TIDMGNC
RNS Number : 6577Z
Greencore Group PLC
25 May 2021
25 May 2021
Resilient H1 performance in challenging trading conditions
Well positioned as food to go volumes rebound in a reopening UK
economy
Greencore Group plc ('Greencore' or the 'Group'), a leading
manufacturer of convenience food in the UK, today issues interim
results for the 26 weeks ending 26 March 2021.
PERFORMANCE(1)
-- Group Revenue declined 19.0% to GBP577.1m, driven by the
reduction in consumer mobility as a result of tiered restrictions
and lockdowns in the UK
-- Adjusted Operating Profit of GBP0.2m and Adjusted Loss per share of 1.4 pence
-- Net Debt (excluding lease liabilities) of GBP271.3m at 26
March 2021, a reduction of GBP79.2m since the end of FY20 and
underpinned by an equity placing in November 2020 raising gross
proceeds of GBP90m
-- Strong liquidity position with cash and undrawn committed
debt facilities of GBP302.0m at period end, and H1 21 Net Debt:
EBITDA covenant waived
STRATEGIC DEVELOPMENTS
-- Working with several key customers to renew and extend
relationships with near term investments in capabilities, capital,
and commercial terms that secure and support growth in new and
existing categories and formats
-- Recent revenue momentum supported by new business wins
secured during the last 12 months representing annualised pre-COVID
revenues of approximately GBP175m, facilitated in part by a two
year capital investment of approximately GBP30m across three
manufacturing sites
-- A pipeline of further new business opportunities being actively pursued
-- Comprehensive range of pledges launched as part of the Group's sustainability strategy
OUTLOOK(1)
-- Encouraging revenue momentum in the first seven weeks of H2
21, with pro forma revenue in food to go categories running at
approximately 123% above prior year levels and approximately 14%
below the equivalent pre-COVID levels in FY19. For this period the
Group's pro forma revenue was approximately 64% above prior year
levels and approximately 5% below equivalent pre-COVID levels in
FY19
-- The Group anticipates that a continued reopening of the UK in
line with the current roadmap and a consequential rebuild of Group
Revenue would be expected to generate a FY21 Adjusted Operating
Profit outturn above FY20 levels
-- Net Debt (excluding lease liabilities) is expected to reduce
further in the second half of the year, from H1 21 levels
-- The Group is now focused on rebuilding profitability and cash
flow momentum to pre-COVID levels, supported by the revenue
rebuild, the unwind of COVID-19 operating constraints, and
effective execution against new business opportunities
SUMMARY FINANCIAL PERFORMANCE(1)
H1 21 H1 20 Change
GBPm GBPm
Group Revenue 577.1 712.7 -19.0%
Pro Forma Revenue Growth -18.6%
Adjusted EBITDA 26.5 63.8 -58.5%
Group Operating Profit 3.9 35.6 -89.0%
Adjusted Operating Profit 0.2 38.3 -99.5%
Adjusted Operating Margin 0.0% 5.4% -540bps
Group (Loss)/Profit Before
Tax (1.8) 27.3 -106.6%
Adjusted (Loss)/Profit Before
Tax (7.9) 31.1 -125.4%
Basic EPS (pence) 0.0 5.3 -100.0%
Group Exceptional Items (after
tax) 9.9 0.4
Adjusted EPS (pence) (1.4) 5.8 -124.1%
Interim dividend per share
(pence) - -
Free Cash Flow (23.6) 2.6 -GBP26.2m
Net Debt 332.1 374.4
Net Debt (excluding lease liabilities) 271.3 311.1
Net Debt:EBITDA as per financing
agreements 7.2x 2.1x
Return on Invested Capital
("ROIC") (0.6)% 12.3%
Commenting on the results, Patrick Coveney, Chief Executive
Officer, said:
"This has been a challenging period for Greencore, but the
consistent build in our revenues since early March as lockdown
measures have eased and COVID-19 cases have fallen give us real
cause for optimism. Our focus now is on rebuilding revenue,
profitability and cash flow momentum as the UK economy reopens. Our
recent business wins are a great endorsement of our continuing
relevance in the UK convenience food landscape. Underpinned by the
quality of our people, our new sustainability strategy and the
strength of our long-standing customer relationships, we are
confident of being able to build back the business rapidly and
profitably, and are optimistic about the medium-term prospects for
Greencore."
___________________________________________________________________________________________________________
(1) The Group uses Alternative Performance Measures ('APMs')
which are non-IFRS measures to monitor the performance of its
operations and of the Group as a whole. These APMs along with their
definitions are provided in the Appendix to the Interim Financial
Report.
COVID-19 UPDATE(1)
In H1 21 the Group continued to manage through the challenging
trading environment focused on three key priorities - keeping our
people safe, feeding the UK, and protecting our business. These
priorities are aligned with the Group's purpose and its
distinctive, repeatable 'Greencore Way' of working.
The food industry has continued to play an essential role in the
UK throughout the pandemic and Greencore recognises, and is proud
of, its own important responsibilities in this regard. The
organisation, supply chain and production network all functioned
well in the first half, enabling the Group to maintain its high
levels of customer service and satisfaction in this hugely
challenging operating environment.
Keeping our people safe
Greencore's people are at the core of its purpose and its
success, and keeping colleagues safe has remained a key priority
through COVID-19. The increasing number of cases and the severity
of the new virus strains during H1 21 required the Group to take
incremental safety actions to ensure that all is being done within
the business to mitigate the impact of the virus and to keep
colleagues safe.
In addition to undertaking COVID-19 risk assessments and
site-specific action plans across every manufacturing location and
distribution facility, the Group also worked with the UK Department
of Health and Social Care to implement weekly lateral flow testing
across seven manufacturing sites and one Direct-to-Store depot
providing access to testing for over half of Group employees.
Feeding the UK
The Group's priority to feed the UK is underpinned by intensive
and collaborative engagement with customers and is also aligned
with our purpose that includes the commitment to producing Great
Food. In H1 21 the Group once again responded rapidly to the
volatile demand patterns associated with the changing mobility
restrictions and lockdowns that were introduced across the UK
during the period. The principal focus remains working with
existing customers on driving category growth and range launches as
the economy reopens, as well as onboarding new business
successfully.
The Group also continued to take a purposeful and community-led
approach to supporting initiatives at local, regional and national
levels to help vulnerable people and those in need of quality food
all over the UK.
Protecting our business
In H1 21 the Group implemented a comprehensive set of actions to
alleviate the material short term impact on the business as a
result of COVID-19, and to build back the business profitably as
the pandemic eases. The Group's purpose underpins this through both
an aspiration for excellence in all that it does, and a desire to
continuously improve the sustainability of the business. As such
the Group is well positioned to be one of the longer term winners
in UK convenience food.
Cost mitigants to protect the business in H1 21 include the
continued use of furlough supports, pay freezes, and the
elimination of discretionary spending. The outcome of these, and
other measures, in H1 21 was the delivery of positive Adjusted
Operating Profit in the period, notwithstanding the significant
reduction in Group revenues and ongoing COVID-19 related operating
costs.
The Group managed cash flow in the period through reducing
planned levels of capital expenditure, deferring cash contributions
to defined benefit pension schemes, and suspending dividend
payments, while continuing to execute disciplined investment in
automation and to support future growth in the business. These
measures, combined with the proceeds from the equity placing in
November 2020 and from the sale of the Group's molasses businesses
in December 2020, resulted in a GBP79.2m reduction in Net Debt
(excluding lease liabilities) in the first half of the year.
The Group's balance sheet and liquidity position strengthened,
with cash and undrawn committed bank facilities of GBP302.0m at 26
March 2021. Committed debt facilities totalled GBP570.7m at period
end, with a weighted average maturity of 3.2 years.
SUSTAINABILITY
The Group's sustainability strategy was launched in November
2020 and was presented in detail at a seminar for the investment
community in February 2021. The strategy is grounded in both
aspiration and substance, is reflective of the Group's specific
business context, and is embedded in the business model and
culture.
The Group's sustainability strategy is built around three
pillars: Sourcing with Integrity, Making with Care, and Feeding
with Pride. Each pillar contains a set of priorities - an
aspirational goal supported by specific milestone targets and short
term actions that relate to the most material sustainability
challenges, risks and opportunities facing the business. The Group
is also implementing measures to ensure sustainability becomes
embedded in its accountabilities and disclosure practices.
Good progress has been made on the Group's short term actions in
H1 21. The Group is developing a fully recyclable sandwich skillet
to offer to customers in FY21 and is currently assessing the whole
life sustainability impacts of the various options under review. A
carbon reduction target is being developed that will be approved
externally by the Science Based Target initiative in FY21, for both
the Group's direct greenhouse gas emissions (Scope 1 and 2), as
well as the indirect emissions that come from the supply chain
(Scope 3). The Group has also rolled out specific community
engagement plans across a number of sites and is on track to
implement this across all production sites by the end of FY21.
Notable sustainability pledges that the Group has made
include:
-- All packaging will be recyclable or reusable by 2025
-- Food waste will be reduced by 50% by 2030
-- The Group will operate with net zero emissions by 2040
-- A fully recyclable sandwich skillet will be developed and brought to market in FY21
-- A deforestation-free supply chain by 2025
-- All raw materials will be sustainably sourced by 2030
-- All surplus product will be donated to local communities by 2022
-- Product development will be equally split between animal
protein versus plant-rich alternatives by 2030
CURRENT TRADING AND OUTLOOK(1)
The UK Government has established a clear roadmap out of
lockdown and the first phase commenced on 8 March 2021. Since 17
May 2021 there has been a further easing of limits on social
gatherings and most businesses in all but the highest risk sectors
have been permitted to reopen in some form.
Consumer demand, in particular in the Group's food to go
categories, is responding positively as these mobility restrictions
have eased. In the first seven weeks of H2 21 pro forma revenue in
the Group's food to go categories was approximately 123% above
prior year levels, while demand in the Group's other convenience
categories was approximately 12% above prior year levels. As a
result the Group's pro forma revenue was approximately 64% above
prior year levels. When compared to the equivalent pre-COVID levels
in FY19, in the first seven weeks of H2 21 pro forma revenue in the
Group's food to go categories was approximately 14% below
equivalent pre-COVID levels, while demand in the Group's other
convenience categories was approximately 14% above pre-COVID
levels. For this period the Group's pro forma revenue was
approximately 5% below equivalent pre-COVID levels in FY19.
The ongoing uncertainty regarding the duration and impact of
COVID-19 on the Group's trading environment continues to make FY21
forecasting difficult, with limited visibility of Q4 demand
patterns. However, a continued reopening of the UK in line with the
current roadmap and a consequential rebuild of Group Revenue would
be expected to generate a FY21 Adjusted Operating Profit outturn
above FY20 levels. Net Debt (excluding lease liabilities) is
expected to reduce further from H1 21 levels under this
scenario.
New business wins already secured have supported the revenue
build back and there remains a pipeline of exciting opportunities
being actively pursued. In addition, the Group is working with key
customers to renew and extend commercial relationships. This will
result in near term investment in capabilities, capital, and
commercial terms that secure and support growth in key categories
and open up growth opportunities with these customers in additional
categories and formats.
The Group is confident in its ability to rebuild its economic
model notwithstanding the uncertainties and challenges of FY21 and
remains fully focused on optimising its growth potential in UK
convenience food markets. This recovery will be led by volume
growth, with the pace of profit conversion and operating
efficiencies building over time. The Group also remains highly
vigilant around the potential for further disruption to demand if
mobility restrictions are re-implemented, and remains well prepared
for such an eventuality.
Forward--looking statements
Certain statements made in this document are forward--looking.
These represent expectations for the Group's business, and involve
known and unknown risks and uncertainties, many of which are beyond
the Group's control. The Group has based these forward--looking
statements on current expectations and projections about future
events. These forward-looking statements may generally, but not
always, be identified by the use of words such as 'will', 'aims',
'anticipates', 'continue', 'could', 'should', 'expects', 'is
expected to', 'may', 'estimates', 'believes', 'intends',
'projects', 'targets', or the negative thereof, or similar
expressions.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend on
circumstances that may or may not occur in the future and reflect
the Group's current expectations and assumptions as to such future
events and circumstances that may not prove accurate. A number of
material factors could cause actual results and developments to
differ materially from those expressed or implied by
forward-looking statements. You should not place undue reliance on
any forward-looking statements. These forward-looking statements
are made as of the date of this announcement. The Group expressly
disclaims any obligation to publicly update or review these
forward-looking statements other than as required by law.
CONFERENCE CALL
A conference call for investors and analysts will be held at
8.30am today. Registration and dial in details are available at
www. greencore.com/investor-relations/
For further information, please contact:
Patrick Coveney Chief Executive Officer Tel: +353 (0)
1 486 3313
Emma Hynes Chief Financial Officer Tel: +353 (0)
1 486 3307
Jack Gorman Head of Investor Relations Tel: +353 (0)
1 486 3308
Rob Greening/ Nick Hayns/ Powerscourt Tel: +44 (0) 20
Sam Austrums 7250 1446
Billy Murphy or Louise Drury Communications Tel: +353 (0)
Walsh 1 260 5000
About Greencore
We are a leading manufacturer of convenience food in the UK and
our purpose is to make every day taste better. We supply
foodservice, grocery and other retailers, including all of the
major UK supermarkets. We have strong market positions in a range
of categories including sandwiches, salads, sushi, chilled ready
meals, chilled soups and sauces, chilled quiche, ambient sauces and
pickles, and frozen Yorkshire Puddings.
