Earnings Transcript for GNC.L - Q2 Fiscal Year 2020

Jack Gorman: Thank you, John and good morning to everyone on the line and on webcast. My name is Jack Gorman and I'm Head of Investor Relations at Greencore. I'd like to thank you all for taking the time to join us today for our Half One Interim Results Conference Call which covers the six months period to 27 March, 2020. I'm joined on the call today by our Chairman, Gary Kennedy; our CEO, Patrick Coveney; and our CFO, Emma Hynes. And before we begin just a few housekeeping items. This is a webcast presentation and a copy of the presentation slides and appendices is available on the Investor Relations page of our website. And I would like to draw your attention to the forward-looking statements on slide two of the presentation and the agenda for this morning's presentation that's outlined on slide three. So, with that, thank you and I'll pass it over to Gary Kennedy.

Gary Kennedy: Thank you, Jack and good morning everybody and thank you for joining us here this morning in what are slightly unusual circumstances. It's our first opportunity really since the pandemic hit to engage with the investment community, so we're very much looking forward to that engagement. And I sincerely hope that both yourself and your families continue to be safe and well. Before handing over to Patrick and Emma, just a few things I'd like to say really on my own behalf, but probably on behalf of the Board as well and the first of those is a big and very sincere thank you. Firstly, there are a lot of other frontline workers that have been working tirelessly which has made our ability to serve our customers a little bit easier. We'd like to recognize them. Very importantly our customer base for the ongoing proactive engagement that we've had with them facilitating our response to what has been a fairly spiky market demand. We've had a tremendous relationship ongoing with our supply base which has allowed for flexibility in terms of being able to serve that business. But maybe more importantly to the extensive network of colleagues that we have and I'm talking about all our colleagues here those that happen to be furloughed, but also those that are working at home, and indeed those who have been heroically performing in terms of our factories and logistics. I do recognize the personal impact that this pandemic has had on people. There has been sickness amongst our colleagues and their families and in some cases, fatalities which is very regretful. The restrictions that we have on travel I normally get out to meet people in a little more regular business unfortunately that has not been something that has been feasible, but I look forward to that in the future. But I certainly want to recognize the heroic response of our colleagues which makes myself and the Board very, very proud of both them and the company. Before handing over to Patrick and Emma, I suppose you'll see a theme coming through the presentation today and certainly the focus that we've had on keeping our people safe, feeding the U.K., and protecting our business has served us very, very well particularly in the ramp down of our business model and I suppose our attention has turned in more recent times to rebuild in our business and ramp it up. And I think that model will still serve us very, very well. I suppose the unknown that we have an unknown variable is time and that's the one that we all wrestle with. And again before handing over, there have been some changes particularly at the executive level on the Board. We've appointed a couple of non-Exec Directors which you would have seen the announcements on. But today is Eoin's last day officially with Greencore. He's had incredible career much of which I have enjoyed the experience of dealing with him and I certainly wish him very, very well in future endeavors with Marks & Spencer. And as one person moves, it's an opportunity for somebody else and I'm delighted that Emma has chosen to become our CFO and Director which comes into effect today and she certainly has my good wishes and best luck. Somebody who I know for a long number of years and very much enjoying -- and looking forward to enjoying a profitable and fruitful working relationship in the future. So, with that, I'll hand over to Patrick.

Patrick Coveney: Thanks Gary. And if I can just welcome everyone to the call and thank you for joining us today and also to echo Gary's sentiment which I do hope that all of you on the call are safe and well and that your families are safe and well as we all work through this pandemic. I wanted not only to thank Gary personally, but also just to acknowledge the tremendous support that I and the executive team have had from our Board, from our wider stakeholders, and from the wider leadership team across Greencore. As we've worked our way through this, the way in which we've worked has been characterized by being collaborative, being pragmatic, being calm, being resolved, but also being optimistic and positive as we reset our business and think about the potential for our business to come strongly out the other side of this. Of course there are huge differences in terms of context now from when I would last have spoken formally on this conference call format to shareholders either last November for our then full year results or with the conference call for our Q1 results in January. We've seen the impact of this pandemic on society, on the economy, on the food industry, on Greencore as a significant player within the U.K. food industry, on our colleagues, our teams, and on the families of our colleagues and teams. And I do want to echo Gary's comments and words of thanks for -- from my team and our colleagues up to 15,000 of them across Greencore, who truly have been food heroes in terms of everything that they've done over the last two and a half months. The structure of today's conversation is going to be less actually about reporting specifically on half one and more about the impact of COVID-19 the scale and speed of that impact, the comprehensive and rapid nature of our response to that, and the way we're thinking about the future in terms of the detailed plans collaboratively put together with our customers and positive in orientation. Before starting into that, I did want to also thank Eoin for his 14 years in Greencore and the role that he's played in architecting the business and the culture that Greencore has today. But also to -- at a personal level to welcome Emma who I've known for a long time. She's been six weeks with us now. She's an absolutely outstanding finance leader who knows every corner of Greencore and every aspect of our economic and financial model and is actually used to weighing in to respond to big challenges and opportunities. In terms of how Emma and Eoin have worked together over the course of the last six weeks, Eoin worked very specifically on delivering the half one results and supporting the business in the initial ramp-down phase end March early April for our business. And Emma took up the mantle to really put in place the liquidity and financial flexibility that we're going to talk about more today and to support our business and beginning to think about different ramp-up scenarios, and how we configure our business to do that. But together, they've worked hand-in-glove to ensure that the Board and the executive team have the finance leadership and support through all of this. I'm turning now for those following me on the results presentation to slide 7. The four key highlights or messages in the results and in the presentation that Emma and I wanted to share with you today. Firstly to say, specifically, on half one performance. As we set out and summarized in our March 18 market announcement, our business was on plan in terms of profitability and cash flow in line with our financial expectations for the year before the arrival of the COVID pandemic in the middle of March. The shape of that plan had been to be flat in terms of profit in the first half with strong growth in the second half coming from the commercial pipeline that we had put in place, but also from the productivity and margin enhancement programs that we would have spoken about back in the Capital Markets Day last September, which we really saw the -- anticipated the value of that coming through in H2. We were hit and hit pretty hard actually in the middle of March by COVID-19. That has had a significant impact on all aspects of our people and our business and in particular from a demand perspective on food to go volumes. We've put together a comprehensive and rapid response to that and we'll outline elements of that over the course of this presentation. That response has been characterized by high levels of collaboration internally, but also externally with our supply base and in particular with our customer set. Our model has demonstrated extraordinary flexibility in terms of our ability to scale the model up and down in different parts of our business and we've been decisive in the decisions that we've taken through this period. Critical to our response has been preserving balance sheet strength, building incremental liquidity and financial flexibility, and Emma will take us through that in more detail on the presentation. Importantly, we feel the business has stabilized in terms of that response and in terms of the market environment as we've transitioned from April into May. And we are already planning and indeed actioning aspects of our build back program, a program that's going to build on strong foundations, foundations of resilient economics today, flexibility in terms of our model's ability to respond to rises and falls in demand, very high levels of customer relevance and support, and a consistency in terms of what we're trying to do in terms of strategy, liquidity, culture and leadership as we go forward. And our aim as we build back will not be to simply return the business to where it was before, but to build back what will actually be a better business in terms of simplicity, productivity and relevance as we go forward. I'm turning now to slide 8. Our business has and our leadership team has experience of dealing with big challenges and big opportunities before. And we know that in response to that clarity, leadership and decisiveness matter. Since the outbreak of COVID-19 and the scale-up of that in the middle of March three priorities have governed everything that we've done

