £57.4m in the previous year.

To boost its cash reserves and liquidity, Greencore this morning announced a successful placing of new shares to raise approximately £90m.

Greencore CEO Patrick Coveney commented: “This has been an exceptionally challenging year for Greencore, and I am enormously proud of the resilience and adaptability that our colleagues have shown in helping to navigate the business through the toughest trading conditions it has ever seen.

“There is a direct correlation between the performance of food to go and the nation’s ability to move around freely. As a result, that part of our business has been significantly impacted by the social restrictions that have been put in place as a result of COVID-19.

“However, we remain confident that demand for our food to go categories will recover strongly as the effect of COVID-19 recedes, and were encouraged by the uplift in demand that we saw in Q4 as the UK economy slowly reopened.

“Throughout the year we have acted quickly and decisively to put in place comprehensive sets of measures to mitigate the impact of COVID-19 on our business. However, in light of the ongoing uncertainty that is being caused by the current lockdown measures, there is a strong rationale in further strengthening our balance sheet. Today’s proposed Placing achieves this.”

Greencore said the UK had demonstrated encouraging signs of improvement before the outbreak of COVID-19 in March and the related imposition of social restrictions by the UK Government. The business was significantly impacted in March and April by the effect that these social restriction measures had on consumer demand, most particularly in food to go categories.

Full year revenues in the group’s food to go categories (comprising sandwiches, salads, sushi and chilled snacking) were down 19.7% to £772.9m, accounting for approximately 61% of reported revenue.

Pro forma revenue for food to go categories in Q4 was 29% below prior year levels, an improvement on the 53% plunge in the third quarter.

The group’s other convenience categories comprise activities in the chilled ready meals, chilled soups and sauces, chilled quiche, ambient sauces and pickles, and frozen Yorkshire Pudding categories, as well as Irish ingredients trading businesses, which saw reported revenue across these businesses increased by 1.7% to £491.8m.

Raw material and packaging costs rose by less than 1%, which direct labour inflation was approximately 5%.

The recent resurgence of COVID-19 cases across the UK and the introduction of tiered regional restrictions in October and this impeded the pace of recovery in revenue in food to go categories that had been evident at the end of its fourth quarter.

Revenue in the group’s food to go categories was approximately 22% below prior year levels in the first five trading weeks of its new financial year, while performance in the group’s other convenience categories was flat with prior year levels.

Further mobility restrictions were reintroduced in early November for a planned four-week period of nationwide lockdown, driving revenue in the group’s food to go categories approximately 26% below prior year levels in the first two trading weeks affected by the nationwide lockdown.

Greencore said the duration and severity of the COVID-19 pandemic will continue to have an uncertain impact on its trading environment, and in particular on demand in its food to go categories.

However, notwithstanding this near term uncertainty, Greencore said it remains well positioned to take advantage of recovering trading conditions as they occur.

“As the effect of COVID-19 recedes, demand in the Group’s food to go categories is likely to bounce back strongly,” it stated. “Indeed, the strong recovery in demand for food to go categories already observed during the second half of [its 2020 financial year] demonstrated that the business responds very positively as mobility restrictions are eased.”

“Customers’ commitment to, and investment in, food to go categories and formats remains very supportive. Furthermore, new business wins already secured together with other opportunities in a consolidating supply market will help provide an additional underpin to this anticipated build back in group revenue.”

Greencore shares rose to 124.5p in early trading, but have eased back to trade at 0.4% up at 119.3p.

Morning update

Cranswick has reported “exceptionally” robust demand across all categories as lockdown restrictions helped boost revenues 21% to £931.6m at the pork supplier in its first half.

Like-for-like growth in the six months to 26 September rocketed 17.3% as shoppers cooked and ate the majority of their meals at home during the coronavirus pandemic.

It helped the group push operating profits 30.8% higher to £62m, with pre-tax profits up 13.3% to £53.7m.

The profits hike was despite cost related to Covid, including a staff bonus, of £8.2m in the half, which saw disruptions at a number of sites, with the Ballymena factory closed for two weeks following an outbreak of the virus.

CEO Adam Couch said the group’s outlook for the year was unchanged and Cranswick had a solid platform to continue a successful long-term development.

“I am incredibly proud of our colleagues who have performed so brilliantly in responding to the extraordinary and unparalleled challenges we currently face. I would again like to thank them for their professionalism, commitment, dedication and passion.

“We have made a strong start to the year. Although we remain cautious about the longer-term economic impact of COVID-19 and the continued uncertainty surrounding the ongoing Brexit negotiations, we are well positioned to address these challenges.”

Like-for-like revenues for fresh pork increased 6.9% in the half thanks to strong retail demand and exports.

However, the group’s cooked meats and convenience products experienced soaring growth of 21.5% as consumers looked for easy ways to prepare meals at home.

Poultry also performed well for the group, with sales up 34.9% during the period, driven by the contribution from the new Eye facility acquired from Crown Chicken.

Profits have plunged more than 80% at catering giant Compass as the coronavirus pandemic slammed the foodservice industry and had a “profound impact” on the group.

Organic revenues collapsed 18.8% to £20.2bn at the group in the year ended 30 September as lockdown and ongoing restrictions hampered business across all its sectors in the UK and across the world.

Compass said after excellent start to the new financial year, the business “received a shock” when all the sports & leisure business and most of the education and industry sectors were closed in March.

Business slowly returned ovr the summer as restrictions began to ease before fresh outbreaks hit the industry again after the year end.

Operating profits fell 81.9% to £19.9bn and pre-tax profits slumped 86% to £210m as a result.

CEO Dominic Blakemore said 2020 had been a challenging year for Compass.