In FY20 we manufactured 619m sandwiches and other food to go
products, 116m chilled prepared meals, and 264m bottles of cooking
sauces, pickles and condiments. We carry out more than 10,000
direct to store deliveries each day. We have 16 world-class
manufacturing sites in the UK, with industry-leading technology and
supply chain capabilities. We generated revenues of GBP1.3bn in
FY20 and employ approximately 12,200 people. We are headquartered
in Dublin, Ireland.
For further information go to www.greencore.com or follow
Greencore on social media.
OPERATING REVIEW(1)
Convenience Foods UK & Ireland
H1 21 H1 20 Change Change
GBPm GBPm (As reported) (Pro Forma
basis)
Revenue 577.1 712.7 -19.0% -18.6%
------ ------ --------------- ------------
Group Operating Profit 3.9 35.6 -89.0%
------ ------ --------------- ------------
Adjusted Operating
Profit 0.2 38.3 -99.5%
------ ------ --------------- ------------
Adjusted Operating
Margin % 0.0% 5.4% -540bps
------ ------ --------------- ------------
Pro Forma Revenue Growth
(versus FY20)
Q1 21 Q2 21 H1 21
--------- -------- --------
Group -15% -22% -19%
--------- -------- --------
Food to go categories -22% -30% -26%
--------- -------- --------
Other convenience
food categories -2% -9% -6%
--------- -------- --------
Pro Forma Revenue Growth (versus
FY20)
March April May H2 21
2021 2021 2021 (seven
weeks)
-------- ------- ------- -----------
Group -17% +66% +61% +64%
-------- ------- ------- -----------
Food to go categories -19% +129% +115% +123%
-------- ------- ------- -----------
Other convenience
food categories -14% +13% +10% +12%
-------- ------- ------- -----------
Pro Forma Revenue Growth (versus
FY19)
March April May H2 21
2021 2021 2021 (seven
weeks)
-------- ------- ------- -----------
Group -21% -7% -4% -5%
-------- ------- ------- -----------
Food to go categories -29% -16% -11% -14%
-------- ------- ------- -----------
Other convenience
food categories -5% +14% +13% +14%
-------- ------- ------- -----------
Strategic developments
The Group made good progress against its key strategic
objectives in H1 21, notwithstanding the challenges of COVID-19.
This has underpinned the Group's ability to build back the business
rapidly as the UK economy has started to reopen.
There was extensive engagement and collaboration with customers
throughout the first half of the year, initially focusing on
effective range management during the periods of mobility
restrictions and subsequently working closely with customers to
build back rapidly in affected categories as mobility was restored
to the market. The Group designed and implemented growth programmes
with customers to reactivate product ranges and formats as the
market started to reopen and in preparation for summer trading.
The Group's new business initiatives have supported the
diversification of its product and channel footprint. New business
wins representing annualised pre-COVID revenues of approximately
GBP175m have been secured during the last 12 months. Multiple new
customers were secured in the first half of the year and the Group
is managing the complexities and costs of onboarding these
customers alongside the rebuilding of core business volumes. In
addition, the Group has committed to invest approximately GBP30m
over the next two years across three manufacturing sites to support
the delivery of this new business.
In H1 21 the Group continued to expand its product offering and
to drive category extensions with existing customers, in particular
in the salads and fresh meals categories. The Group is also working
with key customers to renew and extend commercial relationships.
This will result in near term investment in capabilities, capital,
and terms that secure and support growth in key categories and open
up growth opportunities with these customers in additional
categories and formats.
Following a protracted period of COVID-19 disruption that
removed its ability to safely deliver these continuous improvement
initiatives, in H2 21 the Group is renewing its focus on its
Greencore Excellence agenda across its commercial, purchasing and
operational capabilities. The full benefits of these programmes
will only begin to materialise as volume rebuilds across the
network and will help to mitigate some of the current lower levels
of overhead absorption and operating efficiency.
The Group continued to invest in its automation programme in H1
21 and extended the rollout of robotic solutions to its three
largest food to go manufacturing units. Early progress is
encouraging and as volumes rebuild the programme will drive
production efficiencies to help offset labour inflation, manage
labour availability, reduce waste, and to support social distancing
across the Group's production network as required.
The Group also advanced its culinary capabilities and technical
activities in the period, delivering on its commitment to Great
Food. More than 700 SKUs were introduced or refreshed in H1 21, and
approximately 40% of these new products were vegetarian, vegan or
meat-free. The Group also continued to evolve its technical and
food safety programme in H1 21, with a particular focus on
reinforcing governance, continued innovation and ongoing engagement
with, and management of, the Group's supplier base.
Performance
The Group's reported revenue decreased by 19.0% to GBP577.1m in
H1 21. On a pro forma basis revenue decreased by 18.6%, after
adjusting for the disposal of the molasses businesses in Q1 21 and
adjusting for any movement in foreign exchange. Group Operating
Profit was GBP3.9m compared to GBP35.6m in H1 20. Adjusted
Operating Profit fell by 99.5% to GBP0.2m and Adjusted Operating
Margin fell by 540bps to 0.0%.
The UK trading environment remained very challenging and
volatile in the period. This was most marked in the Group's food to
go categories, driven by the demand impact of a pronounced
reduction in mobility due to extensive lockdowns and tiered
restrictions across the UK for most of the first half. This was
balanced to some degree by the Group's strong market position in
supplying grocery retailers, the only channel to remain
substantially open in the period. New business contributed modestly
to Group revenue performance in the period.
In the Group's food to go categories (comprising sandwiches,
salads, sushi and chilled snacking) reported revenue was GBP339.2m
in H1 21, a decrease of 25.6% on both a reported and pro forma
basis. The impact was most marked in Q2 21 when the most severe
mobility restrictions were imposed. Pro forma revenue for food to
go categories was approximately 30% below prior year levels in Q2,
compared to a 22% reduction in Q1. This revenue trajectory improved
towards the end of Q2 as the economy started to reopen, with March
levels approximately 19% below prior year levels.
Revenue for the distribution of third party products accounted
for approximately 8% of Group revenue in H1 21, supported by the
impact of the Group's new business activity that is expected to
contribute more meaningfully in future periods.
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.
Reported revenue across these businesses decreased by 7.4% to
GBP237.9m in H1 21. Pro forma revenue decreased by 5.6%, after
adjusting for movements in foreign exchange and for the disposal of
the Group's molasses businesses in Q1 21. This was driven by a
reduction in ready meals revenue, notably in Q2 when compared to
the increased COVID-19 related demand in the prior year. Revenue in
the Group's remaining Irish ingredients trading business also
declined in H1 21, reflecting lower volumes.
Inflation trends in the Group's main UK cost components were as
anticipated. Raw material and packaging costs inflation was
approximately 1% in H1 21. Direct labour inflation was
approximately 4%.
Overall, Group Operating Profit decreased from GBP35.6m to
GBP3.9m for the period. Adjusted Operating Profit declined by
GBP38.1m to GBP0.2m. This decline was driven by the significant
revenue reduction in food to go categories as outlined above, which
was only partly offset by associated cost mitigating measures.
Underlying profitability in the Group's other convenience
categories was broadly unchanged in H1 21.
Adjusted Operating Profit is after charging GBP4.8m of COVID-19
related operating costs. These operating costs primarily comprise
GBP2.9m of incremental costs relating to furloughed colleagues, and
GBP1.9m of other costs including those incurred to reconfigure
production areas and implement measures to ensure safe working and
social distancing.
In H1 21 the Group received UK Government assistance of GBP7.1m
under the Coronavirus Job Retention Scheme.
Brexit
The Trade and Cooperation Agreement negotiated between the EU
and the UK was applied provisionally from 1 January 2021 and
entered into force from 1 May 2021. The operational and financial
impact on the Group in H1 21 was minimal and is anticipated to
remain so in the second half of the year.
Group Cash Flow and Returns
H1 21 H1 20 Change
GBPm GBPm (as reported)
Free Cash Flow (23.6) 2.6 -GBP26.2m
------- ------ ---------------
Net Debt 332.1 374.4
------- ------ ---------------
Net Debt (excluding lease
liabilities) 271.3 311.1
------- ------ ---------------
Net Debt:EBITDA as per financing
agreements 7.2x 2.1x
------- ------ ---------------
ROIC (0.6)% 12.3%
------- ------ ---------------
Strategic developments
The Group implemented a comprehensive suite of operational, debt
and equity measures in H1 21 that are designed to protect and
support the business as it moves into future growth. As a result,
in H1 21 the Group's liquidity position has strengthened and Net
Debt has decreased.
The Group applied a range of mitigating actions to manage cash
outflows during the period, including a reduction in budgeted
capital expenditure, a further deferral of cash contributions to
the Group's defined benefit pension schemes, and the suspension of
dividend payments.
As previously announced, the Group also secured agreement with
its bank lending syndicate in May 2020 and its Private Placement
Note Holders in July 2020 to waive the Net Debt: EBITDA covenant
condition for the September 2020 and March 2021 test periods. In
November 2020 the Group secured further support from its bank
lending syndicate and its Private Placement Note holders. Of the
key features, the Group:
-- Extended the maturity of its GBP75m revolving credit bank
facility by two years to March 2023;
-- Refinanced the Group's GBP50m bilateral loan for a new three
year term maturing in January 2024;
-- Amended the EBITDA: Interest covenant condition for the March
2021 test period from 3.0x to 2.0x;
-- Amended the Net Debt: EBITDA covenant test at June 2021 from 4.25x to 5.0x;
-- Reduced the minimum liquidity requirement on cash and undrawn
facilities to GBP70m for FY21, from a range of GBP100m-GBP125m;
and
-- Increased the maximum net debt requirement to GBP550m to May
2021, and GBP500m to September 2021, from a range of
GBP450m-GBP550m.
In November 2020 the Group completed an equity placing of
80,357,142 new ordinary shares at 112 pence per share, to raise net
proceeds of GBP87.1m.
In December 2020 the Group also completed the sale of its
interests in its molasses trading businesses for a final cash
consideration of GBP16.3m. The profit on disposal of GBP11.3m was
reported as an exceptional item in H1 21. The cash proceeds were
used to further strengthen the Group's balance sheet.
As a result of all these measures, in particular the successful
completion of the equity placing, the Group has had sufficient
financial flexibility to navigate through a volatile trading period
while continuing to invest to support future growth in the
business.
At 26 March 2021 the Group had cash and undrawn committed bank
facilities of GBP302.0m, comfortably above minimum liquidity
requirements as stipulated in the conditions of the Group's
covenant waivers.
The Group's initiatives continue to be informed by modelling a
set of scenarios that reflect the Group's considered and
conservative view on short and medium term trading, and ensuring
the Group is efficiently and effectively funded through any of
these scenarios.
Performance
Free Cash Flow was a GBP23.6m outflow in H1 21 compared to an
inflow of GBP2.6m in H1 20. The decrease primarily reflected
reduced profitability in the period, partly offset by lower pension
cash contributions, lower maintenance capex and lower cash tax.
Several other factors contributed to a reduction in the Group's Net
Debt in H1 21, principally the equity placing in November 2020, the
sale of the Group's molasses businesses in December 2020, and the
decision not to pay a final FY20 dividend.
The Group's Net Debt at 26 March 2021 was GBP332.1m, a reduction
of GBP42.3m compared to 27 March 2020. Net Debt excluding lease
liabilities reduced to GBP271.3m from GBP311.1m at the end of H1 20
and from GBP350.5m at the end of FY20. The Group's Net Debt: EBITDA
leverage as measured under financing agreements was 7.2x at period
end, compared to 2.1x at the end of March 2020 and 4.4x at the end
of September 2020. As at 26 March 2021, the Group had committed
debt facilities of GBP570.7m with a weighted average maturity of
3.2 years.
ROIC was - 0.6 % for the 12 months ended 26 March 2021, compared
to 12.3% for the 12 months ended 27 March 2020. The decrease was
primarily driven by reduced profitability in the period. Average
invested capital also increased from GBP695.9m to GBP758.6m,
reflecting primarily the impact of the recognition of right-to-use
assets under IFRS 16 Leases which was adopted in H1 20.
FINANCIAL REVIEW(1)
Revenue and Operating Profit
Reported revenue in the period was GBP577.1m, a decrease of
19.0% compared to H1 20, primarily reflecting the impact of
COVID-19 on demand in food to go categories. Pro Forma Revenue
decreased by 18.6 %.
Group Operating Profit decreased from GBP35.6m to GBP3.9m as a
result of significantly lower revenue in H1 21 that was partially
offset by a net exceptional gain. Adjusted Operating Profit of
GBP0.2m was 99.5 % lower than in H1 20 with lower profits in food
to go categories in H1 21 partly offset by an improved underlying
performance in the Group's other convenience categories. Adjusted
Operating Margin was 0.0%, 540 basis points lower than the prior
year.
