Greencore chief’s pledge to restore lost profitability

It has been hit by Covid, when Greencore’s office worker consumer base was stuck at home, Brexit, labour shortages and supply chain complications.

“We’ve not been fulfilling our potential in the last years,” was the frank assessment from the former DAA boss.

“My absolute priority is fixing this by rebuilding our profitability.”

Covid was tough on Greencore but there has since been a stand out challenge. “Clearly, the single biggest issue has been inflation, a defining issue not just for Greencore’s performance, but for the wider food sector,” Philips said.

For example, a year ago, the company focused on how it was finely re-balancing recipes and portion sizes to keep a lid on inflation. The company highlighted coleslaw, as the price of some of its raw ingredients rocketed.

Greencore accordingly reformulated the product – tweaking portion sizes and switching suppliers – to keep prices down.

At the time, some observers pointed out this type of price control would become increasingly difficult the longer inflation endured and, as we now know, food inflation has proven to be extremely stubborn.

“We’re acutely aware that never-ending price rises aren’t a sustainable solution but we’re also resolute in our commitment to recover or offset the inflation that we are seeing and to protect our long-term profitability,” Philips said last week.

The call with analysts came as Greencore reported sales growth of 20.1pc to £925.8m (€1.06bn) in the 26 weeks to March 31 with most of that due to higher prices linked to inflation. However, its operating profit of £11.8m, was down from £17.2m a year earlier, while its operating margin declined to 1.3pc from 2.2pc.

Said Philips: “Our profit was impacted by a lag in inflation recovery. Without that lag, we would have seen a material profitability increase. Importantly, we do expect inflation to slow down in the second half.”

Philips said Greencore is looking at which parts of the business are performing – and which are not.

In response to a question from Charles Hall, of Peel Hunt, Philips indicated that disposals could be on the cards. “We’ve got 23 different plants, and we have a number that have returns that are just not where they should be.

“If we have to divest assets, let’s divest them, having really had a good go and improving that asset, because otherwise, somebody else is just going to come in and take the value from that.”

Interestingly, Philips also highlighted how some pandemic decisions were now causing some difficulties for the business.

“We took a series of decisions through Covid to secure long-term volume both by onboarding new business at margins which were below our group average and by investing in commercial terms with existing customers,” he said. “Look, you can’t separate a decision from its timing. However, these decisions are now hurting us.”

However, Philips also drew attention to a number of positive tailwinds including “the benefits flow through from aggressive cost of interventions we made in H1 (the first half of the financial year).”