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Earnings Transcript for GNC.L - Q3 Fiscal Year 2021

Jack Gorman : on our website as of 7
Gary Kennedy : Good morning, everybody. Thanks Jack, and very much a big hit. And the norm [Indiscernible] It has been a very challenging I would say energize year product with Greencore [Indiscernible] in that year '21. have been extremely impressed with the resilience of the business, endurance, strength [Indiscernible] and multiple [Indiscernible] are $13, 000, resulting to [Indiscernible] I would like to thank everyone for their [Indiscernible]. Of course, you are aware, we announced the 3rd [Indiscernible] in Greencore, and in March 2022, [Indiscernible]. has been an outstanding leader for over 17 years in the business. [Indiscernible] CEO. Please consider the normal [Indiscernible] over the period [Indiscernible]. They have helped deliver the growth needed to [Indiscernible] and perhaps [Indiscernible] for sensitivity. On a personal note, I would like to recognize expense, parts, and relationships, a topic that I myself have enjoyed. And has expanded to many hiring’s and some significant challenges over that period, and will be printed over two mg per meter plan to comelier but again that is. As you would expect, we activated our contingency plan immediately upon the news. I will take a more active role in the business and will assume the role of Executive Chair from the 31st of March of 2022. And I'm delighted that our Chief Commercial Officer, Kevin Moore, has assumed the role of Deputy Chief Executive. Probably most of you know Kevin. Kevin is here. Those online obviously can't see him, but he's the good-looking guy on the right from the chart, with his name underneath it. So, between Kevin and myself, we will manage the transition seamlessly in the intervening period without the benefit of Patrick continuing to lead the executive team as CEO. We've also initiated the search process immediately to appoint a new CEO, and we will update you on progress as soon as we have it. So, with that, Patrick, I will hand over to you in terms of financial year for more highlights. Thank you.
Patrick Coveney : Thanks, Gary, and thank you for your kind comments. As you said -- as you say, hopefully we will have plenty of opportunity between now and the end of March to -- you and I and for the wider business to reflect on my time here. That's not the purpose of today. The purpose of today is to talk about the 2021 results and to set out how the business is currently trading and what that means for outlook for the year ahead. I mean, in that context, I want to thank so many of you for coming in person today and the -- for those of you joining by conference call, we have about 25 people or so in the room here today. We've got everyone here safely. I think people are learning how to take [Indiscernible] tests, travel safely, but people are getting back and being mobile again. That's good for all of us individually. It's also good for the Greencore business. And in that context, we were very keen to have the results session today, we held physically rather than just virtually as we go forward. As Jack said earlier, this presentation builds on the Greencore results which were released at 7
Emma Hynes : Thanks, Patrick. And good morning to everyone. It's my second year as CFO of Greencore and this is actually the first time that we're doing this in person, so it's really great to meet all of the analysts in person, and have everyone here. And look at FY2021 was really a year of two halves for all. My focus has been on managing the cost base, cash flow, and liquidity carefully through the Half 1 so that we could ultimately support the exciting growth that is now materializing and has come through as we've gone through the second half of the year. So, look in this regard, I've highlighted the key financial metrics on Slide 9. So, some brief recollections on reflection belief, even before diving into the results in more detail. So pro forma growth is back in positive territory driven by food to go in the second half. Adjusted operating profit of $39 million was at the top end of our guidance, so we're happy with that performance. And that drove adjusted EPS growth despite the increased number of shares post the equity placing in November '20. Greencore followers will already know the cash generation is a particular priority for me as we grow back the business. So, after a period of cash protection during peak COVID, it was good to see this emerging in Half 2 '21. And we made real progress on deleveraging 2 times net debt to EBITDA was a little below average level before COVID. And that's approaching FY2019 level, which was 1.8 times. So, we're really pleased with that trajectory. And finally, while ROIC instill well-below historic levels of profitability recovers further, this should progress well from the