Adjusted Operating Profit is after charging GBP4.8m of COVID-19
related operating costs. These operating costs primarily comprise
GBP2.9m of incremental costs relating to furloughed colleagues, and
GBP1.9m of other costs including those incurred to reconfigure
production areas and implement measures to ensure safe working and
social distancing.
In H1 21 the Group received UK Government assistance of GBP7.1m
under the Coronavirus Job Retention Scheme.
Net finance costs
The Group's net bank interest payable was GBP 7.4 m in H1 21, an
increase of GBP0.2m versus H1 20. The increase was driven by higher
debt levels in the period. The Group also recognised a GBP0.7m
interest charge relating to the unwinding of the IFRS 16 lease
liability in the period.
The Group's non-cash finance charge in H1 21 was GBP1.6m (H1 20:
GBP1.0m). The change in foreign exchange and the fair value of
derivatives and related debt adjustments in the period was a
GBP0.7m charge (H1 20: nil). The non-cash pension financing charge
of GBP 0.9 m was GBP 0.1 m lower than the H1 20 charge of
GBP1.0m.
Profit/(Loss) before taxation
The Group's Profit Before Tax decreased from GBP27.3m in H1 20
to a loss of GBP1.8m in H1 21, driven by lower Group Operating
Profit, slightly higher finance costs and partly offset by the
exceptional net gain reported in H1 21. Adjusted Loss Before Tax in
the period was GBP 7.9 m (H1 20: profit of GBP31.1m), primarily
driven by a reduction in Adjusted Operating Profit.
Taxation
The Group's effective tax rate in H1 21 (including the tax
impact associated with pension finance items) was 18% (H1 20: 13%).
In March 2021, the UK Government announced a change to the
corporation tax rate which is set to increase to 25% from 1 April
2023. As this was not substantively enacted by 26 March 2021, this
had no impact on the half year charge.
Exceptional items
The Group recognised a pre--tax exceptional gain of GBP9.7m in
H1 21, and an after tax gain of GBP9.9m. The items are detailed in
Note 4 to the condensed Group Financial Statements, and are
comprised as follows:
Exceptional Items GBPm
Profit on disposal of Molasses trading
businesses 11.3
------
Defined benefit pension schemes restructuring (2.6)
------
Legacy businesses provisions 1.0
------
Exceptional items (before tax) 9.7
------
Tax on exceptional items 0.2
------
Exceptional items (after tax) 9.9
------
Earnings per share
The Group's basic loss per share in H1 21 of 0.0 pence compared
to basic earnings per share in H1 20 of 5.3 pence. This was driven
by a GBP 23.2 m reduction in Earnings and an increase in the number
of shares in issue following the equity placing in November 2020.
The weighted average number of shares in issue in H1 21 was 498.0m
(H1 20: 443.3m).
Adjusted Earnings were negative GBP6.8m in the period, GBP32.7m
behind prior year levels largely due to a reduction in Adjusted
Operating Profit. The Group's Adjusted loss per share of 1.4 pence
in H1 21 compared to Adjusted earnings per share of 5.8 pence in H1
20.
Cash Flow and Net Debt
Adjusted EBITDA was GBP37.3m lower in H1 21 at GBP26.5m. The
Group incurred a net working capital outflow of GBP21.2m (2020: GBP
21.8m outflow). Maintenance capital expenditure of GBP7.9m was
incurred in the period (H1 20: GBP11.2m). The cash outflow in
respect of exceptional charges was GBP2.4m (H1 20: GBP2.6m), of
which GBP2.1m related to prior year exceptional charges.
Interest paid in the period, including interest on lease
liabilities, was GBP9.2m (H1 20: GBP7.5m). The increase reflected
higher average debt levels in H1 21 and incremental interest costs
incurred following the covenant amendments agreed in FY20. These
amendments required the Group to recognise a debt modification
charge in FY20. Cash tax decreased by GBP4.2m to Nil due to lower
profitability in the period. The cash tax rate for the Group is
expected to rise towards the Group's effective rate over time as a
result of increased profitability and a reduction in the degree to
which UK losses may be utilised in any one year. The Group's cash
funding for defined benefit pension schemes was GBP3.0m (H1 20:
GBP7.8m), reflecting the decision to defer cash contributions in
the first half of this year.
These movements resulted in a Free Cash outflow of GBP23.6m
compared to an inflow of GBP2.6m in H1 20 driven primarily by the
lower EBITDA performance.
In addition to this Free Cash outflow, in H1 21 the Group
incurred strategic capital expenditure of GBP8.6m (H1 20: GBP9.9m).
The Group did not make any equity dividend cash payments (H1 20:
GBP16.7m) and in November 2020 the Group completed an equity
placing of 80,357,142 new ordinary shares at 112 pence per share,
to raise net proceeds of GBP87.1m. In December 2020 the Group also
completed the sale of its interests in its molasses trading
businesses for a final cash consideration of GBP16.3m.
The Group's Net Debt at 26 March 2021 was GBP332.1m, a reduction
of GBP42.3m compared to the prior year period and a reduction of
GBP79.1m since the end of FY20, driven primarily by the cash
proceeds from the equity placing in November 2020 and the sale of
the Group's molasses businesses in December 2020 and partially
offset by the free cash outflows as described previously.
Financing
The Group had total committed debt facilities of GBP570.7m at 26
March 2021 and a weighted average maturity of 3.2 years. This
comprised:
-- A GBP340m revolving credit bank facility with a maturity date of January 2025;
-- A GBP50m bilateral bank facility with a maturity date of January 2024;
-- GBP105.7m of outstanding Private Placement notes with
maturities ranging between October 2021 and June 2026; and
-- A revolving credit bank facility of GBP75m, with a maturity date of March 2023.
The Group had cash and undrawn committed facilities of GBP302.0m
at 26 March 2021, compared to GBP232.0m as at 25 September
2020.
Pensions
All legacy defined benefit pension schemes are closed to future
accrual. The net pension deficit relating to legacy defined pension
schemes, before related deferred tax, at 26 March 2021 was
GBP71.9m, GBP10.2m lower than the position at 25 September 2020.
The net pension deficit after related deferred tax was GBP55.7m
(FY20: GBP63.8m). The decrease in net pension deficit was driven
principally by an actuarial gain on liabilities arising from an
increase in the discount rates used to value these liabilities. The
movement in the discount rate is driven by the corporate bond
rate.
In H1 21 the Group entered a formal agreement with the Trustees
of the legacy defined benefit pension scheme in the UK to defer
cash contributions to the pension for a further period of six
months which resulted in a reduction of cash contributions in H1 21
of GBP3.4m. Since the beginning of the pandemic to the date of this
announcement, the Group has deferred cash contributions totalling
GBP10.3m.
The valuations and funding obligations of the Group's legacy
defined benefit pension schemes are assessed on a triennial basis
with the relevant trustees. The next assessment for the Group's
principal UK defined benefit pension scheme is expected to conclude
in H2 21.
In H1 21 the Group and trustees of all three Irish schemes
agreed a restructuring of its Irish pension schemes which included
the agreement to wind up the two smaller schemes and to transfer
certain assets and liabilities from those schemes to the principal
scheme. Details of the restructuring are detailed in Note 13 to the
Interim Financial Report.
Principal risks and uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on future Group performance and could
cause actual results to differ materially from expected and
historical results. The Board considers the risks and uncertainties
as described in detail in the Risks and Risk Management section in
the Annual Report and Financial Statements for the year ended 25
September 2020 issued on 23 November 2020, to remain applicable in
the second half of the year.
A description of the risks and uncertainties are set out in the
Appendix to the Interim Financial Report.
Responsibility Statement
Each of the Directors of Greencore Group plc confirm that, to
the best of each person's knowledge and belief as required by the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority ('FCA'):
-- The Financial Statements, prepared in accordance with IFRS as
adopted by the EU and the Company Financial Statements prepared in
accordance with FRS 101: Reduced Disclosure Framework, give a true
and fair view of the assets, liabilities, financial position of the
Group and Company at 26 March 2021 and the profit/loss of the Group
for the 26 weeks ending 26 March 2021; and
-- The Financial Statements include a fair review of the
development and performance of the business and the position of the
Group and Company, together with a description of the principal
risks and uncertainties that they face.
P.F. Coveney E. Hynes
Chief Executive Officer Chief Financial Officer
Date: 24 May 2021 Date: 24 May 2021
CONDENSED GROUP INCOME STATEMENT
for the half year ended 26 March 2021
Half year ended 26 Half year ended 27 March
March 2021 2020
(Unaudited) (Unaudited)
Exceptional Exceptional
(Note (Note
Notes Pre- exceptional 4) Total Pre- exceptional* 4)* Total*
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ----------------- ------------ -------- ------------------ ------------ --------
Revenue 2 577.1 - 577.1 712.7 - 712.7
Cost of sales (393.0) - (393.0) (475.7) (1.1) (476.8)
-------------------------- --- ----------------- ------------ -------- ------------------ ------------ --------
Gross profit 184.1 - 184.1 237.0 (1.1) 235.9
Operating costs, net (183.9) 5.7 (178.2) (198.7) 1.1 (197.6)
-------------------------- --- ----------------- ------------ -------- ------------------ ------------ --------
Group operating profit
before acquisition
related
amortisation 2 0.2 5.7 5.9 38.3 - 38.3
Amortisation of
acquisition
related intangibles (2.0) - (2.0) (2.7) - (2.7)
-------------------------- --- ----------------- ------------ -------- ------------------ ------------ --------
Group operating
(loss)/profit (1.8) 5.7 3.9 35.6 - 35.6
Finance income 5 0.4 - 0.4 0.5 - 0.5
Finance costs 5 (10.1) - (10.1) (9.2) - (9.2)
Share of profit of
associates
after tax - - - 0.4 - 0.4
Profit on disposal of
associates 14 - 4.0 4.0 - - -
-------------------------- --- ----------------- ------------ -------- ------------------ ------------ --------
(Loss)/profit before
taxation (11.5) 9.7 (1.8) 27.3 - 27.3
Taxation 6 2.0 0.2 2.2 (3.5) 0.4 (3.1)
-------------------------- --- ----------------- ------------ -------- ------------------ ------------ --------
Result for the financial
period (9.5) 9.9 0.4 23.8 0.4 24.2
-------------------------- --- ----------------- ------------ -------- ------------------ ------------ --------
Attributable to:
Equity shareholders (9.8) 9.9 0.1 22.9 0.4 23.3
Non-controlling interests 0.3 - 0.3 0.9 - 0.9
-------------------------- --- ----------------- ------------ -------- ------------------ ------------ --------
(9.5) 9.9 0.4 23.8 0.4 24.2
-------------------------- --- ----------------- ------------ -------- ------------------ ------------ --------
Earnings per share (pence) - total
Basic earnings per share 8 0.0 5.3
Diluted earnings per
share 8 0.0 5.2
-------------------------- --- ----------------- ------------ -------- ------------------ ------------ --------
* Re-presented to reflect the change in presentation on a basis consistent
with the current year as set out in Note 1
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
for the half year ended 26 March 2021
Half year Half year
ended ended
26 March 27 March
2021 2020
(Unaudited) (Unaudited)
GBPm GBPm
----------------------------------------------------- ------------ ------------
Items of income and expense taken directly to
equity
Items that will not be reclassified to profit
or loss:
Actuarial gain on Group legacy defined benefit
pension schemes 12.6 32.0
Deferred tax on Group legacy defined benefit
pension schemes (2.3) (2.7)
----------------------------------------------------- ------------ ------------
10.3 29.3
----------------------------------------------------- ------------ ------------
Items that may subsequently be reclassified to
profit or loss:
Currency translation adjustment (3.4) 1.0
Translation reserve transferred to Income Statement (1.0)
on disposal of subsidiary -
Non-controlling interest transferred to Income (5.8)
Statement on disposal of subsidiary -
Cash flow hedges:
fair value movement taken to equity (0.8) 2.4
transfer to Income Statement for the period 0.6 0.1
----------------------------------------------------- ------------ ------------
(10.4) 3.5
----------------------------------------------------- ------------ ------------
Net income recognised directly within equity (0.1) 32.8
Result for the financial period 0.4 24.2
----------------------------------------------------- ------------ ------------
Total comprehensive income for the financial
period 0.3 57.0
----------------------------------------------------- ------------ ------------
Attributable to:
Equity Shareholders 6.0 56.1
Non-controlling interests (5.7) 0.9
----------------------------------------------------- ------------ ------------
Total comprehensive income for the financial
period 0.3 57.0
----------------------------------------------------- ------------ ------------
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
as at 26 March 2021
March September March
2021 2020 2020
(Unaudited) (Audited) (unaudited)*
Notes GBPm GBPm GBPm
----------------------------------- ------ ------------- ----------- --------------
ASSETS
Non-current assets
Goodwill and intangible assets 9 475.6 478.5 480.9