Emma Hynes: Thanks, Patrick, and good morning to everyone on the call. For those of you who I haven't met previously, my name is Emma Hynes, and I rejoined Greencore last month to become the new CFO upon Eoin's departure today. I'm delighted to be back at Greencore once more, and it is a business I've known for many years. So as Patrick said, since I've returned Eoin and I have collaborated closely through the transition period with each of us, focused on what are different aspects of today's announcement. So while Eoin focused on delivery of the half one results seamlessly, I have focused on cash flow, balance sheet strength and liquidity. And my priority in doing this has been to ensure that the measures we have implemented were completed so that the business isn't distracted and can really focus on the build back of volume as we see the social restrictions implemented as a result of COVID-19 eased. So, over the next number of slides, I'd like to briefly outline the half one results and performance, but more particularly build on Patrick's earlier comments around how we're protecting our business from a cash flow and liquidity perspective. So turning to slide 15, let me provide -- first provide an overview on half-one 2020 results, a period which was progressing broadly to plan for the first 5.5 months, but was then overtaken by the first response to the events associated with COVID-19. So much fuller detail is provided in the appendix, and we would be happy to explore that as appropriate. But for now, what I'd like to do is highlight several key points from the results themselves. So as we noted, revenue and profitability were impacted in the second half of March as the first impacts of the U.K. government's social restriction measures were felt by consumers and by our customers. So reported revenue, including the impact of Freshtime grew by 1.6% in the first half, while pro forma revenue was broadly flat. The impact of COVID-19 was most particularly felt in our food to go categories, where there had actually been encouraging signs of improvement in the weeks preceding the outbreak. So overall, pro forma revenues in food to go categories declined by 2.1%, and within that, we're estimating that the COVID-19 impact reduced pro forma growth by between 2 to 3 percentage points. In our other convenience categories, pro forma revenue grew by 4% with a COVID tailwind of about 2 percentage points. The Freshtime business, which we acquired last September, performed very well in the period and has been integrating really, really smoothly into the group. If we talk about cash flow for a moment, cash flow trends were positive in the period. We saw an improvement in free cash flow as compared to the same period last year. And while net debt-to-EBITDA at 2.1 times was slightly higher than year end, this is to be expected due to the seasonal working capital outflow that we would typically experience in the first half of the financial year. And finally we did adopt IFRS 16 in the period, and that's the new accounting standard for leases. So, as we transition to the standard, we used what's called the modified retrospective approach. And following that approach, there's no restatement of comparative information for prior year periods. And briefly just to summarize the effect of IFRS 16. So this is outlined in detail in the statement and in the appendix of the presentation. But really what happens is, EBITDA increases as a result of IFRS 16, but the overall impact on earnings is immaterial, because the depreciation charge on the assets recognized broadly offsets the EBITDA benefit. Our net debt also increases to reflect the lease liabilities, we're putting on our balance sheet and our assets increase to reflect the matching assets going on with that debt. But the lease liabilities are not included in our covenant calculations. And again, as I said, there's more details in the appendix to the presentation, and then the note to financial statements, if people want to have a more detailed look at that. So with half one review, let's turn to slide 16 and our strong liquidity position. So, conserving balance sheet strength and liquidity is essential in such an uncertain economic environment. And this as I said is where I spent my time since joining the group. So at the end of half one, we had financial headroom totaling GBP 267.5 million in the form of cash and undrawn committed bank facilities. Now as we noted in our announcement on the 30th of March we agreed a new GBP 75 million committed debt facility with our lenders and that matures in March 2021. Since that time, we've also secured formal agreement with our lending banks to waive the net debt-to-EBITDA covenant condition for both the September 2020 and the March 2021 test periods. And we're also at an advanced stage of discussions with our private placement noteholders regarding a waiver of the net debt-to-EBITDA covenant condition. And finally, we have confirmation of eligibility in principle under the U.K. government's COVID Corporate Financing Facility or the CCFF. So the terms of the scheme would mean that, we couldn't disclose the size of what our facility would be, but just as a reference point for people on the call that the Bank of England's guidance which is published on its website states that corporates with Greencore's precrisis credit rating would be permitted to issue up to GBP 300 million in commercial paper. And look -- as I noted earlier our strong belief is that, we should be as prepared as possible when it comes to our balance sheet resources. And the combination of all these measures leaves us with very considerable resources and financial headroom to manage through the uncertain trading period ahead. Now building on this; on Slide 17, we've outlined the range of cash flow mitigation actions that we've implemented to-date. And we believe these actions are balanced in order to ensure we retain the fundamental strength of the business which allows us to accelerate quickly as social restrictions ease and the economy comes back to life. And so, if I just take you through our key mitigating actions on cash flow. Firstly we've reviewed all planned CapEx and previously planned CapEx has been deferred wherever possible with only essential projects still ongoing. Now included in the ongoing projects is the work that we've been doing on modular automation projects which we talked about in our Capital Markets Day and this remains a key priority for the group particularly as a mitigation for the impact of social distancing in our facilities. Secondly, we announced on 30th of March that we weren't going to proceed with an interim dividend payment. As we worked with our leadership team and with our Board on modeling scenarios and engaged with our lending group on the bank waiver process we've also decided that we will not be paying either a final dividend for FY 2020 or an interim dividend for FY 2021 and this is in line with the duration of the covenant waiver period. We have aggressive dividend policy and it is our strong intention we'll reinstate dividend payments as soon as is practical in accordance with our capital allocation strategy. From a working capital perspective, we're managing this really closely especially given the nature of our food to go business where a decline in volumes results in cash outflows from what is a negative working capital cycle. And finally, other mitigations on deferral of pension contributions have also been adopted. So the effect of all of these actions, I think together with the covenant lever is to leave us in a strong position from a liquidity perspective. And now just moving to Slide 18 where I'll build on Patrick's earlier comments on performance since the start of the second half. So to echo Patrick, we've focused on rapidly adjusting the network and the cost base of the business during April. So the network is matched to reflect the changes in our consumer and customer demand. So as a result we did move from a short period of negative EBITDA performance to a period into May where both revenue and EBITDA progression is improving from these lows. And while plainly the shape of recovery is uncertain so the challenge for every corporate is to model the severity and the duration of the COVID impact for the rest of FY 2020 and indeed into the following years. And look while clearly not guidance, we have modeled a range of stress scenarios regarding the duration of the COVID lockdown and the timing of recovery as the measures in social distancing are eased. And these scenarios include varying levels of volume ramp from current low levels including the imposition of second lockdown in winter 2020. And in all scenarios we are assuming that the revenue run rate doesn't return to FY 2019 levels until October 2021 so not until our FY 2022 fiscal year. And we've done a lot of work on this modeling and we'll continue to assess it as conditions evolve. But I think it's worth stressing that based on the resources and liquidity we have available we're very comfortable that we can navigate successfully through any of the stress scenarios that we've modeled. And I guess overall what I'd say is, I've been with Greencore as we've worked through challenging times in the past and one of the things I saw then and I guess struck me again as we worked through the ramp-down is really how quickly and flexibly the group can respond to change. And I think we've seen that as Patrick outlined in the steps that we've taken through the execution of the ramp-down and it's really a key strength for us as we move into execution of the ramp-up as well. So that's the financial review section, very happy to discuss this in more detail during Q&A. Now I'll hand back to Patrick to address how we're thinking about building back the business.