FY2021 baseline. So, moving on Slide 10, the detail of the full-year income statement. And with the UK and some form of lockdown for most of the first half of our fiscal year, the 4.8% revenue increase, which was 6.2% on a pro forma basis, was a resilient performance in what was a tough market. And this growth was driven mostly by our food to go categories. And after its first half, where we were effectively break even. So, 0 margin and we started to improve profit conversion offer, recovering revenue base in the second half. So, half 2 margin was 5.2% and we'll explore the drivers in more detail in later slides. Our adjusted operating profits rose by £6.5 million, and we held on to most of this increase at the adjusted PBT line after a small increase in non-interest finance costs. The exceptional gain of £12.1 million this year was primarily the result of a profit on disposal of the molasses business in December '20. And from an earnings perspective, we reported 5p basic EPS and 3.70p adjusted EPS, which is some improvement off a very low base in FY2020, despite the increased number of shares and issue in the periods. On the next slide, a look at our revenue performance. So as a backdrop, we have to manage through a volatile UK trading environment during the period. And we felt this most in our food to go categories where demand was constrained by the impact -tiered restrictions and subsequent lockdowns across the UK, which persisted for most of the first half. As the UK economy reopened gradually from March onward, our performance improved given our strong food to go presence in the grocery retail channel, and also the onboarding of new business wins. And you can see this very marked divergence in performance Half 2 versus Half 1 in the table at the bottom of the slide. We executed strongly against new business wins, and this is a much more prominent contributor towards the end of the year. And I'll discuss that on the next slide and in food to go categories in particular. And more generally, in food to go, we saw year-on-year growth in sandwiches and in customers with a balanced mix of urban and suburban locations. The worlds of several moving parts in the 2% advanced in full-year revenue from other convenience categories. So, we had good performance in ready meals and that was offset in cooking sauces that was against a tough comp in the prior year. And we also had a better second half from Irish ingredients, which is commodity price driven. And now on Slide 12, just diving a little deeper into the new business wins, we on-boarded several new customers and several new pieces of business from existing customers over the course of FY2021 and in particular, in Half 2. So, when we look at Q4 performance versus FY2019, our food to go pro forma revenue was 2% behind, in other words, 98% of pre-COVID levels. So approximately 88% of that was underlying market recovery, and then the remaining 10% of this was contribution from our new business wins on-boarded through the year, and more than 1/3 of that is in our distribution business and indirect store. So, if we look at this another way, based on the Q4 run rates, the annualized revenue from these on-boarded new business wins in food to go is over 100 million. There was a small portion of wins in the convenience and that would bring the annualized run rate based on Q4 to about a 120 million net back could overstate the run rate a little bit as we're using the seasonally strongest quarter, but nonetheless we're really happy with these wins and how they're onboarding to date. And as we've highlighted some of the key areas of our wins on the right-hand side and we can talk through those in a bit more detail in the Q&A. Now, if we just turned profitability on the next slide. So absolute profit increases in Half 2 are marked in the red circles, which highlights the better profit conversion as volumes began to increase. And while we focus internally on the absolute levels of our adjusted operating profits delivered for [Indiscernible]. It is important to note the margin outcomes and mainly that's an 8.8% EBITDA margin in Half 2 and it's 5.2% adjusted operating profit margin in Half 2. And as we note in our statement today, adjusted operating profit is after specific COVID-19 related costs of about £5 million, which were incurred, in the most part, in Half 1. And finally, here 1 point to reiterate is the new business wins have a margin mix effect in that a sizable proportion of these are in our distribution business, our DTF, which is direct store and that comes with lower a lower margin. Now, if we just turn to Slide 40, which outlines the waterfall of free cash flow movements in FY21. The two key drivers of our free cash flow were increased profitability and the substantial working capital inflow in the period. The working capital inflow reflected the phased effects of a volume increase during