Property, plant and equipment 9 310.1 313.2 333.3
Right-of-use assets 9 56.6 55.6 57.0
Investment property 9 5.9 6.1 5.8
Investment in associate - - 1.3
Retirement benefit assets 13 39.8 42.9 49.3
Derivative financial instruments 11 - 3.0 6.5
Deferred tax assets 44.6 46.1 32.5
Trade and other receivables 0.5 - -
----------------------------------- ------ ------------- ----------- --------------
Total non-current assets 933.1 945.4 966.6
----------------------------------- ------ ------------- ----------- --------------
Current assets
Inventories 49.3 44.7 48.0
Trade and other receivables 153.9 157.7 171.3
Cash and cash equivalents 48.4 267.0 272.6
Derivative financial instruments 11 - 0.6 -
Current tax receivable - 0.5 0.5
Assets held for sale - 11.2 -
Total current assets 251.6 481.7 492.4
----------------------------------- ------ ------------- ----------- --------------
Total assets 1,184.7 1,427.1 1,459.0
----------------------------------- ------ ------------- ----------- --------------
EQUITY
Capital and reserves attributable
to equity holders of the Company
Share capital 5.3 4.5 4.5
Share premium 89.6 0.4 0.4
Reserves 275.6 271.6 331.7
----------------------------------- ------ ------------- ----------- --------------
370.5 276.5 336.6
Non-controlling interests - 5.7 4.9
----------------------------------- ------ ------------- ----------- --------------
Total equity 370.5 282.2 341.5
----------------------------------- ------ ------------- ----------- --------------
LIABILITIES
Non-current liabilities
Borrowings 11 240.7 397.5 345.6
Lease liabilities 45.6 46.6 49.0
Other payables 3.7 3.7 3.7
Derivative financial instruments 11 3.1 2.5 2.8
Provisions 12 6.0 5.4 5.1
Retirement benefit obligations 13 111.7 125.0 101.6
Deferred tax liabilities 10.8 11.5 6.4
----------------------------------- ------ ------------- ----------- --------------
Total non-current liabilities 421.6 592.2 514.2
----------------------------------- ------ ------------- ----------- --------------
Current liabilities
Borrowings 11 79.0 220.0 238.1
Trade and other payables 282.2 302.0 335.5
Lease liabilities 15.2 14.1 14.3
Derivative financial instruments 11 4.2 - 0.2
Provisions 12 2.2 4.5 3.7
Current tax payable 9.8 10.4 11.5
Liabilities held for sale - 1.7 -
Total current liabilities 392.6 552.7 603.3
----------------------------------- ------ ------------- ----------- --------------
Total liabilities 814.2 1,144.9 1,117.5
----------------------------------- ------ ------------- ----------- --------------
Total equity and liabilities 1,184.7 1,427.1 1,459.0
----------------------------------- ------ ------------- ----------- --------------
* The reported comparatives for March 2020 have been restated to reflect
a change in the presentation of cash at bank and bank overdrafts as set
out in Note 1
CONDENSED GROUP STATEMENT OF CASH FLOWS
for the half year ended 26 March 2021
Half year Half year
ended ended
26 March 27 March
2021 2020
Notes (Unaudited) (Unaudited)
GBPm GBPm
------------------------------------------------- ------ ------------ ------------
Loss/(profit) before taxation (1.8) 27.3
Finance income (0.4) (0.5)
Finance costs 10.1 9.2
Share of profit of associates after tax - (0.4)
Exceptional items (9.7) -
------------------------------------------------- ------ ------------ ------------
Operating (loss)/profit (pre-exceptional) (1.8) 35.6
Depreciation 24.8 22.9
Amortisation of intangible assets 3.5 5.3
Employee share-based payment expense 1.0 0.9
Contributions to Group legacy defined benefit
pension schemes (3.0) (7.8)
Working capital movement (21.1) (21.8)
Other movements 0.4 -
------------------------------------------------- ------ ------------ ------------
Net cash inflow from operating activities
before exceptional items 3.8 35.1
Cash outflow related to operating activities
exceptional items (2.4) (2.6)
Interest paid (including lease liability
interest) (9.2) (7.5)
Tax paid - (4.2)
------------------------------------------------- ------ ------------ ------------
Net cash (outflow)/inflow from operating
activities (7.8) 20.8
------------------------------------------------- ------ ------------ ------------
Cash flow from investing activities
Dividends received from associates - 0.3
Purchase of property, plant and equipment (15.0) (19.3)
Purchase of intangible assets (1.5) (1.8)
Disposal of undertakings 14 16.3 -
------------------------------------------------- ------ ------------ ------------
Net cash outflow from investing activities (0.2) (20.8)
------------------------------------------------- ------ ------------ ------------
Cash flow from financing activities
Proceeds from issue of shares 87.1 0.3
(Repayment)/drawdown of bank borrowings (100.9) 16.8
Repayment of lease liabilities (7.9) (4.9)
Dividends paid to equity holders of the Company - (16.7)
Dividends paid to non-controlling interests - (2.4)
Net cash outflow from financing activities (21.7) (6.9)
------------------------------------------------- ------ ------------ ------------
Net decrease in cash and cash equivalents
and bank overdrafts (29.7) (6.9)
------------------------------------------------- ------ ------------ ------------
Reconciliation of opening to closing cash
and cash equivalents and bank overdrafts
Cash and cash equivalents and bank overdrafts
at beginning of period 10 47.0 41.6
Translation adjustment (0.3) (0.2)
Decrease in cash and cash equivalents and
bank overdrafts (29.7) (6.9)
------------------------------------------------- ------ ------------ ------------
Cash and cash equivalents and bank overdrafts
at end of period 10 17.0 34.5
------------------------------------------------- ------ ------------ ------------
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
for the half year ended 26 March 2021
Share Share Other Retained Non-controlling Total
capital premium reserves earnings Total interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ --------- --------- ---------- ---------- ------ ---------------- --------
At 25 September 2020 4.5 0.4 123.9 147.7 276.5 5.7 282.2
------------------------------------ --------- --------- ---------- ---------- ------ ---------------- --------
Items of income and expense
taken directly to equity
Currency translation adjustment - - (3.2) - (3.2) (0.2) (3.4)
Translation reserve transferred
to Income Statement on disposal
of subsidiary - - (1.0) - (1.0) - (1.0)
Non-controlling interest
transferred
to Income Statement on disposal
of subsidiary - - - - - (5.8) (5.8)
Cashflow hedge fair value movement
taken to equity - - (0.8) - (0.8) - (0.8)
Cashflow hedge transferred
to Income Statement - - 0.6 - 0.6 - 0.6
Actuarial gain on Group legacy
defined benefit pension schemes - - - 12.6 12.6 - 12.6
Deferred tax on Group legacy
defined benefit pension schemes - - - (2.3) (2.3) - (2.3)
Profit for the financial period - - - 0.1 0.1 0.3 0.4
------------------------------------ --------- --------- ---------- ---------- ------ ---------------- --------
Total comprehensive income
for the financial period - - (4.4) 10.4 6.0 (5.7) 0.3
------------------------------------ --------- --------- ---------- ---------- ------ ---------------- --------
Employee share-based payment
expense - - 1.0 - 1.0 - 1.0
Exercise, lapse or forfeit
of share-based payments - - (2.1) 2.1 - - -
Transfer to Retained Earnings
on transfer of shares to
beneficiaries
of the Employee Benefit Trust - - 1.1 (1.1) - - -
Shares issued in the period 0.8 89.2 - - 90.0 - 90.0
Transaction costs of share
issue - - - (3.0) (3.0) - (3.0)
------------------------------------ --------- --------- ---------- ---------- ------ ---------------- --------
At 26 March 2021 5.3 89.6 119.5 156.1 370.5 - 370.5
------------------------------------ --------- --------- ---------- ---------- ------ ---------------- --------
Share Share Other Retained Non-controlling Total
capital premium reserves earnings Total interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- --------- --------- ---------- ---------- ------- ---------------- --------
At 27 September 2019 4.5 0.1 116.8 178.0 299.4 6.4 305.8
----------------------------------- --------- --------- ---------- ---------- ------- ---------------- --------
IFRS 16 Leases transition
adjustment - - - (3.4) (3.4) - (3.4)
At 28 September 2019 4.5 0.1 116.8 174.6 296.0 6.4 302.4
Items of income and expense
taken directly to equity
Currency translation adjustment - - 1.0 - 1.0 - 1.0
Cashflow hedge fair value movement
taken to equity - - 2.4 - 2.4 - 2.4
Cashflow hedge transferred
to Income Statement - - 0.1 - 0.1 - 0.1
Actuarial gain on Group legacy
defined benefit pension schemes - - - 32.0 32.0 - 32.0
Deferred tax on Group legacy
defined benefit pension schemes - - - (2.7) (2.7) - (2.7)
Profit for the financial period - - - 23.3 23.3 0.9 24.2
----------------------------------- --------- --------- ---------- ---------- ------- ---------------- --------
Total comprehensive income
for the financial period - - 3.5 52.6 56.1 0.9 57.0
----------------------------------- --------- --------- ---------- ---------- ------- ---------------- --------
Employee share-based payment
expense - - 0.9 - 0.9 - 0.9
Exercise, lapse or forfeit
of share-based payments - 0.3 (2.6) 2.6 0.3 - 0.3
Shares acquired by Employee
Benefit Trust - - (0.1) 0.1 - - -
Transfer to Retained Earnings
on transfer of shares to
beneficiaries
of the Employee Benefit Trust - - 5.0 (5.0) - - -
Dividends - - - (16.7) (16.7) (2.4) (19.1)
----------------------------------- --------- --------- ---------- ---------- ------- ---------------- --------
At 27 March 2020 4.5 0.4 123.5 208.2 336.6 4.9 341.5
----------------------------------- --------- --------- ---------- ---------- ------- ---------------- --------
OTHER RESERVES
Foreign
Undenominated currency
Share Own capital Hedging translation
options shares reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- --------- -------- -------------- --------- ------------- ------
At 25 September 2020 3.9 (2.9) 120.4 0.5 2.0 123.9
----------------------------------------- --------- -------- -------------- --------- ------------- ------
Items of income and expense
taken directly to equity
Currency translation adjustment - - - - (3.2) (3.2)
Translation reserve transferred
to Income Statement on disposal
of subsidiary - - - - (1.0) (1.0)
Cash flow hedge fair value
movement taken to equity - - - (0.8) - (0.8)
Cash flow hedge transferred
to Income Statement - - - 0.6 - 0.6
----------------------------------------- --------- -------- -------------- --------- ------------- ------
Total comprehensive income
for the financial period - - - (0.2) (4.2) (4.4)
----------------------------------------- --------- -------- -------------- --------- ------------- ------
Employee share-based payment
expense 1.0 - - - - 1.0
Exercise, lapse or forfeit
of share-based payments (2.1) - - - - (2.1)
Transfer to Retained Earnings
on transfer of shares to beneficiaries
of the Employee Benefit Trust - 1.1 - - - 1.1
----------------------------------------- --------- -------- -------------- --------- ------------- ------
At 26 March 2021 2.8 (1.8) 120.4 0.3 (2.2) 119.5
----------------------------------------- --------- -------- -------------- --------- ------------- ------
Foreign
Undenominated currency
Share Own capital Hedging translation
options shares reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- --------- -------- -------------- --------- ------------- ------
At 27 September 2019 4.8 (8.2) 120.4 (1.0) 0.8 116.8
----------------------------------------- --------- -------- -------------- --------- ------------- ------
Items of income and expense
taken directly to equity
Currency translation adjustment - - - - 1.0 1.0
Cash flow hedge fair value
movement taken to equity - - - 2.4 - 2.4
Cash flow hedge transferred
to Income Statement - - - 0.1 - 0.1
----------------------------------------- --------- -------- -------------- --------- ------------- ------
Total comprehensive income
for the financial period - - - 2.5 1.0 3.5
----------------------------------------- --------- -------- -------------- --------- ------------- ------
Employee share-based payment
expense 0.9 - - - - 0.9
Exercise, lapse or forfeit
of share-based payments (2.6) - - - - (2.6)
Shares acquired by Employee
Benefit Trust - (0.1) - - - (0.1)
Transfer to Retained Earnings
on transfer of shares to beneficiaries
of the Employee Benefit Trust - 5.0 - - - 5.0
----------------------------------------- --------- -------- -------------- --------- ------------- ------
At 27 March 2020 3.1 (3.3) 120.4 1.5 1.8 123.5
----------------------------------------- --------- -------- -------------- --------- ------------- ------
NOTES TO THE CONDENSED GROUP FINANCIAL STATEMENTS
1. Basis of preparation
The Condensed Group Financial Statements of Greencore Group Plc
(the 'Group'), which are presented in sterling and expressed in
millions, unless otherwise indicated, have been prepared as at, and
for the 26 week period ended, 26 March 2021, and have been prepared
in accordance with the Disclosure Guidance and Transparency Rules
of the Financial Conduct Authority ('FCA') and IAS 34 Interim
Financial Reporting as adopted by the European Union.
These Condensed Group Financial Statements do not comprise
statutory accounts within the meaning of Section 340 of the
Companies Act 2014. The condensed Group financial information for
the year ended 25 September 2020 represents an abbreviated version
of the Group Financial Statements for that year. Those financial
statements, upon which the auditor issued an unqualified audit
report and did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying the
report, have been filed with the Registrar of Companies.