Patrick Coveney: Thanks Emma. And what I wanted to do over the final 10 minutes of this presentation is first of all just summarize where we sit as a business right now; secondly share insofar as you can discern learnings and observations that are relative -- relevant to the future of the U.K. food market what we're learning and how we're thinking about some of those changes; thirdly, talk about our strategy and how we're building on and where necessary tweaking aspects of the strategy that we shared with you at the Capital Markets Day and as we build back. And finally to finish with just some of the key near-term priorities as we get on building back our business as the economy begins to reopen. So starting on Slide 20 with where we sit today four principles here. First of all, we have reset the business as Emma and I have described earlier and to the lockdown levels of demand and in so doing, now have a business that is modestly profitable at an EBITDA level even at a 40% reduction in overall group volume. Secondly, we have the flexibility in terms of our model and the insight and experience on how to adjust our network and cost base to enable us to respond dynamically to the demand and supply environment going forward. And thirdly, what we've seen through this has been the relevance of our business and the role of our products and capabilities to the economics and strategies of our customers being reinforced, and we are already putting in place and in some cases starting to implement jointly owned collaboratively put together build back plans with our customers. And finally, we have as a business the liquidity, the resources in terms of people and financial capacity and the leadership and culture to manage the business through the lockdown, but also importantly to build back the business, as the economy begins to reopen. I want to be thoughtful and not jump to superficial conclusions on what's happening in the food landscape through the period of this pandemic so far. Our assessment is that some of what's happened will endure, but much will not. And then actually putting together this perspective what we combine is the learnings and perspective that we get from working very collaboratively with our customers and suppliers, but also quite a significant level of Greencore specific insight and research that we track in particular for food to go shoppers. And in that context, if I could just start with how people are shopping and consuming food. So as I mentioned earlier, we have seen a marked shift from trolley -- from basket shopping to trolley shopping or more particularly people shopping less frequently. And indeed 43% of consumers are indicating that they are shopping less frequently than before right now, but when they shop by bigger trolleys or bigger shopping baskets. In that context, we've seen a reduction in on the go shopping occasions. Pre-COVID-19 45% of all shopping occasions were on-the-go in nature. That's fallen to 15% during this two-month period. Interestingly, we have not seen a fall in consumers' consumption of sandwiches. Sandwich consumption remains very strong. Indeed of the shopping occasions that are food to go in nature, 71% of them still contain a sandwich. And where people are actually making lunch at home, 60% of the time they're having lunch in the form of a sandwich. Interestingly, what we've seen as we've tracked how consumers feel about at home lunch preparation is that each week for the last five weeks consumer satisfaction with their lunch has fallen. In other words, consumers are getting bored and frustrated with the absence of choice and frankly with their inability to make sandwiches as well or as differently at home as they can when they procure them outside. We saw a similar effect actually 10 years ago during the financial crisis, where people did move briefly to preparing lunches at home, but within a period of eight to 12 weeks had moved back for reasons of variety and taste to accessing externally prepared products. And importantly, from a shopping perspective, we've seen a sustained strong move towards digital and low-touch solutions, where across the grocery set in aggregate they probably moved from having things like click and collect or dotcom delivered solutions representing 5% to 10% of their revenue to now 10% to 15% of revenue -- 10% to 15% of revenue across the grocery set overall. In terms of grocers, I think, in general, what we've seen is that the U.K. grocery sector and the key grocers within that have done an incredibly good job of keeping Britain fed, safely fed through this pandemic. And that's been reflected in a marked increase in the trust and brand equity of the grocery sector overall. You see it in terms of consumers trusting those outlets more, they feel they're safer to shop, and they feel that the large grocery stores offer better choice and availability of key ingredients than before. In fact, as a sector, the U.K. grocery sector has moved to be the second most trusted sector in the eyes of U.K. consumers second only now to the NHS. We've seen a significant increase in overall grocery volumes at plus 10%, 11% in the period. A big part of that has been the fact that the food service competitive set is largely closed through this period. And importantly, what we're already seeing is the U.K. grocers moving to try to simplify and streamline their operations and to restore some of the profitable value-added elements of their product mix to enable them to mitigate a lot of the new costs be they in terms of social distancing, pay sickness and other costs that have come into their business, which are -- so that theme of simplification and the economic imperative to restore the attractive mix elements of convenience food is going to be quite important going forward. And then more broadly across the rest of the food industry, we've seen a very, very commendable focus on safety, which is just vital through all of this. We're seeing businesses that have scale and portfolio breadth do a little bit better, and we're seeing businesses that have responded quickly and prioritize liquidity and balance sheet strength doing well. Of course, there are going to be changes and casualties, and I think consolidation and change within the wider food base through all of this, but the businesses that will endure, as I say, will have that portfolio breadth and that speed of action and liquidity going forward. So if -- moving to slide 22, if we try to just pass this into what it might mean for our business as we begin to build for ramp-up. The first four of these themes are really demand in nature. We do think there is going to be a changing meaning to and a change in configuration of on-the-go food going forward. We anticipate actually that supermarkets grocery stores and their formats will play an even bigger role in that going forward, because they can implement better standards of hygiene than food service operators, because they can implement social distancing and because of the trust that they have with customers, we do think in the next 12 to 18 months that their convenience and Food to Go formats are likely to do disproportionately better than mainstream food service in their response. We will see -- from an on the go perspective, we'll see a continued increase in the importance of delivered solutions whether that be delivered to home or to the workplace. I think you will see local play a bigger role. There will be some consumers who will choose to work-from-home. That doesn't mean they'll necessarily prepare food at home. They may well pop out to local stores local convenience stores in their village or town. So we do think the role of local will be important. And undoubtedly this move towards a wider product array of on the go food offers