Greencores FY outperform

Greencore's FY outperform

Over the last twelve months Irish food group Greencore outperformed the overall food market in UK, its largest market, on the back of its exposure to the faster-growth food-to-go segment and expansion in convenience channels.

The company, which reported its full-year numbers this morning (25 November), said like-for-like sales, excluding M&A and foreign exchange, increased 7.5% in the UK.

Investec analyst Nicola Mallard described this as a "strong" result. "Not all suppliers' fortunes are dictated by the difficult grocery backdrop," she wrote in an investor note. "The group is showing good revenue growth from its key food to go business."

Speaking to analysts during an investor call, CEO Patrick Coveney stressed Greencore has benefited from the strong growth tragectory of the food-to-go sector, which now accounts for 40% of group sales.

"Many of us suffer from looking at the food market internationally, and particularly in the UK, through the lens we used to look at it over the last decade... if you do that you don't see the growth," Coveney suggested. "We are focused on food-to-go... [which is] characterised by long-term structural growth".

Within food-to-go, the UK sandwich category is estimated to have grown 10% in fiscal 2013/14, while other out-of-home products saw market growth of 5% in the same period, the chief executive continued. That compares to a 1.3% drop in revenue generated by the rest of the food sector.

The growth is underpinned by expansion of the convenience channel. According to IGD data, convenience sales witnessed an 8% CAGR in the 2009-14 period - well above the 2% rate seen at conventional supermarkets. The IGD forecasts this growth rate will stand at 5% in the coming five years.

Greencore insisted it is well-placed to benefit from this structural growth. "We are seeing consumers shopping more frequently with smaller baskets sizes," Conveney said. He pointed to localisation trends and the proliferation of small stores and convenience stores which are "increasingly professionalised".

Conveney claimed consumers were also increasingly visiting convenience stores with purchase intent for food-to-go items. He claimed: "We have got growth in these outlets and we have these outlets playing a much stronger role in the food-to-go trends for consumers."

While some of Greencore's food-to-go success can be attributed to broader industry trends, it is worth noting the group's business also performed ahead of the food-to-go sector, with sales up 15.3% versus market growth of 9.5%. Conveney pointed to new business wins and the successful relaunch of a number of its lines, flagging up the new Co-operative range as an especially strong performer.

Greencore is investing in increasing its capabilities in food-to-go as it continues to increase its exposure to the category. The company is expanding its Northampton food-to-go facility in order to raise production levels. "We are investing significantly in terms of the capital we are putting down to meet these food-to-go occasions," Conveney said.

Food-to-go also represents a significant opportunity - and is the central thrust - of Greencore's fledgling US operations. In the US like-for-like sales increased 15.3% and the company announced plans to ramp up production in the market through facility investments, including the opening of a new production site in Washington State.

Greencore believes its drive into food-to-go offers good growth prospects - not just in 2015 but for years to come. "This is a business that has long-term structural growth baked into it... we are confident that we can deliver profitable growth not only this year but in the years ahead," Conveney claimed.

The market apparently shared Conveney's confidence. Greencore shares had surged 7.3% by 14:35 GMT.

According to Davy analyst Cathal Kenny, Greencore is expected to book double-digit earnings growth next year on the back of higher sales and margins. "FY 2015 forecasts call for another year of double-digit EPS growth (+12.8%), driven by 5.3% revenue growth and an 18bps increase in operating margins," he wrote. "The business remains well positioned."