Comparative period presentation
For the period ended 27 March 2020, the Group has re-presented
certain income statement items on a basis consistent with the
current year. The change impacted the presentation of finance
income and finance expense and the presentation of exceptional
items between cost of sales and operating costs. There was no
impact to previously reported profit.
For the year ended 25 September 2020, the Group amended the
presentation of cash at bank and in hand and bank overdrafts for
the Group's cash pooling arrangement. While the Group has the legal
right to offset under the arrangement, it was determined that a
more appropriate presentation of cash at bank and in hand and bank
overdrafts is on a gross basis in line with the requirements of IAS
32 Financial Instruments: Presentation and therefore prior period
comparatives have been restated accordingly. The impact of this
change is to increase both cash at bank and in hand and bank
overdrafts within borrowings as at 27 March 2020 by GBP238.1m in
the Condensed Group Statement of Financial Position. There is no
impact on net assets.
Going concern
The Directors, after making enquiries, have a reasonable
expectation that the Group has adequate resources to continue
operating as a going concern for the foreseeable future.
The Group's performance continued to be materially impacted by
the mobility restrictions imposed by the UK Government due to
COVID-19 in H1 FY21, as the Group managed through volatile demand
patterns arising from lockdowns and changing mobility restrictions
in place for almost all of the first half. The impact of this was
most evident on consumer demand patterns in the Group's food to go
categories.
As the UK began to ease mobility restrictions in March 2021,
consumer demand in food to go categories has responded positively.
In the first seven weeks of H2 FY21, demand in the Group's food to
go categories was 14 % below the comparative period in FY19.
Despite this recent positive trajectory in revenue, the Group
continues to expect ongoing uncertainty regarding the duration and
impact of COVID-19 on the Group's trading environment.
Accordingly, the Directors have considered a number of scenarios
for the next 18 months. These scenarios consider the estimated
potential impact of COVID-19 on the business as the pandemic eases
and mobility restrictions are removed. Based on current levels of
trading, the impact on revenue, profit and cashflows are modelled,
including the consequential impact on working capital. These
scenarios assume costs and cashflow mitigating actions, including
utilisation of the Coronavirus Job Retention Scheme and disciplined
management of business expenditure. The Group has assumed that no
significant structural changes to the business will be needed in
any of the scenarios modelled.
The Group's scenarios assume:
-- A base case projection, which assumes a continuation of the
current volume trajectory through H2 FY21, with volumes in food to
go categories expected to approach FY19 levels by the end of
FY21.
-- A downside scenario is also applied to the base case, which
assumes a slower recovery of food to categories reflecting extended
mobility restrictions. In this scenario current volumes continue
for H2 FY21 with no further recovery in food to go categories,
gradually recovering thereafter but not reaching FY19 levels until
the second half of FY22.
-- A severe downside scenario is also applied to the downside.
In this scenario, volumes are assumed to be at a lower rate in H2
FY21, in addition to a two month lockdown assumed in the winter of
FY22, resulting in food to go categories volumes not reaching FY19
levels until the end of FY22.
The Group retains financial strength and flexibility at
reporting date, with cash and undrawn committed bank facilities of
GBP302.0m at 26 March 2021 (September 2020: GBP232.0m). The
Directors have taken steps to ensure adequate liquidity is
available to the Group in light of the uncertainty surrounding the
ongoing impact of COVID-19.
In November 2020, the Group completed an equity placing of
80,357,142 new ordinary shares at 112 pence per share, to raise net
proceeds of GBP87.1m. The Group also extended the maturity of its
GBP75m committed bank facility by two years to March 2023 and
refinanced its GBP50m bilateral loan for a new three-year term
maturing in January 2024.
As previously announced, the Group has secured agreement with
its bank lending syndicate and its Private Placement Note holders
amending covenant conditions. The key features of the amendments
include:
-- EBITDA: Interest covenant condition for March 2021 test period is 2.0x;
-- Net Debt: EBITDA covenant test at June 2021 is 5.0x;
-- Minimum liquidity requirement on cash and undrawn facilities is GBP70m for FY21;
-- Maximum net debt requirement of GBP550m to May 2021 and GBP500m to September 2021;
-- Agreement not to proceed with dividends for the duration of the waiver period; and
-- Restricted acquisitions with an aggregate consideration of
GBP25m for the duration of the waiver period.
Based on these scenarios and the resources available to the
Group, the Directors believe the Group has sufficient liquidity to
manage through a range of different cashflow scenarios over the
next 18 months. Accordingly, the Directors adopt the going concern
basis in preparing the Condensed Group Financial Statements.
Accounting Policies
The accounting policies and methods of computation adopted in
the preparation of the Condensed Group Financial Statements are
consistent with those applied in the Annual Report for the
financial year ended 25 September 2020 and are as set out in those
financial statements.
Critical Accounting Estimates and Judgements
The preparation of the Condensed Group Financial Statements
requires management to make certain estimates, assumptions and
judgements that affect the application of accounting policies and
the reported amount of assets, liabilities, income and expenses.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Changes in accounting estimates may be necessary if there
are changes in circumstances on which the estimate was based or as
a result of new information or more experience. Such changes are
reflected in the period in which the estimate was revised.
In preparing the Condensed Group Financial Statements, the
significant judgements made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty
were the same as those applied to the Consolidated Financial
Statements for the 52 weeks ended 25 September 2020.
COVID-19 impact
COVID-19 continues to impact the Group, with the UK Government
enforcing local and nationwide lockdowns and restrictions on
movement throughout the interim reporting period. The results for
the period have been significantly impacted by these measures,
particularly impacting volumes in food to go categories. The Group
continued to incur costs in relation to ensuring safe working and
social distancing in its manufacturing facilities. The Group also
availed of the Government funded furlough scheme and incurred
incremental costs related to furloughed colleagues in the
period.
The UK Government has established a clear roadmap out of
lockdown with the first phase commencing on 8 March 2021. Since 17
May 2021 there has been a further easing of limits on social
gatherings and most businesses in all but the highest risk sectors
have been permitted to reopen in some form. The Group has
considered the impact of these changes with respect to all
judgements and estimates it makes in the application of the Group's
accounting policies at the reporting date and the impact has been
factored into the Group's financial statements at 26 March
2021.
The Group has carried out impairment testing of assets including
goodwill at the reporting date and no impairment was
identified.
2. Segment Information
Convenience Foods UK & Ireland is the Group's operating
segment, which represents its reporting segment. This reflects the
Group's organisational structure and the nature of the financial
information reported to and assessed by the Chief Operating
Decision Maker ('CODM') as defined by IFRS 8 Operating Segments.
The CODM has been identified as the Group's Chief Executive
Officer. The segment incorporates many UK convenience food
categories including sandwiches, salads, sushi, chilled snacking,
chilled ready meals, chilled soups and sauces, chilled quiche,
ambient sauces and pickles and frozen Yorkshire Puddings as well as
the Irish ingredients trading business.
Convenience
Foods
UK & Ireland
Half Half
year year
2021 2020
GBPm GBPm
------------------------------------------------------- -------- ------
Revenue 577.1 712.7
------------------------------------------------------- -------- ------
Group operating profit before acquisition related
amortisation and exceptional items 0.2 38.3
Amortisation of acquisition related intangible assets (2.0) (2.7)
------------------------------------------------------- -------- ------
Group operating (loss)/profit (pre-exceptional) (1.8) 35.6
Finance income 0.4 0.5
Finance costs (10.1) (9.2)
Share of profit of associates after tax - 0.4
Exceptional items 9.7 -
Taxation 2.2 (3.1)
------------------------------------------------------- -------- ------
Result for the period 0.4 24.2
------------------------------------------------------- -------- ------
The following table disaggregates revenue by product categories
in the Convenience Foods UK and Ireland reporting segment.
Half Half
year year
2021 2020
GBPm GBPm
-------------------------------------------------- ------ ------
Revenue
Food to go categories 339.2 455.8
Other convenience categories 237.9 256.9
-------------------------------------------------- ------ ------
Total revenue for Convenience Foods UK & Ireland 577.1 712.7
-------------------------------------------------- ------ ------
Food to go categories include sandwiches, salads, sushi and
chilled snacking while the other convenience categories include
chilled ready meals, chilled soups and sauces, chilled quiche,
ambient sauces and pickles, and frozen Yorkshire Puddings as well
as the Irish ingredients trading business.
3. Seasonality
The Group's convenience foods sales portfolio has historically
been second half weighted. This historical weighting has been
primarily driven by weather and seasonal buying patterns. Over the
first half of FY21, the extensive restrictions on mobility
implemented by the UK Government including two nationwide lockdowns
have had a pronounced impact on volumes particularly in food to go
categories. The UK Government has established a clear roadmap out
of lockdown with the first phase commencing on 8 March 2021 and
second half volumes are expected to benefit as the restrictions on
movement ease.
4. Exceptional Items
Half Half
Year Year
2021 2020
GBPm GBPm
--------------------------------------------------- ----- ------ ------
Profit on disposal of Molasses trading businesses (a) 11.3 -
Defined benefit pension schemes restructuring (b) (2.6) -
Legacy businesses provisions (c) 1.0 2.2
Impact of COVID-19 pandemic (d) - (1.7)
Integration costs (e) - (0.5)
--------------------------------------------------- ----- ------ ------
9.7 -
Tax credit on exceptional items 0.2 0.4
---------------------------------------------------------- ------ ------
Total exceptional items 9.9 0.4
---------------------------------------------------------- ------ ------
(a) Profit on disposal of Molasses trading businesses
On 2 December 2020, the Group completed the disposal of its
interest in the Molasses trading businesses recognising a profit on
disposal of GBP7.3m for Premier Molasses Company Limited within
operating profit, and GBP4.0m for United Molasses (Ireland)
Limited, which has been recognised within profit on disposal of
associates. Details of the disposal are set out at Note 14.
(b) Defined benefit pension schemes restructuring
During the period, the Group reached agreement with the Trustees
of its three Irish legacy defined benefit pension schemes to wind
up the two smaller schemes and transfer deferred beneficiaries to
the larger scheme. The execution of the agreement triggered a
settlement in the period, as deferred beneficiaries can either
transfer out of the scheme or avail of a cash transfer value which
would settle and extinguish all further obligations of the scheme
to those members. At 26 March 2021, the wind up process had not yet
been completed and therefore the Group has estimated a settlement
charge of GBP1.4m based on the expected number of members that will
transfer out of the scheme. The Group also incurred GBP1.2m of
costs associated with the restructure. Details of the restructure
are set out at Note 13.
(c) Legacy businesses provisions
In the current period, the Group recognised a net credit of
GBP1.0m relating to legacy provisions on discontinued operations.
This related to a legacy US legal case which settled in the period
resulting in a provision release. In addition the Group recognised
charges for legacy legal matters and remediation costs relating to
non-core properties.
In the prior period, the Group recognised a credit of GBP2.2m on
the settlement of a legacy US legal case.
(d) Impact of COVID-19 pandemic
In the prior period, the Group recognised a charge of GBP1.7m
relating to inventory impairment and costs relating to the COVID-19
pandemic following the introduction by the UK Government of a
nationwide lockdown in March 2020.
(e) Integration costs
In the prior period, the Group recognised a charge of GBP0.5m,
comprising integration costs in relation to the acquisition of
Freshtime UK Limited in September 2019.
Cash Flow on Exceptional Items
The total net cash outflow during the period in respect of
operating activities exceptional items was GBP2.4m (H1 FY20:
GBP2.6m), of which GBP2.1m was in respect of prior year exceptional
charges. The net proceeds from the disposal of the Molasses trading
businesses of GBP16.3m have been recognised separately on the Group
Condensed Statement of Cash Flows within investing activities.
5. Finance income and finance costs
Half Half
year year
2021 2020
GBPm GBPm
---------------------------------------------------------- ------- ------
Finance income
Interest on bank deposits - 0.1
Change in fair value of derivatives and related debt
adjustments - 0.4
Foreign exchange on inter-company and external balances 0.4
where hedge accounting is not applied -
---------------------------------------------------------- ------- ------
Total finance income recognised in the Income Statement 0.4 0.5
---------------------------------------------------------- ------- ------
Finance costs
Net finance costs on interest bearing cash and cash
equivalents, borrowings and other financing costs (7.4) (7.3)
Net pension financing charge (0.9) (1.0)
Change in fair value of derivatives and related debt (1.1)
adjustments -
Foreign exchange on inter-company and external balances
where hedge accounting is not applied - (0.4)
Interest on lease obligations (0.7) (0.5)
Total finance expense recognised in the Income Statement (10.1) (9.2)
---------------------------------------------------------- ------- ------
6. Taxation
Interim period tax is accrued using the tax rate that is
estimated to be applicable to expected total annual earnings in the
financial year based on tax rates that were enacted or
substantively enacted for the period ended 26 March 2021.
In March 2021, the UK Government announced a change to the
corporation tax rate which is set to increase to 25% from 1 April
2023 however as this is not substantively enacted by 26 March 2021,
this has had no impact on the half year charge. The tax rate
applicable for the period ended 26 March 2021 is 18%.