will remain important. Value will be very important going forward. I think you'll see a move and a reinforcement of every day low price credentials across the grocer set. Consumers and citizens are going to be hit economically coming out the other side of this and then so will be important to maintain and reinforce value. I think one of the learnings for the grocery sector in aggregate coming out of the financial crisis is that with the benefit of hindsight they probably did take price up too much and lost relative share to other formats in that period and I don't see them doing the same thing again. Third issue is that while health and wellness will remain very important, we see hygiene, social distancing, low-touch space, packaging playing a very, very important role alongside health and wellness going forward. And that will be relevant to both the products themselves, how they're packaged and the channels in which they are sold. And certainly the move towards digital or low-contact channels, which is currently running and constrained only by the available capacity that's in the network I think will remain important going forward. On the supply side or within the business models of food players, I think we are seeing right the way across society now a reassessment and an appropriate reassessment of the value of frontline colleagues. That's going to feed through to I suspect a sustained desire to take up living wages to reinvest in development and in apprenticeships to build capability and engagement and esteem and trust right the way through businesses starting at the front line where much of the heroic work in relation to COVID-19 is happening. I mean I think for businesses like ours it will also dial up the importance of automation, technology, structural productivity improvements and where we're combining engaged colleagues with useful technology. I think finally what we're learning here is we're seeing a purpose and sustainability for real through COVID-19. And I think the businesses that really configure themselves and set themselves up to do well going forward will embrace purpose sustainability as an absolute core part of what they're doing rather than what I fear has happened in some aspects of the business world and viewing it almost more as a compliance-type requirement rather than being at the very core of what businesses are about. Last September, we set out the framework that's described on page 23 here in terms of how to think about the building blocks of Greencore strategy for the next five years as playing against three themes of growth relevance and differentiation. We think each of these things remain highly relevant to how we're going to run our business as we ramp back up production and as we look to win for the years ahead. But there are undoubtedly some learnings or tweaks against that that we've seen over the course of the last couple of months. So if I just describe growth, first of all, we think we're very well-primed to return to growth in Food to Go as the economy begins to open up. I think there is a window in the next 12 to 18 months for food to go within grocery to capture disproportionate share from other Food to Go channels because of the trust and hygiene credentials of those stores. Although I do think more broadly and in the longer term that broad channel diversification of Food to Go will return. I think the opportunities to execute category diversification in Food to Go and snacking the kind of stuff that we've learned and are benefiting from Freshtime will remain important. And undoubtedly there are going to be other strategic opportunities that emerged to Greencore that we need to think about proactively but also in a disciplined way as the kind of months and years unfold from here. From a relevance perspective, I think distribution will become more important. We made significant investments actually in the first half of the year, I mean the new distribution capability into Tamworth and a new distribution customer for our group on the back of that. I think the ability of us to use our distribution capability to support direct-to-consumer, direct-to-workplace offerings be that click and collect or workplace or format-specific solutions I think will be important. And then I think the other thing that we've really learned here is the relevance of the breadth of portfolio that Greencore has, the food for later product propositions alongside our Food to Go propositions and how they work with each other. And finally just in terms of differentiation just to highlight as I referenced on the previous slide here, some of you will have seen us talk about and signal the role that automation and structural productivity in sandwich assembly is going to play for us going forward. And I think everything that we're seeing from a hygiene perspective, from a safety perspective, and from an economic model perspective reinforces the benefit of us continuing to drive that hard. And in all of the initiatives that Emma described earlier in relation to capital what we haven't done is skimp at all on the investments into structural automation and structural productivity and I think we'll continue to push that. So if I can just finish then on slide 24. On the left-hand side of this slide are the four themes -- four principles that I described earlier, which is our business has already resized and is in a nice economic shape notwithstanding the falloff in revenue. We've demonstrated again that we have the flexibility and insight into our model to adjust us wherever we need to bring us depending on changes in the consumer environment up or down. The relevance of our portfolio and the relevance of our business to customers has been enhanced and the plans that we have in development are going to be highly relevant to that. And we've got the resources liquidity and leadership to work our business through both the lockdown phase and all of the different build back scenarios that Emma referenced in her comments. So, I think what you'll see as we go forward is that, as we build back our business and build back our business for better, we will bring back a simpler, more productive, less complex business in terms of the production processes and range that we have in the market. And we will do that while embedding many of the principles of social distancing that we've put in place during the ramp-down to protect colleagues, to keep people safe and to maintain hygiene standards. I suspect many of those would be in perpetuity, but most of them will be in situ for the next 12, 18, 24 months. We see significant opportunities for product and channel expansion as we build back. We're going to be very conscious of our balance sheet, we'll manage our liquidity tightly and we'll be disciplined around where we strategically invest. And we will not only build on the resilience of our business, but truly embed our sense of purpose in everything that we do from here. So, that's our -- there's a lot that's happened not only in the first six months of the year, but in the near two months since. As I said, the half one was trading in line with plan until the COVID impact and it was modestly disrupted after that. We've then seen a very, very significant impact from COVID-19, but I think as a business, we've responded comprehensively, rapidly and effectively to that. We've put in place the balance sheet strength, the liquidity and the financial flexibility to manage our business through whatever scenario unfolds from here and we're already working collaboratively and intensively with our customers on a whole variety of plans to build back our businesses. So, thank you for listening to us for the last 50 minutes. And with that Emma and I and Jack and Gary are happy to take any questions from the call.