“We began the year on track to deliver our strongest performance ever, and over the course of a fortnight in March, we saw the containment measures to stop the spread of COVID-19 close half of the business. We rapidly enhanced our health and safety protocols, mitigated our costs, increased our liquidity and strengthened our balance sheet. Through the summer, our performance began to improve slowly as we helped clients in Education and Business & Industry return to schools and offices safely.

“Importantly, in the fourth quarter we returned the business to profitability and are now cash neutral. This was achieved mainly through contract renegotiations to reflect the difficult trading environment, continued discipline in terms of costs and some improvement in volumes. We are executing at pace and expect the underlying operating margin in the first quarter of 2021 will be around 2.5%.”

He added the latest vaccine news was “encouraging, but the resumption of lockdowns in major markets showed the ongoing difficulty presented by the pandemic.

“We are improving the quality of the business and will emerge from the pandemic stronger than we’ve ever been. We recognise the importance of the dividend to our shareholders and the Board looks forward to reinstating it when considered appropriate. Finally, we remain as excited as ever about the significant structural growth opportunities globally, the potential for further revenue and profit growth, and returns to shareholders over time.”

Group revenues at Pets at Home increased 5.1% to £574.4m in six months to 8 October as pet owners stocked up on products during the pandemic.

Retail like-for-like sales jumped 5.8% in the half, but the biggest growth came from the omnichannel business - up 65.8% - as shoppers turned to online during the crisis.

Underlying pre-tax profits fell 5.1% as business rates relief was not enough to offset added costs associated with Covid. However, in the second quarter underlying profits soared 44%.

The business said the sustained strength in performance across the retail and veterinary operations during Q2 had continued into the third quarter as it continued to take market share across all channels.

CEO Peter Pritchard added: “In spite of the ongoing and wide-ranging impact of COVID-19, there is much to be optimistic about.

“The market in which we operate remains resilient, with recent changes to our work and leisure patterns supporting rising levels of pet ownership, a good proxy for future growth in both the underlying market and our business.

“We adapted our operations rapidly post the onset of the pandemic, and our focus on customer acquisition is underpinning market share gains across all channels and strong growth in our VIP and Puppy and Kitten clubs, thereby increasing the long-term opportunity of using data-driven, joined-up solutions across our range of products and services to drive customer share of wallet and lifetime value.

“We are introducing new ways to meet our customers’ needs across all channels, making pet care as affordable, convenient, engaging and flexible as possible, and our customer-centric pet care platform, underpinned by the most extensive and unique proprietary pet dataset in the UK and a true omnichannel backbone, provides us with significant competitive advantages.

“There is much to be proud of over the last six months and much to look forward to in equal measure. While we will continue to remain focused and agile in our execution, we are, more than ever, confident in the resilience and longevity of our pet care platform.”

Treatt has been hit by the decline in the soft drinks market caused by the Covid outbreak as consumers drank less outside the home.

Revenues at the manufacturer of extracts and ingredients fell 3.3% to £109m in the year ended 30 September.

However, despite the disruptions, the underlying business performed strongly, with pre-tax profits before exceptional items rising 11.3% to £14.8m and exceeding pre-Covid expectations.

CEO Daemmon Reeve said: “Treatt has performed strongly during what has been an unprecedented year. To have exceeded the expectations we had at the start of the year before the outbreak of the pandemic, speaks volumes about the resilience of the business, our strategy and market position. I would like to extend my thanks to all our colleagues for their efforts to help us achieve these results.”

He added the business had made a strong start to the new financial year and the group continued to perform in line with the board’s expectations.

Devro, which makes casings for sausages and meat products, said its trading from 1 July to 31 October remained “robust” despite the impact of Covid on the foodservice channel in an update this morning.

Its expectations for the year remained unchanged.

Emerging markets continued to grow well in the period. Most mature markets grew, but this was more than offset by declines in Continental Europe and UK & Ireland mainly reflecting a weaker foodservice channel. For the full year, the group still expect good growth in emerging markets to offset a decline in mature markets leading to broadly flat collagen volumes, with an estimated 2% net negative impact from Covid-19.

CEO Rutger Helbing said: “We continued to make good underlying progress in the period. While we expect market conditions to remain challenging for the rest of the year we remain on track to deliver against our expectations. This is testament to the contribution of our people and I would again like to put on the record my gratitude for all their hard work. All sites remain open and we continue to provide good service to our customers and fulfil our role in the food supply chain.”

The FTSE 100 started on the front foot this morning, rising 0.7% to 6,375.37pts, after the Prime Minister confirmed national lockdown would end on the 2 December.

Shares in Cranswick leapt 4% to 3,770p after this morning’s positive results.

Compass Group also jumped 4.1% to 1,400p on the back of its results, but Pets at Home plunged 8.2% to 384.2p.

Yesterday in the City

The FTSE 100 gave up some of its recent gains yesterday to close down 0.3% to 6,333.84pts despite more good vaccine news as the AstraZeneca Oxford study reported success.

Danone was one of the big losers yesterday in food and drink as its shares fell 3.2% to €50.84 after announcing a major cost-cutting programme in an effort to return to profit.

McBride also sank 7.3% to 61p after the household products group failed to upgrade its full-year outlook despite the extra demand created by the Covid pandemic.

Just Eat also fell 3.4% to 7,798p, as did B&M European Value Retail, down 2.6% to 484.9p, Diageo, down 1.1% to 2,918.5p, and Cranswick, down 0.9% to 3,624p.

On the rise yesterday were McColl’s Retail Group, up 12% to 23.9p, along with Finsbury Food Group, up 6.8% to 73.7p, and Greencore, up 4.9% to 118.8p ahead of its results.