We are positioned in some of the most dynamic sectors of the Convenience Foods market, predominantly operating in the innovative customer brand sector.
25%
SandwichesUK market share
24%
Celebration CakesUK market share
22%
Italian Ready MealsUK market share
44%
Yorkshire Puddings (frozen baked)UK market share
Overall
The Convenience Foods division recorded a strong performance in FY09, particularly in the second half. In the first quarter of FY09 divisional earnings declined year-on-year but growth was recorded on a constant currency basis in each successive quarter of the year. Constant currency operating profit1,2 for the year grew by 14.1%. A significant element of this growth is attributable to the operational improvements in our ambient grocery, prepared meals and water businesses. Specifically, in prepared meals, the Group closed one of its facilities in the first quarter, with the associated restructuring charge taken in FY08, and has benefited from operational efficiencies through the second half of FY09. In addition, a series of restructuring initiatives were undertaken at Water, significantly improving its operating performance in FY09.
The flight to value was a key consumer theme during the year. The combination of our private label offering and low cost leadership has positioned us well for this. During FY09 we eliminated the equivalent of 2% of sales from our cost base through our lean manufacturing and cost reduction programmes with a particular focus on overheads. Additionally, the capacity environment in the UK is improving somewhat through a combination of factory closures by larger players as well and smaller, poorly capitalised players exiting the industry.
Our agenda to recover our operating margin progressed during the year with a 50 bps increase in the divisional operating margin1,2 to 5.8%. Finally, FY09 also marked a year of real progress for our emerging US business with development of existing customers together with the addition of new customers and categories and the opening of our second, albeit smaller, manufacturing facility.
Food to Go
2.4% Sales Growth
Food to Go is our largest category business comprising fresh sandwiches, salads and sushi. During the first quarter of FY09 a significant downturn occurred in the food to go market with consumers, for example, opting temporarily to make more of their own sandwiches. However, the decline was short-lived with consumers returning to the sandwich fixture over time.
Despite a food to go market decline of 3.9% in the first quarter we grew our overall sales by 2.4% on a constant currency basis for the year in FY09. There has been a significant mix change with consumers buying cheaper lines rather than giving up the convenience of a pre-packaged food to go offering.
Sandwich volumes were broadly flat year on year with salads and sushi gaining food to go share, and driving category growth, with growth levels of 30% and 31% respectively.
We remain the No. 1 player in the UK with a 25% market share, growing or holding share across all customers.
Prepared Meals
20% of Division Sales1
Our prepared meals business comprises the chilled ready meals and quiche categories and represented 20% of Convenience Food sales1 in FY09.
Our chilled ready meals business had a good year with consumers returning to the category combined with operating efficiencies due to restructuring initiatives undertaken, primarily in FY08. Greencore is the UK’s largest producer of chilled Italian ready meals manufacturing five of the top ten selling lines in the market. The category has been re-energised in 2009 as retailers attempt to bring consumers back to ready meals in an era where consumers are eating out less. An overall market decline of 0.4% was recorded in the year but the twelve-week data to 4 October 2009 showed growth of 5.1%.
As well as market recovery our business recorded significant operational improvements in the year by reducing SKUs by 20% as well as efficiency gains associated with the closure of one of our Sheffield meal facilities in FY08.
Greencore is also the market leader in UK quiche holding a 44% market share and producing five of the top ten quiche lines in the market. The quiche market has suffered somewhat in the current consumer environment with the market contracting by 4.3% in the year. We offset the impact of this decline by increasing our share of trade with two significant customers. Notwithstanding the progress in our prepared meals business during the year it still earns a lower than average portfolio return on capital, although this is improving.
Our key challenges
- Tougher consumer environment reflecting difficult economic conditions.
- Continued demand for excellent service and high innovation from customers.
- Overcapacity in prepared meals.
- Capitalising on early momentum and market promise in the US.
- More difficult credit conditions increasing pressure on working capital.
Our positioning to address challenges
- High innovation allowing move to 'value' products.
- Focus on retail channel and serving current customers well.
- ' Best in class' underpinning all that we do.
- Exit from old subscale frozen desserts and ready meals manufacturing capacity.
- New facility opened and new capacity added in the US.
- Emphasis on decreasing stock levels to improve working capital.
Grocery
Reduced SKU count by 350
Our grocery business comprises ambient cooking sauces, pickles and salad dressings. Our business recorded an improved performance in FY09 reflecting a consumer move from brand to private label combined with an increase in ‘at home’ dining.