Operator: Yes sir, thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And we have a couple of questions that came through sir. Your first question comes from the line of Jason Molins. Your line is now open. Please go ahead.

Jason Molins: Hi, good morning. Few questions if you don't mind. Just in terms of the commentary around modestly positive from an EBITDA perspective, I guess through May. Just wondering, sort of what sort of drop-through that implies and how should we think about that trending over the second half or the next sort of four months of the period, given the various mitigation measures that you have in place. And second question really I guess Patrick, you briefly mentioned sort of likely consolidation opportunities, strategic opportunities, whether that's within your existing core products or do you see outside of that, just wondering, if you could put a bit more color on that bearing in mind recent news articles referencing some of your competitors in the marketplace that you've been mentioned alongside as being a possible interest for you. And then sort of finally, in terms of the catalysts for returning to growth particularly in food to go, where do you see those coming from given the various easing and measures that we're seeing, but bearing in mind, I guess restrictions that workplaces are putting on some of their workforces in terms of returning to work and various protocols that are being put in place at the moment? Thanks.

Emma Hynes: Thanks, Jason. It's Emma. Look, I'll take the first one of those and then Patrick will deal with the other two. I guess, it's quite unusual where we are to be talking about how we've traded through April and May and to be at this granular level, but I think we would all acknowledge that we're in pretty unusual circumstances at the moment. And the reason we're doing that is, because it's so difficult to forecast and we have and still remain in a position where we've withdrawn guidance from the market because, forecasting is too challenging. We've run our scenarios and taken all of the steps and to implement the measures we talked about regarding liquidity to respond to that. But I don't think, we can really be explicit on what that means for the rest of the year.

