Greencore, the convenience food manufacturer is resetting its business, having exited the US last year and is now refocused solely on the UK and Irish convenience food market.

Its CEO, Patrick Coveney, is ambitious and looking to expand the group’s category and channel capabilities while deepening relationships with customers, of which three (The Co-op, M&S and Sainsbury’s) make up 50% of the business.

Having exited the US 12 months ago and handing back €509m to shareholders, the group is pinning its hopes on the UK remaining an attractive and growing food-to-go market. But it is a market that has become increasingly challenged in recent months, amplified by the uncertainty of what shape Brexit will take, which is denting consumer confidence and therefore demand.

Greencore experienced this firsthand as slowing top-line momentum and a weaker set of results in the second half of its financial year. So while its full-year results were positive with a 0.9% rise in adjusted operating profits to £105.5m and adjusted revenues were up 2.6% (to £1.45bn) when disposals and product category exits were stripped out, the second half of the year for the group was more challenging.

Its main division, which makes everything from sandwiches to sushi and accounts for two-thirds of the business, reported sales growth of 3.6% to £962.5m for the full year but anaemic growth of 0.3% from March to September. And while the company says it still outstripped the market, it is worrying that market growth in what was the best-performing category in the UK has slowed to this level.

The other third of its business focuses on ready meals, soups and sauces. This business saw revenues decline by 15% to £483.6m as a result of closing sites and exiting certain product categories.

However, when these are excluded the underlying remaining business still saw a 1% decline in revenues. It says the ready-meals business is improving but it is seeing mixed performance in its cooking sauce business.

Brexit uncertainty

So outside of a challenged market for convenience and food-to-go, Greencore also has to deal with the uncertainty around Brexit.

While it continues to believe that the risks from Brexit are manageable, it acknowledges potential near-term challenges associated with a disorderly exit.

Inflation trends in the UK do not help keep a lid on costs. For example raw material and packaging costs rose by 0.4% in 2019.

Labour is also going up. Greencore reported a 5% increase in direct labour in the last 12 months primarily due to the impact of the increased national living wage.

Overall, while the group is refocused on its core market, the market is challenged. It has 75% of its business with six customers and 50% with three. Food-to-go is seen as the UK’s most attractive food category but slowing growth as a result of consumer confidence may dampen the group’s near-term performance.