Additionally, a 7% increase in evening meals made from ‘scratch’ supported demand for stir in cooking sauces. The business completely refocused its offering during the year by exiting trade with poor returns. Operationally the business made significant progress as a result of this simplification agenda reducing its SKU count by 350. Niche and poorly performing categories such as sandwich spread, sweet pickle and sweet spreads were exited and selected tertiary brands discontinued. Co-pack volumes for branded customers decreased during the year, albeit these volumes carry the lowest margins in the category.
Overall, category sales increased by 0.9% on a constant currency basis year-on-year with strong cooking sauce volumes partially offset by trade we exited in the year. Our Selby manufacturing facility is Europe’s largest cooking sauce facility which underpins its position as the lowest cost producer in the industry.
Cakes and Desserts
10% of Division Sales1
Our cakes and desserts business, which comprises 10.3% of Convenience Food sales1, had a challenging year. Whilst consumers are still willing to spend in indulgent categories they are doing so with less frequency than before. In addition, a significantly higher volume is being sold on promotion as retailers seek to attract the consumer. Our overall category sales were adverse on FY08 by 5.1% on a constant currency basis with a reduced gross margin reflecting the higher promotional mix.
Chilled Sauces and Soups
7.7% Sales Growth
We are the UK’s number one chilled sauce manufacturer with a 34% market share and a complementary position in chilled soup. The category recorded a strong sales performance in FY09 with sales increasing by 7.7% on a constant currency basis driven by higher soup volumes. We increased our soup business by 31% in the year. However, a higher promotional mix resulted in a reduced margin in the year albeit with comparatively fewer promotions in the last quarter.
In the core sauces category the economic climate saw some consumers switching into ambient from chilled for pasta sauces although this trend levelled off towards the end of FY09. In addition, a significant relaunch of JS Italian Sauces in the summer supported a good chilled sauce sales performance in the fourth quarter.
Frozen Foods
Exit from frozen desserts
Our frozen foods business comprises frozen Yorkshire puddings following the Group’s decision to exit its subscale position in frozen desserts in December 2008. Our Yorkshire pudding business had a good year recording modest sales growth during the year. The sales outturn reflected a good performance with retail customers who benefited from consumers choosing to eat more often at home than in prior years. Additionally, our foodservice customers who represent the larger chains grew volume during the year at the expense of smaller independents that we do not trade with.
Foodservice Desserts – Ministry of Cake
8% Sales Growth
We are the number one supplier to the UK foodservice desserts trade with a market share of c. 20%. We recorded sales growth of 8% on a constant currency basis with our customers representing the larger value players who are performing well in the current market. In addition, we continue to display adaptability, essential in foodservice, in an environment where the consumer is changing their tastes and preferences with more frequency than before. By way of example we won a Special Recognition Award from Pizza Hut UK for launching a new line, ‘Sicilian Lemon Tarts’, within two weeks of being briefed of a general requirement.
Water
Agreement to sell business
Our water business recorded a good recovery from the operating loss2 of €4.0m in FY08. A programme of initiatives was executed to reduce costs and to eliminate loss-making trade. The bottled water market itself has been impacted significantly by the consumer downturn with volumes adverse by 7% year on year. The benefit of the operational improvements more than offset the impact of weaker demand. The Water business represents 3.6% of divisional sales1 and maintained its number one market position in UK private label bottled water.
Subsequent to year end, the Group announced that it had reached an agreement to sell its water business for a consideration of up to €19.6m. €5.0m of the proceeds is contingent upon the future performance of the business with completion of the disposal expected to occur on, or before, 30 April 2010.
- Manufactured sandwiches
- Packaged entrees
- Salads
US Convenience Foods
Almost 100% increase in contribution
FY09 was a year of significant progress building on the platform acquired in FY08. Our US business recorded a strong year with its contribution to Group operating profit1,2 almost doubling in FY09 versus FY08. It exited FY09 on a strong trajectory with fourth quarter sales increasing by 46% on a constant currency basis on the comparable period for FY08. Of particular note, and a strong driver of the growth, has been the sales performance in chilled sandwiches.
This is business which started from a zero base in April 2009 and now comprises 26% of our US sales. During the year we opened a new satellite facility in Cincinnati which gives us a platform for growth in the mid western US. We launched our partnership with Weight Watchers during the year and are currently selling to four large retailers and are listed in 1,000 stores with further listings planned.
Continental Convenience Foods
Strong market share
Our Continental business had a challenging year with sales decreasing by 6.1% on FY08. The Dutch chilled foods market is down 5% year on year and this has been compounded by a weaker airlines market, a significant sandwich channel. Notwithstanding the weaker sales performance the business has delivered a solid operating profit for the year. We have strong market positions in the Netherlands in sandwiches, chilled sauces and chilled pizza with market shares of 45%, 75% and 92% respectively.
© 2009 Greencore Group