Patrick Coveney: Yes. I mean, I think all we were flagging here and it will be relevant to the -- your final question on growth is that, as current volumes, the business is by which I mean lockdown volumes, the business, net of everything we've done is modestly positive on an EBITDA basis. And that's really all we can say because everything else gets into future guidance. I mean, in relation to investments Jason, I mean we're -- I flagged in the presentation the -- that while we have been appropriately disciplined in pruning back strategic and capital investments for the year based on what's happening to volumes and the uncertainty there, we have prioritized this continued investment into some of the automation areas, most particularly around sandwich assembly this -- we would have shared in outlined terms at the Capital Markets Day back last September. And as a business, clearly, our risk appetite around strategic investment will be tighter now with volumes where they're at. And our management and leadership priority has to be doing a really, really good job in building back volumes as the economy begins to reopen, reintroducing SKUs correctly, bringing thousands of colleagues back as we reopen the sites and units that are temporarily closed. And that's really the key area of management emphasis. If there are things that we can do that are modest in nature, that are a very good fit with our strategy and where we can have, kind of, clarity on the returns that are available, then we'd be biased to want to look at that. I think, it would be our job to do that, but we have to be confident that any such investments met that kind of criteria and they weren't coming with consequences that compromise the liquidity of the group or the ability of the group to do a really nice job in ramping back our business. Finally then, your third question, which is on growth from here and what are the kind of catalysts from here. So, first thing I'd say is that, there is positive momentum on volumes anyway, as we referenced as you're in the -- we're in the very early stages of the release of the lockdown and as people are kind of finding ways to live in and consume food in the current environment. I mean, one of the -- might sound almost a little bit kind of warm and fuzzy in my comments earlier, but like -- we are observing, consumers are frustrated with some of the taste restrictions are bored or having to continue to make food day after day for every meal time at home. And so, there is a desire to access food prepared out of the home in one way or another. But if I was to cite, what I think the big catalyst will be for strong further growth from here, it will be more people going back to work and the change in family behavior associated with kids going back to school. And so, as that unfolds in various ways through different sectors, regions, timetables over the course of the summer and into the autumn, you'll see volumes in the food-to-go area come back and come back strongly. I think we're cautious about not so much that they'll come back strongly in the near term, but how long it might take to get back to pre-COVID volumes. And I think our best judgment, but it's a little bit more than guesswork, is that we're probably 18 months or so away from getting to that kind of level. But the initial step-ups, I think, through summer, autumn, winter this year will be very material, relative to where we are right now.

Jason Molins: Okay. Thanks very much.

Operator: Thank you. And your next question comes from the line of Arthur Reeves. Your line is now open. Please go ahead and ask your question.

Arthur Reeves: Good morning. Thanks for taking my questions. They're pushing you further on what's happening now and what might happen over the next few months. You say that consumers are getting bored with making food at home. Have you seen any change to ready meal consumption? And how do you see that playing? And then in your scenario analysis, my second question, in your scenario analysis, have you factored in that when food service outlets open again, the retail sandwich, retail food-to-go sales might fall further? I'm just looking at what you see is your worst-case scenario in your planning. Thanks.

Patrick Coveney: Yes, Arthur, let me jump in there. So, I mean, overall, the kind of the collective set of food for later products, right, of which the two biggest product areas are ready meals and cooking sauces; overall, they've responded positively in terms of growth for us in the six or seven weeks since the end of the first half. So to be honest with you, they've been quite varied week on week. If I was to be just a little bit more detailed on the ready meal piece of that, I think, in general grocers collectively have been a bit surprised. There hasn't been a broader uplift in the totality of the ready meal range than there has been. And I think many of you would have seen some of the industry data in that regard. We found that Italian has done quite well, which is the core of what we do. But, as I say, the combination of ready meals and cooking sauce for us is being a net positive in the six or seven weeks since we went into the second half. In terms of the scenario and I assess from here, I mean, I think, there are so many different factors here. I mean, bear in mind, the Greencore customers do play in food service broadly defined channels. So, I mean, we have lots of our products that sells in airports and train stations. Many of the city center convenience stores are in effect food-to-go specialists that serve workers who are in office locations. Many people I suspect on this call would often work in City Central, London and would know the role of M&S Simply Food and Sainsbury's Locals alongside and competing with people like Pret and Greggs and so forth, and the coffee shop channel as well. So our sense here is that, the impact of people coming back to work on overall volumes in the channel will more than offset any increased competitiveness, as aspects of food service begins to open up, but we'll have to see whether I'm right on that. And one of the particular things that I think we're cognizant of is that, actually, if the social distancing requirements of food preparation and food sale are going to make it massively challenging for many of the City Center food-to-go specialists that do elements of that food assembly in store and I mean I don't want to speak for each of them individually, but delivering the kind of two-meter type gaps and managing queue flow and distance for shoppers is going to be just a massive, massive challenge for food service. And so I think you -- as part of my comments earlier and I don't want to be too definitive about it, but I think structurally, the food preparation model of the food to go formats of grocers and the selling and shopper engagement model that they have in a world where social distancing in some form endures for the rest of this year and into next year, I think they're much, much better set up to be able to deliver that than some of the food service competitors that they have.

Arthur Reeves: Thank you.

Operator: Thank you. And we'll now take our next question and this comes from the line of Karel Zoete. Your line is now open. Please go ahead.

Karel Zoete: Good morning. Thanks for taking the question. I have three questions. The first one is on online e-commerce. You mentioned already that your customers did well. What have you done in order to adjust to the new reality? Because part of your products you're selling are obviously on e-commerce. So what actions have you taken to boost your own e-commerce business? The second question is on SKU rationalizations and reductions you flagged that. Since the business has been improving a little bit how -- what percentage of SKUs have been relisted again? And more broadly, what's been the story here? And then lastly on working capital, you have a negative working capital, but now you're confronted with a big drop in turnover. How is that impacting your working capital position? Thank you.