7. Dividends Paid and Proposed
The Group will not be proceeding with a final FY20 dividend or
an interim FY21 dividend payment as announced in FY20.
8. Earnings per Ordinary Share
The Group raised GBP90.0m by way of an equity placing completed
on 26 November 2020. The Group issued 80,357,142 Ordinary Shares in
the Company on the London Stock Exchange, at a placing price of 112
pence per Ordinary Share. The effect of this on the half year
weighted average number of ordinary shares was an increase of
53,132,318 shares. The total number of Ordinary Shares in issue as
at 26 March 2021 was 526,537,891.
Numerator for earnings per share calculations
Half Half
year year
2021 2020
GBPm GBPm
------------------------------------------------------ ------ ------
Profit attributable to equity holders of the Company 0.1 23.3
------------------------------------------------------ ------ ------
Denominator for earnings per share calculations
Half Half
year year
2021 2020
'000 '000
--------------------------------------------------------- -------- --------
Shares in issue at the beginning of the period 446,157 446,007
Effect of shares held by Employee Benefit Trust (1,243) (2,779)
Effect of shares issued in equity raising in the period 53,132 -
Effect of shares issued in the period 2 76
--------------------------------------------------------- -------- --------
Weighted average number of Ordinary Shares in issue
during the period 498,048 443,304
--------------------------------------------------------- -------- --------
Dilutive effect of share schemes 152 1,752
--------------------------------------------------------- -------- --------
Weighted average number of Ordinary Shares for diluted
earnings per share 498,200 445,056
--------------------------------------------------------- -------- --------
A total of 19,394,264 (2020: 6,022,833) unvested shares were
excluded from the diluted earnings per share calculation as they
were either antidilutive or contingently issuable Ordinary Shares
which had not satisfied the performance conditions attaching at 26
March 2021.
Earnings per Share Calculations
Half Half
year year
2021 2020
pence pence
------------------------------------- ------ ------
Basic earnings per Ordinary Share 0.0 5.3
------------------------------------- ------ ------
Diluted earnings per Ordinary Share 0.0 5.2
------------------------------------- ------ ------
9. Intangible Assets, Property, Plant and Equipment,
Right-of-use assets, Investment Property, Capital Expenditure and
Commitments
During the six-month period to 26 March 2021, the operations of
the Group made GBP15.8m of additions to property, plant and
equipment and intangible assets through ongoing capital
expenditure. A total depreciation and amortisation charge of
GBP21.1m was recognised, GBP0.1m of assets were disposed of,
GBP0.4m of assets were impaired and an FX loss of GBP0.4m was
incurred, including GBP0.2m FX loss on investment property. In
addition, the Group made GBP8.8m of additions to right-of-use
assets and GBP0.6m of assets were disposed of. A depreciation
charge of GBP7.2m was recognised on right-of-use assets in the
period.
During the prior six-month period to 27 March 2020, the Group
made GBP21.1m of additions to property, plant and equipment,
investment property and intangible assets through ongoing capital
expenditure. A total depreciation and amortisation charge of
GBP22.2m was recognised, GBP0.2m of assets were disposed of and an
FX gain of GBP0.1m was incurred. In addition, the Group made
GBP13.1m of additions to right-of-use assets and GBP0.1m of assets
were disposed of. A depreciation charge for right-of-use assets of
GBP6.0m was recognised in the period.
At 26 March 2021, the Group had capital expenditure commitments
that had been contracted but not yet provided for amounting to
GBP13.8m (H1 20: GBP10.0m).
10. Cash and cash equivalents and bank overdrafts
March
March 2020
September
2021 2020 (restated)
GBPm GBPm GBPm
-------------------------- ------ ---------- -------------
Cash at bank and in hand 48.4 267.0 272.6
-------------------------- ------ ---------- -------------
As disclosed in Note 1, the Group's cash and cash equivalents
have been re-presented and comparative information for the period
ended 27 March 2020 has increased cash at bank and in hand from
GBP34.5m to GBP272.6m and bank overdraft from GBPnil to GBP238.1m.
This has no impact on the Group's net assets.
For the purposes of the Condensed Group Cash Flow Statement,
cash and cash equivalents and bank overdrafts are presented net as
follows:
March
March 2020
September
2021 2020 (restated)
GBPm GBPm GBPm
----------------------------------------------------- ------- ---------- ------------
Cash at bank and in hand 48.4 267.0 272.6
Bank overdraft (Note 11) (31.4) (220.0) (238.1)
----------------------------------------------------- ------- ---------- ------------
Total cash and cash equivalents and bank overdrafts 17.0 47.0 34.5
----------------------------------------------------- ------- ---------- ------------
11. Borrowings and Derivatives
March
March 2020
September
2021 2020 (restated)
GBPm GBPm GBPm
------------------------------ -------- ---------- -------------
Current
Bank overdrafts (31.4) (220.0) (238.1)
Private placement notes (47.6) - -
------------------------------ -------- ---------- -------------
Total current borrowings (79.0) (220.0) (238.1)
------------------------------ -------- ---------- -------------
Non-current
Bank borrowings (181.7) (283.5) (230.7)
Private placement notes (59.0) (114.0) (114.9)
------------------------------ -------- ---------- -------------
Total non-current borrowings (240.7) (397.5) (345.6)
------------------------------ -------- ---------- -------------
Total borrowings (319.7) (617.5) (583.7)
------------------------------ -------- ---------- -------------
The maturity profile of the Group's borrowings is as
follows:
March
March 2020
September
2021 2020 (restated)
GBPm GBPm GBPm
-------------------------------------- -------- ---------- -------------
Borrowings
Less than one year (47.6) - -
Between one and two years - (101.7) (102.1)
Between two and five years (226.1) (280.2) (212.1)
Over five years (14.6) (15.6) (31.4)
-------------------------------------- -------- ---------- -------------
Total borrowings (288.3) (397.5) (345.6)
-------------------------------------- -------- ---------- -------------
Bank overdrafts
Less than one year (31.4) (220.0) (238.1)
-------------------------------------- -------- ---------- -------------
Total bank overdrafts (31.4) (220.0) (238.1)
-------------------------------------- -------- ---------- -------------
Total borrowings and bank overdrafts (319.7) (617.5) (583.7)
-------------------------------------- -------- ---------- -------------
Bank overdrafts
As disclosed in Note 1, the Group's bank overdrafts for the
period ended 27 March 2020 have been re-presented to meet the
presentational requirements for offsetting in accordance with IAS
32. Comparative information for the period ended 27 March 2020 has
increased from GBPnil to GBP238.1m. This has no impact on the
Group's net assets.
Uncommitted facilities undrawn at 26 March 2021 amounted to
GBP6.4m (September 2020: GBP7.0m).
Bank Borrowings
The Group's bank borrowings net of finance fees comprised of
GBP181.7m at 26 March 2021 (September 2020: GBP283.5m) with
maturities ranging from March 2023 to January 2025, the earliest of
which is the Group's GBP75m revolving credit facility which matures
in March 2023. The Group had GBP285m (September 2020: GBP185m) of
undrawn committed bank facilities in respect of which all
conditions precedent had been met.
In November 2020, the Group announced the extension of the
maturity of its GBP75m committed bank facility by two years to
March 2023 and refinanced its GBP50m bank bilateral facility for a
new three year term ending in January 2024.
Private Placement Notes
The Group's outstanding Private Placement Notes net of finance
fees comprised of GBP106.6m (denominated as $120.9m and GBP18m) at
26 March 2021 (September 2020: GBP114.0m, denominated as $120.9m
and GBP18m). These were issued as fixed rate debt in October 2013
($65m) and June 2016 ($74.5m and GBP18m) with maturities ranging
between October 2021 and June 2026.
The Group has swapped the $120.9m Private Placement Notes from
fixed rate US Dollar to fixed rate sterling using cross-currency
interest rate swaps. The fixed rate US dollar to fixed rate
sterling swaps are designated as cash flow hedges.
Revisions to financing agreements
In November 2020, the Group secured further amendments with its
bank lending syndicate and its Private Placement Note holders to
its covenant conditions. The key features of the amendments
include:
-- EBITDA: Interest covenant condition for March 2021 test period is 2.0;
-- Net Debt: EBITDA covenant test at June 2021 is 5.0x;
-- Minimum liquidity requirement on cash and undrawn facilities is GBP70m for FY21;
-- Maximum net debt requirement of GBP550m to May 2021 and GBP500m to September 2021;
-- Agreement not to proceed with dividends for the duration of the waiver period; and
-- Restriction on acquisitions with an aggregate consideration
of GBP25m for the duration of the waiver period.
In the prior financial year, the Group recognised a debt
modification charge of GBP5.9m in line with the Group's accounting
policy as a result of covenant waivers secured during the period.
The charge reflected the incremental costs that will be incurred by
the Group in future periods as a result of the covenant waivers.
The covenant waivers secured in November 2020 were assessed in line
with debt modification requirements under IFRS 9 Financial
Instruments and no further charges were required to be recognised
as a result of these amendments.
Fair Value of financial instruments at amortised cost
Except as set out below, it is considered that the carrying
amounts of financial assets and financial liabilities recognised at
amortised cost in the condensed consolidated interim financial
statements approximate their fair values:
March 2021 September 2020 March 2020
Carrying Fair Carrying Fair Carrying Fair
amount Value amount Value amount Value
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- -------- --------- -------- --------- --------
Bank borrowings* (181.7) (183.9) (283.5) (283.5) (230.7) (234.6)
Private Placement Notes (106.6) (111.2) (114.0) (114.0) (114.9) (118.4)
---------------------------- --------- -------- --------- -------- --------- --------
*excludes bank overdrafts
Derivatives Fair value hierarchy - IFRS 13 (level 2
inputs)**
March September March
2021 2020 2020
Level Level Level
2* 2* 2*
GBPm GBPm GBPm
----------------------------------------------------- ------ ---------- ------
Assets carried at fair value
Cross-currency interest rate swaps - cash flow
hedges - 2.9 6.5
Forward foreign exchange contracts - not designated -
as hedges 0.7 -
----------------------------------------------------- ------ ---------- ------
- 3.6 6.5
----------------------------------------------------- ------ ---------- ------
Liabilities carried at fair value
Interest rate swaps - cash flow hedges (1.5) (2.5) (2.8)
Cross-currency interest rate swaps - cash flow (5.4)
hedges - -
Forward foreign exchange contracts - not designated
as hedges (0.4) - (0.2)
----------------------------------------------------- ------ ---------- ------
(7.3) (2.5) (3.0)
----------------------------------------------------- ------ ---------- ------
** For definition of level 2 inputs please refer to the 2020 Annual
Report.
12. Provisions
Half year
March
2021
GBPm
---------------------------------- ----------
At beginning of period 9.9
Provided in period 1.6
Utilised in period (1.5)
Released in period (1.8)
---------------------------------- ----------
At end of period 8.2
---------------------------------- ----------
March September
2021 2020
GBPm GBPm
------------------------- ------ ----------
Analysed as:
Non-current liabilities 6.0 5.4
Current liabilities 2.2 4.5
-------------------------- ------ ----------
8.2 9.9
------------------------- ------ ----------
13. Retirement Benefit Obligations
The Group operates three legacy defined benefit pension schemes
in the Republic of Ireland (the Irish schemes) and one legacy
defined benefit pension scheme and one legacy defined benefit
commitment in the UK (the UK schemes). These are all closed to
future accrual and there is an assumption applied in the valuation
of the schemes that there will be no discretionary increases in
pension payments. The scheme assets are held in separate Trustee
administered funds. The Group continues to seek ways to reduce its
liabilities through various restructuring initiatives in
co-operation with the respective schemes.
In consultation with the independent actuaries to the scheme,
the valuation of pension obligations have been updated to reflect
current market discount rates, rates of increase in salaries,
pension payments and inflation, current market values of
investments and actual investment returns.
The Group's retirement benefit obligations moved from a net
liability of GBP82.1m at 25 September 2020 to a net liability of
GBP71.9m at 26 March 2021. This movement was primarily driven by an
actuarial gain on liabilities arising from an increase in the
discount rates used to value these liabilities. The movement in the
discount rate is driven by the corporate bond rate.
In October 2020, the Trustees of two of the smaller Irish
schemes purchased an insurance policy to cover the scheme
liabilities for pensioner members. The insurance policy is treated
as a plan asset and the fair value of the policy is deemed to be
the present value of the related obligations.
In January 2021, the Group and the Trustees of all three Irish
schemes reached agreement to wind up the two smaller schemes and
transfer deferred beneficiaries to the larger scheme. The execution
of the agreement triggered a settlement in the period, as a number
of deferred beneficiaries can accept transfer values in lieu of
their pension benefit and transfer out of the scheme as a result of
the wind up. At 26 March 2021, the wind up process has not yet
completed and therefore the Group has estimated the settlement
charge of GBP1.4m based on the expected number of members that will
transfer out of the scheme. The Group has exercised judgement in
estimating the charge, based on the likely acceptance rate having
consideration for the level of funding and experience from
comparable transfer value exercises.
