Greencore eyeing 'quite a bit' of UK acquisition activity

Greencore boss Patrick Coveney expects the sandwich-making group to undertake "quite a bit" of acquisition activity in the UK market over the next three to five years.

However, he said the convenience food group won't be targeting large-scale big-ticket takeovers; in the vein of its 2011 purchase of rival Uniq, which catapulted Greencore's status in the UK, or its more recent short-lived purchase of Peacock Foods in the US.

Instead, Mr Coveney said Greencore will favour "a series of individual modest things" which will complement its existing organic growth ambitions.

The food group is currently looking to expand its main sandwich, salad, and sushi product lines outside of mainstream retailers in the UK as well as widening its product line with existing customers. It is also looking at technologies to help it gain more from the hot eating market and to extend the shelf life of its ready meals range.

Mr Coveney's update regarding acquisitions strengthens comments he made at Greencore's annual shareholders' meeting in January, when he said he expected the group to grow further in the UK via acquisition, even though there was no hurry to execute deals. He said, then, that deals would be looked at in the context of shaping the group for the next 5-10 years.

"We have reshaped and strengthened our capital structure, and now have a robust foundation from which to pursue a range of new food-to-go product and channel opportunities," Mr Coveney said.

The group is not anticipating making any acquisitions in Ireland and will keep all of its investment focus on the UK market.

Mr Coveney was speaking on the back of Greencore delivering a mixed set of results for the first half of its financial year. Group revenue fell by 4.6%, year-on-year, to £701.4m (€800m), but adjusted pre-tax profit jumped 17% to £37.7m. Adjusted operating profit was marginally up at £44.7m.

On a pro-forma basis, when a number of costs - including a £25.4m exceptional charge relating to its US exit and refinanced UK loan agreements - are excluded, Greencore's first half revenues rose by 5.4% on the same period last year.

Patrick Coveney. Pic: Denis Minihane.
Patrick Coveney. Pic: Denis Minihane.

The group's core food-to-go category generated revenues of over £447m, accounting for around 64% of total revenue. Overall turnover, however, was dragged down by the chilled ready meals and related products category, which saw a revenue decline of nearly 20%.

"While recognising that trading conditions in the wider UK grocery sector remain challenging, the growth outlook for our business continues to be encouraging," Mr Coveney said.

Mr Coveney said he is "pragmatic" and "hopeful" over the chances of an orderly Brexit. Earlier this year, before the Brexit deadline was pushed out to the end of October, Greencore said it would look at a number of options to import food ingredients into its main UK operations if the country's supply chain mechanisms were to break down in the event of a no-deal Brexit - including air freight.

The group will now wait and see what the UK political landscape looks like by late summer/early autumn before reactivating any no-deal planning.

Mr Coveney said the near-term challenges associated with a potential disorderly Brexit remain "uncertain", but said the overall Brexit risks to Greencore are "manageable" in the medium-term.

Greencore's shares were down nearly 3% on the back of its first-half results. However, the stock has recovered since the turn of the year after a turbulent 2018 and is now up by over 42% in the past 12 months. Mr Coveney said he expects such momentum to continue with the dust now having settled on Greencore's unexpected exit from the US market last year.

"The business continues to perform against a changing retail landscape and is well-positioned ahead of the seasonally more important second half," Davy said.

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