the second half. And just to remind people the nature of our Food to Go business means increasing volumes, results in cash inflows from what's the negative working capital cycle. There was also year-end effect, which is a benefit based on the timing of year-end that will unwind in FY22. Our maintenance CapEx was broadly in line with FY20 levels, so some of this is phasing as it moves into the first half of FY2022, and the other line items are much as expected, which resulted in free cash flow of £72.2 million. And our free cash flow conversion rate was 78%. And this was to some degree assisted by the phasing. It does outline the cash generation power of the business and underpins our longer-term targets of converting at least 50% of our EBITDA to free cash flow. flow, so we're pleased with that performance. And if we bring all of this together into net debt, it was £167.4 million reduction in net debt excluding lease liabilities in FY2021. So strategic CapEx was £24 million, which is up from £13 million in FY2020 as we began to revitalize our excellence agenda and in particular, the roll out of our automation program. So, in FY2021, we commissioned and installed modular robotic solutions across 15 lines in 3 of our food to go locations. And that was focused in particular on the high-speed sandwich skillet lines. So, what we were doing was focusing on the more labor-intensive tasks, including leading, which is placing a top slice of bread to close the sandwich, turning, which is adjusting the sandwich 45 degrees to an even triangular cost to ensure that it cooks evenly, and then matching, which is placing 1/2 of the sandwich is on top of the other before it gets packaged. We also accelerated our investments in CapEx in Half 2 and we'll do so further in FY2022, which is supporting our new business initiatives. We had talked about the £30 million capital investment to support ongoing new business, which will be on-boarded in late FY2022. So, we'll be progressing that further in -- on some of the spend on that £30 million has been deferred into FY'22, actually, but that will come through in the first half. And in November, we completed a very well portioned equity placing. And on that rate and £87 million. So, while we also completed the sale of our interest and our molasses business, and we disposed of an investment property, which also generation further proceeds. So, where we landed as a result of all of this, we ended the year with net debt excluding leases of a £183.1 million, which compared to £350.5 million, at the end of our last fiscal year. So really, really pleased with where that leaves us. And if we just look at Slide 16 and our balance sheet and liquidity position, so strong deleveraging has occurred, which Patrick referred to at the start. So, 2 times net debt to EBITDA, which still approach FY2019 levels. We securely exited the covenant waiver periods. We increased our liquidity by over £200 million year-on-year. So, we now have £433.6 million at year-end, and post year-end we extended the maturity of our revolving credit facility. Our average maturity on debt facilities is now 3.4 years. We've also made really good progress in our pension funding plans, with our 3-year plan agreed on our primary UK scheme. There was also an overall reduction in pension liabilities as we closed schemes and consolidated our Irish liability so really pleased with the progress, we're making on managing those legacy. Defined benefit pension liabilities. We're anticipating more deleveraging this year, so that allows us to think a bit more expansively about our capital base and capital allocation more generally. And as Patrick said, our intention is to recommence value returned to shareholders this year. And on to pinning all our thinking here is reaching an appropriate leverage level for a business of our size and maturity in our type of industry. So, we have a bit of work to do to get there but it will be the guiding [Indiscernible] for us, as we think about capital allocation. We'll balance the investment needs of the business with the capacity to return surplus cash to shareholders and on the Board will continue to assess these internal factors as the year progresses. So, in conclusion, we've achieved a loss in FY2021 in very challenging market conditions. I would reiterate what I said in May at the Half 1 results. Our focus now is to manage the revenue rebound in the first instance, and then ensure we drive profit conversion and cash generation efficiently and effectively back to pre-COVID levels. Our supply chain and labor availability challenges also need to be navigated. And if this is a key focus for us in the Company going on. We're well set up to achieve this through FY2022 and beyond. That concludes this section. I'll come back in for us, look at the end but for now, I'll hand back to Patrick for the operation and strategic review.