In protecting the business and liquidity in response to the
COVID-19 pandemic, the Group entered a formal agreement with the
Trustees of the legacy defined benefit pension scheme in the UK to
defer cash contributions to the pension for a further period of six
months, which resulted in a reduction of cash contributions of
GBP3.4m in H1 FY21, which results in a total of GBP8.7m of deferred
cash contributions to reporting date.
An actuarial funding valuation of the UK legacy defined benefit
scheme, with a valuation date of March 2020, is ongoing and
expected to complete in the current financial year.
The principal actuarial assumptions are as follows:
March September
2021 2020
UK Ireland UK Ireland
----------------------------------------- ------ -------- ------ --------
Rate of increase in pension payments * 2.85% 0.00% 2.85% 0.00%
Discount rate 2.00% 1.13% 1.70% 0.95%
Inflation rate 3.25% 1.50% 2.95% 1.50%
----------------------------------------- ------ -------- ------ --------
* The pension increase rate shown above applies to the majority
of the liability base. However there are certain categories within
the Group that have an entitlement to pension indexation and this
is allowed for in the calculation.
The financial position of the schemes was as follows:
March 2021 September 2020
UK Irish UK Irish
Schemes Schemes Total Schemes Schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- --------- --------- -------- --------- --------- --------
Fair value of plan assets 235.2 239.8 475.0 232.8 270.0 502.8
Present value of scheme liabilities (345.9) (201.0) (546.9) (356.7) (228.2) (584.9)
------------------------------------- --------- --------- -------- --------- --------- --------
(Deficit)/surplus in schemes (110.7) 38.8 (71.9) (123.9) 41.8 (82.1)
Deferred tax asset/(liability) 21.0 (4.8) 16.2 23.5 (5.2) 18.3
------------------------------------- --------- --------- -------- --------- --------- --------
Net (liability)/asset at end
of the period (89.7) 34.0 (55.7) (100.4) 36.6 (63.8)
------------------------------------- --------- --------- -------- --------- --------- --------
Presented as:
Retirement benefit asset** 39.8 42.9
Retirement benefit obligation (111.7) (125.0)
------------------------------------- --------- --------- -------- --------- --------- --------
** The value of a net pension benefit asset is the value of any
amount the Group reasonably expects to recover by way of a refund
of a surplus from the remaining assets of a plan at the end of
the plan's life.
Sensitivity of pension liability to judgemental assumptions
Increase in Scheme Liabilities
UK Irish
Assumption Change in assumption Schemes Schemes Total
------------------- -------------------------------- ------------ ----------- --------
Discount rate Decrease by 0.5% 31.8 12.8 44.6
Rate of inflation Increase by 0.5% 24.3 4.6 28.9
Members assumed to live 1 year
Rate of mortality longer 11.2 8.2 19.4
------------------- -------------------------------- ------------ ----------- --------
Sensitivity of pension scheme assets to yield
movements
Increase in Scheme Assets
UK Irish
Assumption Change in assumption Schemes Schemes Total
------------------- -------------------------------- ------------ ----------- --------
Change in
bond yields Decrease by 0.5% 23.0 11.3 34.3
------------------- -------------------------------- ------------ ----------- --------
14. Disposal of undertakings
Molasses trading businesses
On 28 July 2020, the Group announced that it had entered into a
conditional agreement to sell its interest in its molasses trading
businesses to United Molasses Marketing (Ireland) Limited and
United Molasses Marketing Limited which includes Premier Molasses
Company Limited ('Premier Molasses') and United Molasses (Ireland)
Limited ('UMI').
At 25 September 2020, the disposal met the recognition criteria
to be classified as held for sale under IFRS 5 Non-Current Assets
Held for Sale and Discontinued Operations. The businesses are not
considered to be either separate major lines of business or
geographical areas of operation and therefore do not constitute
discontinued operations as defined in IFRS 5. Greencore's molasses
trading businesses are included within the Convenience Foods UK and
Ireland reporting segment.
On 25 November 2020, the Group received the final approval of
the relevant anti-trust authorities and the transaction settled on
2 December 2020.
Effect of disposal on the financial statements
Half Year 2021
Premier
Molasses UMI Total
GBPm GBPm GBPm
----------------------------------------- ---------- ------ -------
Property, plant and equipment (3.3) - (3.3)
Right-to-use assets (0.7) - (0.7)
Investment in Associate - (1.5) (1.5)
Inventories (4.3) - (4.3)
Trade and other receivables (3.7) - (3.7)
Cash and cash equivalents (1.5) - (1.5)
Trade and other payables 0.8 - 0.8
Deferred tax liability 0.4 - 0.4
Lease liabilities 0.7 - 0.7
----------------------------------------- ---------- ------ -------
Net assets and liabilities disposed
of (11.6) (1.5) (13.1)
----------------------------------------- ---------- ------ -------
Disposal consideration
Total consideration 10.8 4.7 15.5
Working capital settlement 1.9 0.8 2.7
Total net consideration 12.7 5.5 18.2
----------------------------------------- ---------- ------ -------
Disposal related costs (0.6) - (0.6)
Translation reserve classification to
Income Statement on disposal 1.0 - 1.0
Non-controlling interest classification
to Income Statement on disposal 5.8 - 5.8
----------------------------------------- ---------- ------ -------
Profit on disposal 7.3 4.0 11.3
----------------------------------------- ---------- ------ -------
Reconciliation of consideration to cash received
Half Year 2021
Premier
Molasses UMI Total
GBPm GBPm GBPm
------------------------------------------ ---------- ------ ------
Total consideration 10.8 4.7 15.5
Cash received in respect of working
capital settlement 1.9 0.8 2.7
Transaction costs paid (0.3) (0.1) (0.4)
------------------------------------------ ---------- ------ ------
Net consideration received on completion 12.4 5.4 17.8
------------------------------------------ ---------- ------ ------
Cash and cash equivalents disposed of (1.5) - (1.5)
------------------------------------------ ---------- ------ ------
Net cash inflow arising on disposal 10.9 5.4 16.3
------------------------------------------ ---------- ------ ------
15. Contingencies
The Company and certain subsidiaries have given guarantees in
respect of borrowings and other obligations arising in the ordinary
course of business of the Company and other Group undertakings. The
Company and other Group undertakings consider these guarantees to
be insurance contracts and account for them as such. The Company
treats these guarantee contracts as contingent liabilities until
such time as it becomes probable that a payment will be required
under such guarantees.
The Group and certain of its subsidiaries continue to be subject
to various legal proceedings relating to its current and former
activities. Provisions for anticipated settlement costs and
associated expenses arising from legal and other disputes are made
where a reliable estimate can be made of the probable outcome of
the proceedings.
The Group has provided bank guarantees to the Group's insurance
providers for an amount of GBP5.8m (Sept 2020: GBP8.2m).
16. Information
Copies of the Interim Financial Report are available for
download from the Group's website at www.greencore.com.
APPIX: ALTERNATIVE PERFORMANCE MEASURES
The Group uses the following Alternative Performance Measures
('APMs') which are non-IFRS measures to monitor the performance of
its operations and of the Group as a whole: Pro Forma Sales Growth,
Adjusted EBITDA, Adjusted Operating Profit, Adjusted Operating
Margin, Adjusted Profit before Tax ('PBT'), Adjusted Earnings,
Adjusted Earnings per Share, Maintenance and Strategic Capital
Expenditure, Free Cash Flow, Free Cash Flow Conversion, Net Debt,
Net Debt excluding lease liabilities and Return on Invested Capital
('ROIC'). There have been no adjustments made to existing APMs
being reported and no new APMs have been included in this report.
Free Cashflow Conversion is measured and reported on an annual
basis at year end. The APMs used provide a fair review of the
development and performance of the business and of the position
regarding the financial position, cash flows and financial
performance.
PRO FORMA REVENUE GROWTH
The Group uses Pro Forma Revenue Growth as a supplemental
measure of its performance. The Group believes that Pro Forma
Revenue Growth provides a more accurate guide to underlying revenue
performance.
Pro Forma Revenue Growth adjusts reported revenue to reflect the
disposal of Premier Molasses Company Limited for the six-month
period to 27 March 2020 and revenue in FY21 up to the date of
disposal. It also presents the revenue on a constant currency
basis.
Half year 2021
Convenience
Foods
UK & Ireland
%
------------------------------ ---------------
Reported revenue (19.0%)
Impact of disposals 0.5%
Impact of currency (0.1%)
-------------------------------- ---------------
Pro Forma Revenue Growth (%) (18.6%)
-------------------------------- ---------------
The table below shows the Pro Forma Revenue split by food to go
categories and other convenience categories. This is in line with
the disclosure requirements in IFRS 15 Revenue from Contracts with
Customers requiring revenue to be disaggregated.
Half year 2021
Food to
go Other convenience
categories categories
% %
------------------------------ ------------ ------------------
Reported revenue (25.6%) (7.4%)
Impact of disposals - 2.1%
Impact of currency - (0.3%)
------------------------------- ------------ ------------------
Pro Forma Revenue Growth (%) (25.6%) (5.6%)
------------------------------- ------------ ------------------
ADJUSTED EBITDA, ADJUSTED OPERATING PROFIT AND ADJUSTED
OPERATING MARGIN
Adjusted EBITDA, Adjusted Operating Profit and Adjusted
Operating Margin are used by the Group to measure the underlying
and ongoing operating performance of each business and of the Group
as a whole.
The Group calculates Adjusted Operating Profit as operating
profit before acquisition related amortisation and exceptional
charges. Adjusted EBITDA is calculated as Adjusted Operating Profit
plus depreciation and amortisation of intangible assets. Adjusted
Operating Margin is calculated as Adjusted Operating Profit divided
by reported revenue.
The following table sets forth a reconciliation from the Group's
profit for the financial year to Adjusted Operating Profit,
Adjusted EBITDA and Adjusted Operating Margin:
Half Year Half Year
2021 2020
GBPm GBPm
---------------------------------- ----------- ----------
Profit for the financial
year 0.4 24.2
-------------------------------------- ----------- ----------
Taxation(A) (2.2) 3.1
Net finance costs(B) 9.7 8.7
Share of profit of associates
after tax - (0.4)
Profit on disposal of associates (4.0) -
(exceptional)
---------------------------------- ----------- ----------
Group operating (loss)/profit 3.9 35.6
Exceptional items (5.7) -
Amortisation of acquisition
related intangibles 2.0 2.7
-------------------------------------- ----------- ----------
Adjusted Operating Profit 0.2 38.3
Depreciation and amortisation
(C) 26.3 25.5
-------------------------------------- ----------- ----------
Adjusted EBITDA 26.5 63.8
-------------------------------------- ----------- ----------
Adjusted Operating Margin
(%) 0.0% 5.4%
-------------------------------------- ----------- ----------
(A) Includes tax credit on exceptional items of GBP0.2m (2020: GBP0.4m)
(B) Finance costs less finance income
(C) Excludes amortisation of acquisition related intangibles
ADJUSTED PROFIT BEFORE TAX ('PBT')
Adjusted PBT is used as a measure by the Group to measure
overall performance before associated tax charge and exceptional
items.
The Group calculates Adjusted PBT as profit before taxation,
excluding tax on share of profit of associates and before
exceptional items, pension finance items, amortisation of
acquisition related intangibles, FX on inter-company and certain
external balances and the movement on the fair value of all
derivative financial instruments and related debt adjustments.
The following table sets out the calculation of Adjusted
PBT:
Half year Half year
2021 2020
GBPm GBPm
------------------------------------------------------------------ -------------- ----------
(Loss)/profit before taxation (1.8) 27.3
Taxation on share of profit of associates - 0.1
Exceptional items (9.7) -
Pension finance items 0.9 1.0
Amortisation of acquisition related intangibles 2.0 2.7
FX and fair value movements(A) 0.7 -
------------------------------------------------------------------ -------------- ----------
Adjusted (Loss)/Profit Before Tax (7.9) 31.1
------------------------------------------------------------------ -------------- ----------
(A) FX on inter-company and certain external balances and the movement
in the fair value of all derivative financial instruments and related
debt adjustments
ADJUSTED EARNINGS PER SHARE ('EPS')
The Group uses Adjusted Earnings and Adjusted EPS as key
measures of the overall underlying performance of the Group and
returns generated for each share.
Adjusted Earnings is calculated as Profit attributable to equity
holders (as shown on the Group's Income Statement) adjusted to
exclude exceptional items (net of tax), the effect of foreign
exchange (FX) on inter-company and external balances where hedge
accounting is not applied, the movement in the fair value of all
derivative financial instruments and related debt adjustments, the
amortisation of acquisition related intangible assets (net of tax)
and the interest expense relating to legacy defined benefit pension
liabilities (net of tax). Adjusted EPS is calculated by dividing
Adjusted Earnings by the weighted average number of Ordinary Shares
in issue during the year, excluding Ordinary Shares purchased by
Greencore and held in trust in respect of the Annual Bonus Plan and
the Performance Share Plan. Adjusted EPS described as an APM here
is Adjusted Basic EPS.
The following table sets forth a reconciliation of the Group's
Profit attributable to equity holders of the Company to its
Adjusted Earnings for the financial years indicated.
