With the recent completed $11m sale of its Rhode Island facility, the deal marks the exit of Greencore from all US manufacturing operations.
During a presentation and webcast following the revelation, chief executive Patrick Coveney told analysts that the transaction would free the company to focus on developing UK food-to-go, which currently represented more than two thirds of its business.
”The attractiveness of the UK market has not been lost. Consumers are looking for fresher, more locally sourced convenient food ... It’s important to fish where the fish are ...”
Greencore had spent years building a specialised supply chain around such an offering and so was well placed to make the most out of that evolving market. In many cases the company had taken over aspects such as order management and product development for its customer. Coveney said it would continue to offer very attractive margins compared to many other grocery channels.
“We have delivered value in lots of different ways over the last seven or eight years,” Coveney told analysts. “In the last three years we have invested significant capital in the business to give incremental capacity and manufacturing capability, both in terms of quality of product and cost effectiveness. We have made investments in the last three years that will support us for the next three to four years.”
Coveney said Greencore aimed to follow food-to-go consumer trends closely, following its evolution in convenience channels not just in terms of grocery retail but foodservice. It would build on its strength in sandwiches while expanding into related areas, he said.
“We are doing more in sushi, more in salads, looking more at competing ranges and we will go after all that.”
Shorter shelf-life, high-care products and fresh soups offered considerable potential, for example, he said.
Commenting on Greencore’s ability to develop these opportunities post-Brexit, Coveney said: “We have enough raw material and packaging under different scenarios: 100% of our products come from the UK, 80% of our packaging is sourced from the UK and we have the ability to flex up if need be. We are not looking at dramatic supply shortages that impact on our ability to put product on shelf. Of course there could be some tweaks, but with planning we would be able to adjust our ranges.
“... The longer term impact is less about trade product and more about long-term availability of labour. That’s why we’re focused on colleague engagement ... driving up retention ... That’s what management and leadership is going to be in the UK in the next three to five years.”
Greencore said the net proceeds of £802m would enable it to channel £509m back to shareholders via a special dividend, sometime in mid-January. A total of £293m from the transaction has been earmarked to cut debt, affording Greencore more financial flexibility in the UK. The deal is expected to complete in late November, subject to shareholder clearance.
“Post-transaction, Greencore will have a leading position in its core UK market, greater financial and strategic flexibility, and potential for dynamic capital management,” the company stated.
It claimed the move would enable it to focus on developing categories and formats within the UK convenience food market.
Coveney said: “We have always had a firm conviction on the underlying value and growth prospects of our US business and believe that this offer fully reflects that. Looking ahead, we are confident that we can deliver further growth and returns in the dynamic UK market.
“The proposed transaction would enhance our strategic and financial flexibility, which would allow us to build on our industry-leading position in our core UK market whilst also taking advantage of emerging organic and inorganic growth opportunities.”