Greencore’s profits rise 8% as opportunities unfold

Greencore generated operating profits of £76.5m (€92.1m), up 8.1% on the previous year, on revenues of £1.19 billion (€1.43b) (+3%) for the year ending 27 September 2013.

Despite the horsemeat scandal and the impact this had on the British market and Greencore’s own business within Britain, the firm managed to deliver an extremely robust set of results.

The firm’s operating margin increased by 0.3% to 6.4%. Adjusted earnings per share increased 13.3% to 14.5p. Dividend per share increased by 12.9% to 4.8p and year to date shareholders have witnessed a 77% rise in the value of Greencore’s shares, which follows on from the 80% appreciation in 2012.

With real scale in the British convenience market, that accounts for 85% of total group revenues and servicing some of the largest retailers in the market, how Coveney develops and leverages this strong base will be of interest to investors in the years ahead.

British operations

Food to go: Greencore feeds over half the British population each week with its range of sandwiches. This division accounts for 40% of total group revenues and recorded revenue growth of 4.4%.

The first half of the year was very slow, with revenue growth of just (+0.1%), but sales rebounded in the second half of the year (+ 8.1%), helped by the good summer weather, market share gains and launching new product ranges.

Greencore currently retains a 37% market share in the pre-packed sandwiches division within Britain.

Prepared Meals: When acquisitions are stripped out (e.g. International Cuisine), like for like sales declined by 5.2% during the period. The horemeat debacle had a severe and direct impact on this division, which accounts for 20% of total group sales.

Grocery: The company recorded revenue growth in its grocery and frozen division, with overall sales up 2.6%. This division accounts for 20% of total group sales and retains a 79% market share of the cooking sauces in Britain.

US operations

Following the 2012 acquisitions of sandwich and sushi manufacturer HC Schau & Son and later that year food-to-go producer Marketfare, the firm’s US revenues have risen from $40m (€29.8m) to over $200m (€149m) in recent years.

Its US division, while relatively small (10% of group revenues), is growing ‘disproportionately faster’ than all its other divisions. The firm’s associations with giant convenience store 7-eleven and the continued roll-out of its contract with Starbucks offers significant growth opportunities for the group.

Conclusion

Despite Greencore’s range of acquisitions (e.g. Uniq, Marketfare, International Cuisine) the balance sheet remains in good health, with net debt of £232.8m at year end, which equates to 2.3 times net debt to EBITDA.

Now that the group has finally successfully entered the US market, how it builds on this solid base will shape the future for Greencore and its investors in no small way.

Since Coveney took over as CEO in 2008, the firm has found a winning formula and shareholders have witnessed two years of significant share price appreciation.

The share price currently trades on 13.3 times 2013 earnings, offers a dividend yield of 2.5% and is generating a 12.5% return on capital.