With little clarity on our future trading relationship with the EU, many bosses are trying to hedge exposure to any fallout by looking for less volatile markets.
Greencore has done the opposite. Last October the country’s largest sandwich maker accepted a $1bn (£760m) offer for its American business, making itself fully dependent on the British market. The retreat was a strategic U-turn, coming just two years after Greencore splurged almost $750m on US convenience food manufacturer Peacock.
Now Greencore’s long-serving and highly regarded chief executive Patrick Coveney — brother of Simon, Ireland’s minister for foreign affairs and trade — must convince investors that the future is bright in Britain.
Coveney has quadrupled the size of Greencore’s £1bn food-to-go business (sandwiches, salads and the like) over the past eight years by taking market share from rivals and reaping the benefits from customers such as M&S and Sainsbury’s building up nationwide convenience store estates.
However, since Greencore’s American dalliance, the domestic food industry has become a tougher place. Higher wages and commodity prices have pushed up costs, while the expansion of Aldi and Lidl is forcing supermarkets to keep their prices in check, meaning suppliers can expect a rough ride. All that pressure prompted leading credit insurers to pull cover for some of the smaller food manufacturers last year amid fears that a disorderly Brexit would force them out of business. Against that gloomy backdrop, short-sellers have piled into Greencore’s shares this year, with filings showing 7.9% of them are sold short.
Greencore is hardly a business in distress — it makes about 700m sandwiches a year and has recently signed contract extensions with three of its biggest customers. Its balance sheet was bolstered by the sale of its American business, too.
However, is this a business drifting into maturity? The growth of the food-to-go market has outpaced that of the wider food industry for years, but that is tipped to slow as supermarkets pull back from opening more convenience stores. Adjusted operating profit rose by only 1.7% to £104.6m last year.
To fire things up, Coveney plans to diversify into other snack and salad products, and the company is laden with cash for potential acquisitions.
In what can be a brutal industry, Greencore still looks a safe bet, but you can’t help but wonder whether the company’s best days are now behind it. Avoid.
