As expansion continues, US revenue capacity nears $700m

Greencore’s first production facility on the west coast of the US could nudge overall long-term annual revenue capability from its American operations up to almost $700 million (€563m).

Earlier this year, chief executive Patrick Coveney said that the planned new sandwich manufacturing facility at Rhode Island (due to be operational next spring) would boost US operations revenue capacity from around $350m to $600m per year.

Speaking yesterday, on the back of a strong set of annual results, Mr Coveney said that the planned production facility in Washington State — also announced yesterday — could further boost revenue capacity from the group’s US operations by another $40m-$50m per annum.

Greencore’s business in the US — comprising, mainly, of producing food-to-go products for the likes of Starbucks and 7-Eleven —makes up around 15% of group revenue, and comes in at around £190m (€240m).

US revenues grew by 25% in the 12 months to the end of September, and while management claims that market will take a long time to catch up with its core UK operations, it said relative growth in the US will continue to be significant.

“Underlying growth [in the US] was driven, predominantly, by the roll-out of activity with a new customer that commenced in the second quarter of the year,” the company said.

While the group acquired leading frozen food-to-go product provider, Lettieri’s earlier this year, its two-pronged organic and acquisition-led approach to growth in the US has mainly seen it invest in new production facilities (Rhode Island, expansion in Jacksonville, Washington State) this year.

“The US business is experiencing rapid growth but is not yet operating at group average operating margin levels,” management said yesterday, adding that this is due to a natural “learning curve” and ramp-up costs associated with its various growth initiatives, as well as certain site-specific challenges.

“The delivery and integration of confirmed new business, together with the successful implementation of these large projects should enable us to bring the US business up to group average operating margin in due course,” the company added.

Growth will continue to come from upping order levels with Starbucks and 7-Eleven. Regarding the new Washington State facility, management said: “This facility will provide both production capacity and a development unit and will enable us to service a contract which we are acquiring with a key customer from the second half of fiscal year 2016.”

Goodbody Stockbrokers hailed yesterday’s annual figures from Greencore as “a positive set of results, with the group outperforming in the UK and the US”.

“We expect the additional investment in the US to be well-received, as Greencore becomes further embedded with a core US customer. We retain our positive stance on the stock,” said Liam Igoe, Goodbody’s food analyst.

Better-than-anticipated net debt reduction, for the year, (down to £212m instead of £229m) will, according to Mr Igoe, allow Greencore “plenty of leeway” to fund further development in either the US of the UK.

Greencore’s management has previously noted that all growth options will be looked at in the US, as the market’s prospects are so strong that no opportunity can be ignored.

The US business is now experiencing rapid growth