Patrick Coveney: Thanks, Karel. It's Patrick. So let me take the first two questions and Emma will jump in on the working capital question after that. So I mean what -- in terms of online, so I mean what we're seeing is our customers are pretty much running their online business at capacity. So whatever they can -- whatever they're able to put through the online solutions, they have whether that be delivered to home or a click and collect model they're running pretty much at full capacity there. And our sense is, it's almost doubled in terms of the aggregate level of sales that are going through that channel at the moment. Now for the most part, those product ranges right now are food for later product changes. So we're seeing it being relevant to things like our cooking sauce business, our quiche business, our ready meal business and it's not playing any particular role at the moment around our sandwich sushi or meal salads business. Now I think as you look forward, that may change somewhat as -- and certainly a lot of the initial engagements that we're having from our customers around how to think going forward would bring into focus things like distribution solutions for workplace catering, if people want to order things like sandwich platters to work where again bear in mind that this is playing to this trend of hygiene alongside convenience and trying to remove the risk of people queuing in close proximity to each other at very busy lunchtime stores. So I think that's where distribution might begin to -- and distribution models might begin to become more relevant for our food to go business going forward. All that being said Karel, I think it's a fair challenge for businesses like ours and many other own label suppliers into U.K. retail which is as online and e-commerce becomes more and more important what level of kind of category insight and specialist support we're providing to that channel whereas in the past I think for the most part we've let customers get on with this and support them through traditional account teams. On SKU rationalization, yes, I mean what -- I mean the two big factors behind the SKU rationalization work that we've done were one resizing our food to go ranges as demand fell. And that was partly to do in kind of what I might think of traditional -- buy a pre-prepared sandwich in a supermarket and needed elsewhere where we've got like tighter ranges than before. But also bear in mind, that we would typically have provided lots of the food to go products for in-store coffee shops and restaurants and things like that too, which was just simply all have been closed through this period. And so, we've seen some ranges come out entirely and some ranges being narrowed. What's happening through May is products are being relisted, and so we're nowhere near the total SKU count that we would have had in our food to go businesses as of two months ago. But we've got quite a lot more SKUs back in-store now than we had even three weeks ago. And that would be part of going back. But we've got to do that thoughtfully both from a what's the production process inclusive of the social distancing and safety requirements in our sites, but also what to -- what's going to flow through efficiently through the distribution network of our customers. But then the second area is, if I take our cooking sauce business where volumes have been up very markedly through this period, there we tightened range in order to increase production capacity, so that we could meet the demand. And again, we want to be careful about bringing products back that actually restrict our ability to maintain the very, very high levels of factory efficiency that we've got there. So they are the points, I'd make on online and SKU rationalization. Emma, do you want to talk about working capital?

Emma Hynes: Yes. Karel look I mean, you're right to ask about working capital. It's an important area of focus for us all the time, not just right now. We do have a negative working capital profile and that has always been seen as a strength and a positive. As volume has gone off, we have generated cash which has been really positive. But as the volume came down, we did see an outflow in working capital, which is why now it's really positive for us to see that start to tick back up actually with the anticipation of that reverse in trends coming through.

Karel Zoete: All right. Thank you.

Operator: Thank you. And we will now take our next question and this comes from the line of Roland French. Your line is now open. Please go ahead.

Roland French: Hi, thanks. Good morning, everybody. So I've got maybe three questions if I could. I guess firstly, so I'm trying to work through the numbers and the current run rate you've spoken about volumes being back 40% and EBITDA kind of broadly positive. Can you clarify what the impact of the furlough scheme is within that? And maybe a little bit of color in terms of how many employees are currently furloughed if you're available to talk to that. Maybe it's for you Patrick. Just kind of stepping back and you think about your own long-term growth model whether it's organic and M&A. What's your views on the kind of potential permanency of consumers' consumption and working habits change? So I think for myself it's more work from home. There might be a propensity to avoid private places and queues, use online delivery service, et cetera. So a bit of one conceptually but two maybe how you're modeling it insofar as your October 2021 month for reaching that 2019 run rate. And then maybe finally just around your interaction with the retailers. How much visibility do you have, or how much visibility do you typically have? And if you can how are the per unit economics tracking? So clearly there's higher waste levels production costs longer production reduction in SKUs, which you've mentioned in terms of the rationalization piece. So I'll leave it at that.

Patrick Coveney: Yes. I mean your first question on furloughing. So I mean, we've used furloughing consistent with the – broadly with the changes that we've done to our production network. So I don't want to be drawn specifically on the number of people furloughing in part because it's changing all the time and actually as we're – in particular now as we're starting to bring people back, getting ready to reopen some of the units or plants that we had closed in early April. So we're using this – it's been a very helpful tool. And – but the critical thing for us as we look forward is how the market begins to come back and our ability to bring units and sites back into production through this year and we're working that tightly. But it's undoubtedly been helpful in terms of how we've – of how quickly we've been able to respond and also how we've been able to maintain the relationship between colleagues who are furloughed with everybody else through this period. I mean, Roland, on the long-term model, it's just so hard to be certain about what's going to happen here. I mean, I think our judgment is that in the medium to long-term that food on the go, out-of-home food consumption in a world post a effective vaccines or antiviral treatment for COVID-19 that type of food model will remain a very important part of the overall food industry. How quickly we'll get to that? I don't know. What role different types of channels or subsets will play in delivering that I suspect that will tweak somewhat and we'll just have to be alert to trying to do that. I mean we have to be careful here having very explicitly and formally withdrawn guidance in being too clear here. But what I would say is that the mood in our business is that you will see pretty pronounced upward movements in volume from where we are right now but that it's going to take some time to return to pre-COVID-19 levels by which I mean, I don't see that happening by the end of this year or perhaps even for FY 2021. So the – it's the best I can say there. In terms of retailers I mean we're – I don't think we're the only people who do this but the nature of our relationship with customers is that we're absolutely entwined with them. And what's been reinforced through this has been the role that that kind of key value-added own brand suppliers play in the – not only the availability of products but in the overall economics of their product mix. And so we're – as I mentioned in the presentation, we're the kind of business and the kind of business model that can be really flexible because we're make-to-order and not make-to-stock business and so we're able to tailor orders very, very quickly. And one of the things that we have to do through April and early May was, we had to get the economics of these categories working at different demand levels whether that was way more cooking sauces or way less sandwiches and we've done that. But what we've also got to do here is work with our customers to recognize that mix was a really important contributor to their overall economics and they've got to bring the kind of attractive elements of the kind of role that our products play in their economic model back. And that's a big part of why they're as engaged as they are with us on the build back plan.