Half
Half year year
2021 2020
GBPm GBPm
------------------------------------------------------ ----------- ---------
Profit attributable to equity holders of the Company 0.1 23.3
Exceptional items (net of tax) (9.9) (0.4)
FX effect on inter-company and external balances
where hedge accounting is not applied (0.4) 0.4
Movement in fair value of derivative financial
instruments and related debt adjustments 1.1 (0.4)
Amortisation of acquisition related intangible
assets (net of tax) 1.6 2.2
Pension financing (net of tax) 0.7 0.8
------------------------------------------------------ ----------- ---------
Adjusted (Loss)/Earnings (6.8) 25.9
------------------------------------------------------ ----------- ---------
Half
Half year year
2021 2020
'000 '000
------------------------------------------------------ ----------- ---------
Weighted average number of ordinary shares in issue
during the year 498,048 443,304
------------------------------------------------------ ----------- ---------
Pence Pence
------------------------------------------------------ ----------- ---------
Adjusted (Loss)/Earnings Per Share (1.4) 5.8
------------------------------------------------------ ----------- ---------
CAPITAL EXPITURE
MAINTENANCE CAPITAL EXPITURE
The Group defines Maintenance Capital Expenditure as the
expenditure required for the purpose of sustaining the operating
capacity and asset base of the Group, and to comply with applicable
laws and regulations. It includes continuous improvement projects
of less than GBP1m that will generate additional returns for the
Group.
STRATEGIC CAPITAL EXPITURE
The Group defines Strategic Capital Expenditure as the
expenditure required for the purpose of facilitating growth and
developing and enhancing relationships with existing and new
customers. It includes continuous improvement projects of greater
than GBP1m that will generate additional returns for the Group.
Strategic Capital Expenditure is generally expansionary expenditure
creating additional capacity beyond what is necessary to maintain
the Group's current competitive position and enables the Group to
service new customers and/or contracts or to enter into new
categories and/or new manufacturing competencies.
The following table sets forth the breakdown of the Group's
purchase of property, plant and equipment and purchase of
intangible assets between Strategic Capital Expenditure and
Maintenance Capital Expenditure:
Half year Half year
2021 2020
GBPm GBPm
--------------------------------- ---------- ----------
Purchase of property, plant
and equipment 15.0 19.3
Purchase of intangible assets 1.5 1.8
------------------------------------- ---------- ----------
Net cash outflow from capital
expenditure 16.5 21.1
------------------------------------- ---------- ----------
Strategic Capital Expenditure 8.6 9.9
Maintenance Capital Expenditure 7.9 11.2
------------------------------------- ---------- ----------
Net cash outflow from capital
expenditure 16.5 21.1
------------------------------------- ---------- ----------
FREE CASH FLOW
The Group uses Free Cash Flow to measure the amount of
underlying cash generation and the cash available for distribution
and allocation.
The Group calculates the Free Cash Flow as the net cash
inflow/outflow from operating and investing activities before
Strategic Capital Expenditure, acquisition and disposal of
undertakings and adjusting for lease payments and dividends paid to
non-controlling interests.
The following table sets forth a reconciliation from the Group's
net cash inflow from operating activities and net cash outflow from
investing activities to Free Cash Flow:
Half year Half year
2021 2020
GBPm GBPm
-------------------------------------------- ---------- ----------
Net cash (outflow)/inflow from operating
activities (7.8) 20.8
Net cash outflow from investing activities (0.2) (20.8)
------------------------------------------------ ---------- ----------
Net cash outflow from operating and (8.0)
investing activities -
Strategic Capital Expenditure 8.6 9.9
Disposal of undertakings (16.3) -
Repayment of lease liabilities (7.9) (4.9)
Dividends paid to non-controlling
interests - (2.4)
------------------------------------------------ ---------- ----------
Free Cash Flow (23.6) 2.6
------------------------------------------------ ---------- ----------
NET DEBT AND NET DEBT EXCLUDING LEASE LIABILITIES
Net Debt is used by the Group to measure overall cash generation
of the Group and to identify cash available to reduce borrowings.
Net Debt comprises current and non-current borrowings less net cash
and cash equivalents.
Net Debt excluding Lease Liabilities is a measure used by the
Group to measure Net Debt excluding the impact of IFRS 16 Leases.
Net Debt excluding Lease Liabilities is used for the purpose of
calculating leverage under the Group's financing agreements.
The following table sets out the calculation of Net Debt and Net
Debt excluding lease liabilities:
Half Half
year year
2021 2020
GBPm GBPm
----------------------------------------------- -------- --------
Cash and cash equivalents and bank overdrafts 17.0 34.5
Bank borrowings (181.7) (230.7)
Private Placement Notes (106.6) (114.9)
Net debt excluding lease liabilities (271.3) (311.1)
----------------------------------------------- -------- --------
Lease Liabilities (60.8) (63.3)
----------------------------------------------- -------- --------
Net Debt (332.1) (374.4)
----------------------------------------------- -------- --------
RETURN ON INVESTED CAPITAL ('ROIC')
The Group uses ROIC as a key measure to determine returns from
each business unit, along with the measurements of potential new
investments.
The Group uses invested capital as a basis for this calculation
as it reflects the tangible and intangible assets the Group has
added through its capital investment programme, the intangible
assets the Group has added through acquisition, as well as the
working capital requirements of the business. Invested Capital is
calculated as net assets (total assets less total liabilities)
excluding Net Debt and the carrying value of derivatives not
designated as fair value hedges, it also excludes retirement
benefit obligations (net of deferred tax assets). Average Invested
Capital is calculated by adding together the invested capital from
the opening and closing balance sheet and dividing by two.
The Group calculates ROIC as Net Adjusted Operating Profit After
Tax ('NOPAT') divided by average Invested Capital for continuing
operations. NOPAT is calculated as Adjusted Operating Profit plus
share of profit of associates before tax, less tax at the effective
rate in the Income Statement.
The following table sets forth the calculation of Net Operating
Profit After Tax ('NOPAT') and invested capital used in the
calculation of ROIC for the financial years.
12 months 12 months
to to
March 2021 March
2020
GBPm GBPm
------------------------------------------ ------------- -----------
Adjusted Operating (Loss)/Profit (5.6) 99.1
Share of profit of associates before tax 0.3 0.9
Taxation at the effective tax rate(A) 0.7 (14.2)
------------------------------------------ ------------- -----------
Group NOPAT (4.6) 85.8
------------------------------------------ ------------- -----------
Half year Half year
2021 2020
GBPm GBPm
Invested Capital
Total assets 1,184.7 1,459.0
Total liabilities (814.2) (1,117.5)
Net Debt 332.1 374.4
Derivatives not designated as fair value hedges 7.3 (3.5)
Retirement benefit obligation (net of deferred
tax asset) 55.7 39.2
Invested Capital for the Group (B) 765.6 751.6
------------------------------------------------- ---------- ----------
Average Invested Capital for ROIC calculation
for the Group 758.6 695.9
------------------------------------------------- ---------- ----------
ROIC (%) for the Group (0.6%) 12.3%
------------------------------------------------- ---------- ----------
(A) The effective tax rates for the financial period ended 26
March 2021 and 25 September 2020, were 18% and 13% respectively
(B) The invested capital for the Group in March 2019 was GBP640.1m
APPIX: PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties faced by the Group are
reported annually within the Annual Report and Financial Statements
and are summarised below. Continuing consideration of Brexit risks
has been incorporated into the Group's principal risks as
appropriate.
COVID-19 has had an unpredictable impact on all businesses and
is still playing a big part in how our risks are managed. At the
start of the pandemic in the early part of 2020 Greencore
management performed a detailed assessment of the risks faced
specifically in relation to COVID-19, and defined strategies for
mitigating these risks and the specific actions for achieving these
have been implemented and now form a part of normal operations.
Detailed below are the key principal risks with a summary by
risk area.
Strategic
Competitor activity: The Group operates in highly competitive
markets. Significant product innovations, technical advances and/or
the intensification of price competition by competitors, both
direct manufacturing competitors and competitors of our customers,
could adversely affect the Group's results.
Growth and change: The Group is pursuing a strategy of growth
and expansion in the UK. Delivery of our stated strategy will
necessitate organisational change and investment, major capital
investments and exploiting corporate development opportunities.
Major capital investments and corporate development opportunities
are often high cost and may involve significant change including
the addition of a material number of new employees. As outlined in
the Risks and Risk Management section of the Annual Report and
Financial Statements for FY20, this risk increased primarily due to
the impact of the COVID-19 pandemic delaying our plans for
growth.
Commercial
Changes in consumer behaviour and demand: In common with other
food industry manufacturers, unforeseen changes in food consumption
patterns or in weather patterns may impact the Group. In addition,
demand for a number of the Group's products can be adversely
affected by fluctuations in the economy. As outlined in the Risks
and Risk Management section of the Annual Report and Financial
Statements for FY20, this risk has been heightened by the COVID-19
pandemic principally as a result of associated changes in working
patterns which continues to impact consumer demand for some of our
products.
Key customer relationships and grocery industry structure: The
Group benefits from close commercial relationships with a number of
key customers. The loss of any of these key customers, tightening
of commercial terms, or brand or reputational damage associated
with such supply could result in a material impact on the Group's
results. The Group is also exposed to poor performance and
execution by the customers in the categories it supplies. Changes
to the grocery industry structure may also adversely affect
performance.
Raw material and input cost inflation: The Group's cost base and
margin can be affected by fluctuating raw material and energy
prices and changes in cost and price profile. The Group also relies
on a concentrated number of key suppliers for certain materials. A
loss or interruption of supply from a key supplier could cause
short term disruption to the operational ability of the Group and
adversely affect its results. The risk associated with the
implementation of Brexit trade negotiations, as outlined in the
Risks and Risk Management section of the Annual Report and
Financial Statements for FY20, no longer applies while the risk
associated with the continuing impact of COVID-19 on supply
continues to apply.
Operational
Food industry and environmental regulations: As a producer of
convenience food and ingredients, Greencore is subject to rigorous
and constantly evolving laws and regulations, particularly in the
areas of food safety and environmental protection. Failure to
comply with such regulations may lead to serious financial,
reputational and/or legal risk.
Product contamination: The Group produces a large volume of food
annually and there are risks of product contamination through
either accidental or deliberate means. This may lead to products
being withdrawn or recalled, or causing harm to customers. As well
as being a significant draw on resources, product contamination
could result in a financial, reputational and/or legal impact on
the Group.
Disruption to day-to-day group operations: The Group is at risk
of disruption to its day-to-day operations from the breakdown of
key manufacturing equipment or the loss of part or all of a
significant facility. As outlined in the Risks and Risk Management
section of the Annual Report and Financial Statements for FY20, the
risk associated with business disruption has been particularly
heightened as a result of COVID-19 and in particular as it relates
to ongoing social distancing requirements at our sites, potential
colleague self-isolation and the likelihood of colleague
absences
IT systems and cyber risk: The Group relies heavily on
information technology and requires continuous investment in
systems to support our business. In common with most large
companies, the Group is susceptible to cyber security attacks with
the threat to the confidentiality, integrity and availability of
such systems. Losses caused by accidental or malicious actions,
including those resulting from a cyber security attack, could have
a significant impact on the Group. As outlined in the Risks and
Risk Management section of the Annual Report and Financial
Statements for FY20, the COVID-19 pandemic has seen an increased
risk in relation to cyber-attacks as a result of intensifying
global cyber activity.
People
Health and safety: In addition to the obvious human cost, a
serious workplace injury or fatality could inevitably carry serious
financial, reputational and/or legal risk. As outlined in the Risks
and Risk Management section of the Annual Report and Financial
Statements for FY20, the risk has increased principally due to the
continuing health impacts associated with the COVID-19
pandemic.
Labour availability and cost: Due to political and economic
uncertainty and change, there is a risk that labour cost and
availability may be affected and this could have a detrimental
impact on the Group. As outlined in the Risks and Risk Management
section of the Annual Report and Financial Statements for FY20, the
potential impact from reduced immigration and retention of existing
EU colleagues following Brexit, along with the COVID-19 impact on
our colleagues, has increased the risks associated with labour
availability
Recruitment and retention of key personnel: The ongoing success
of the Group is dependent on attracting and retaining high quality
senior management who can effectively implement the Group's
strategy. As outlined in the Risks and Risk Management section of
the Annual Report and Financial Statements for FY20, the risk has
increased principally due to the uncertainties associated with EU
employee movement rights associated with Brexit and the impact of
COVID-19 related travel restrictions.
Financial
Interest rates, foreign exchange rates, liquidity and credit:
There are inherent risks associated with fluctuations in both
foreign exchange rates and interest rates. In addition, the Group's
credit rating and overall credit profile impacts its ability to
obtain funding for future development and expansion. As outlined in
the Risks and Risk Management section of the Annual Report and
Financial Statements for FY20, the level of risk has increased
principally due to global uncertainty associated with Brexit and
the impact of COVID-19. There has been significant impact on the
capital markets globally which may continue to impact various
elements of our financial instruments.
Employee retirement obligations: The Group's defined benefit
pension schemes are exposed to the risk of changes in interest
rates and the market values of investments, as well as inflation
and the increasing longevity of scheme members. Volatility in
worldwide equity and bond markets can impact the risk of employee
retirement obligations.
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