Roland French: Okay. Thanks. Got it.

Operator: Thank you. And we will now take our next question and this comes from the line of Martin Deboo. Your line is now open. Please go ahead.

Martin Deboo: Yes. Thanks. It's Martin Deboo at Jefferies. Patrick and Emma, I appreciate you can't give guidance, I completely get that. I wouldn't presume to ask you what you think the duration of this is going to be or the ongoing volume impact. But I think two questions, one can reasonably ask to assist forecasting and they've sort of been asked before but I'm going to push you as hard as I can on them is, what is the drop-through margin you're seeing? What is the conversion rate of lost sales to lost profit? And secondly, just on your remark that you're EBITDA positive what – are you operating cash flow positive by which the difference between the two being CapEx net working capital, cash interest, cash tax et cetera? And if you're not positive then what is your cash burn rate at the moment? Those are the two questions.

Patrick Coveney: Okay. Rather than stonewall you myself Martin, I might ask Emma to stonewall you here, so I'll put her on.

Emma Hynes: Martin, I wouldn't describe it as stonewalling. I know the challenge that everyone is having on forecasting. It is difficult of course. But I suppose -- you mean you could think about it in terms of sort of fixed and variable costs in the business. And I think we say about 70% of the costs are variable. Quite a large proportion of that is ingredients and packaging costs. But then there's also a labor component of that, which was what we didn't get at the start of March. And it took us time to actually get at that cost. And take it out of the business through the use of furloughing initiatives and building -- well reducing the number of facilities and units that were in production. So we did that. And then, from a fixed cost base perspective, we've also done a lot of work to manage that down, which is what Patrick would have talked about in the course of describing the initiatives. So we will have also furloughed additional people from the fixed cost base. But we are also really, really closely monitoring all areas of spend. And making sure that only critical business expenses are incurred and that's around people, managing vacancies of the business, it's around some of the variable license consumables, its training, its T&E. I mean, it's everything across the business. And all I can do is say, we're managing that tightly. And we have taken a proportion of the fixed cost base out of the business as well. If we talk about cash and where that leaves us, I think, you're right, I mean we need to look at the cash flow statement overall. So if we're modestly EBITDA positive then what are the other components of spend? Well, CapEx, we have reviewed that extensively. And we have switched off all projects for the key essential ones for the year. And the one we are prioritizing is obviously the automation, which we've talked about. We do have spent on leases, we do have spent on pension contributions, but we have deferred those where appropriate. And working capital is the one that will move depending on when revenue comes back into the business. I mean that doesn't give you precise numbers, but what you describe as cash burn, we don't see significant numbers. We might see several million of an outflow, but that entirely depends on when volume comes back into the business and the ramp-up of working capital.

Martin Deboo: Okay. That wasn't stonewalling. That was very helpful. Thank you.

Operator: Thank you. And your last question comes from the line of Nicola Mallard. Your line is now open. Please go ahead.

Nicola Mallard: Thank you. Just a question really about the rebuilding process that you've talked about with volumes now starting to edge back up, how lumpy is the cost base likely to be in terms of bringing some of the snack food or temporarily closed facilities back on? And the workforce associated with those? And I suppose following on from that as well given that you're sort of flagging that you don't expect to see volumes back at the pre-COVID levels for maybe 18 months, 24 months. I suppose it begs the question of what happens to the furlough scheme, at the end of October, if the government is probably unlikely to run that for 24 months. But could we see another issue in terms of EBITDA negative when you're suddenly, obviously having to pay some of the staff cost to sell?

Patrick Coveney: Yeah. So, Nicola, just a few different pieces to it, so I mean on the -- how long the costs are coming back. I mean, a little. But I don't think its material in the context of how we'll be doing it. Certainly, we would prefer, a scenario of volume coming back and us having to kind of accelerate a series of site -- unit or size shift units and then site re-openings. And to be honest, we don't have what I would describe as sort of material lumpiness in that. There's -- I think it will be reasonably smooth provided. We do it well coming back. The first thing I would say. I mean on furloughing, I mean, just -- it's worth just bringing a couple of things in mind. So I mean, as a business we would also have a reasonable level of temporary or agency labor in our business as well. So the -- so I think there'll be some headroom there to -- as the furloughing scheme ends to begin to kind of smoothly manage our way through that. Certainly, our hope would be that, we will have some version of production in the sites that we have temporarily ceased production in, by the end of this year with very large numbers of the people who were working for us back in some form or other. But exactly how that land, we'll have to see. And I think the -- as I said on the earlier call, we've been very, very consistent in acknowledging the effectiveness of the furloughing scheme for managing that ramp-down and managing that ramp-up. But I would be -- I'd be very clear that the likelihood of it being extended in any meaningful or comparable way beyond the end of October. I suspect that's unlikely given the sheer cost of this check or others.

Nicola Mallard: Okay. Thank you very much.

Gary Kennedy: Okay. Listen honestly, we've run on for one hour and 25 minutes. Thank you to everyone for joining. We -- there was a lot that we wanted to get through. Because we're in effect not only reporting on the first six months, but trying to give as much clarity as we could on what's the impact of COVID-19. How we've responded to it in the near-term and how we've set our business up for the medium-term against that. And hopefully that was helpful. Thank you also for the questions. And we look forward to talking to all of you soon. Bye-bye.