Patrick Coveney : Thanks, Emma. For people following me on the conference call over on Slide 17 now, so I wanted to essentially be forward-looking for this strategic and operating review because Emma 's really set out quantitatively how we've done in the period. And of course, as we've seen, particularly over the last four or five days, and we're all going to have to stay used to living with COVID. It's going to remain an impact on our personal lives, our family lives, and how we work. But what I would say in the context of Greencore is that the -- our experience over the last 20 months or so, is that we have the resilience, the agility, what I've described as the kind of muscle memory in terms of knowing how to flex our business down and up, and how to manage our balance sheet and cash position through all of that, and also the sense of purpose to drive through this regardless of what will happen. I would also say that from a -- in the very near term, and I'll touch on this more in a few minutes. We actually have a reasonable level of what I would describe as revenue headroom and associated within managing our way through COVID. What I mean by that is the way we are running our business at the moment is actually constraining demand. We're choosing to make decisions around range and that is maximizing output but it's leaving a certain amount of revenue on the table. So were the market to fall 5% to 10% or so, in terms of them because of COVID mitigating public health measures, we actually could absorb that with little if any impact on Greencore revenue. And I'll say more about why that is in a second. So, the 3 things that I'm going to touch on then are
Emma Hynes : Thanks, Patrick. Look, I'll just briefly bring this together on Slide 25. So, look, overall, when we think about the outlook for FY2022, we've had an encouraging start with the demand backdrop being pretty strong. We're progressing well on inflation recovery, but as Patrick said, that number is a moving target. We're working hard on this and progressing well. The challenges do remain in supply chain and labor and that's not just us, it's across the whole industry but we are anticipating in FY2022, I'll turn in line with market expectations. We expect to deleverage further, as we go through FY2022, and we are committed to what is a dynamic capital management model. We've strong positions in our markets and we're confident about our medium-term prospects. So, thanks again to everyone for participating and for being here in person today, and we'll move to Q&A now.
Q - Clive Black : Clive Black from Shore Capital. Thank you for the presentation. Really distinctive, specifically moving parts you talked about there, Patrick, as someone who has looked in the industry for a long time. I just wondered, in terms of price recovery, where you stand on capacity alongside demand in the market. And also, what that means for potential volume and mix with the magnitude of inflation you're talking about needing to be recovered. And it was at the inflation and the market that showed the product is very distinct. Thank you.
Patrick Coveney : Yes, just to -- so first of all, if you think about the pop through, if we have had 12% total inflation, we passed it through all in price. That's about 6% to our customers, and that's just the nature of the markup, right? It's about 100% markup for our customer, so. And what we feature this inflation relative to the only equivalent period 5 in my 10-year enroll of very high inflation, which has bench of 2008 and 2009, is then it was all about raw materials. Whereas here, it's probably about 40% to 50% about raw material, but actually labor, utilities, distribution is a very, very pronounced elements here as well. Which, of course, is a, traditionally -- is a different than traditionally trickier to recover in price through the UK food system or indeed the globe food system, which has to be that type of inflationary pressure, but isn't then raw materials would be recovered through either supply chain efficiencies or through operating leverage associated with growth. And in this particular instance, to be candid, getting the supply chain efficiency, given the sum of the supply chain constraints and dealing with those pressures through incremental volume, given the fact that everyone is pretty full, is not possible, so you have to get it through price. And that's the investing environment and context in which our teams are engaging with customers, which is it has to be done through pricing. And that's how we're implementing at the moment. Without getting too much into the tactic solid, 2 findings I have observed. First of all, the industry is pretty full. So, the available capacity in the industry for others to pick up incremental business or for us to pick up incremental business from others right now is pretty limited. And, of course, that's partly a function of what I might call the notional machine capacity of our sites, which are fuller than they've been for a while. But it's also a function of the labor markets, right. And the ability to actually -- even if where you have machine capacity to source the incremental people that you would need in order to be able to take on lots of new business. By the way, we know we're taking on more business, because we've got the ramp up of that [Indiscernible] solid business and we've got the incremental M&S cost of business. So, we -- we're having to plan for that from a labor perspective, if in any event. And then the other effect here, which to-date, where -- I'm going to use the term, relatively relaxed about, is of course, there probably will be some elasticity effect from this level of change on the assumption, which I think is a reasonable than in the end, consumers are going have to pay more for food. And the reason I'd say we're relatively relaxed about that is not that we don't care about providing good value through to consumers. We really do care about that because it's often easy in environments like this in Central London with people like were talking to hear to not actually have empathy for the huge portion of the UK population for whom food inflation is going to be a serious stress on their lives. And so, we do feel a responsibility to have a range that's relevant to everybody and not just people who can readily absorb inflationary increases. But actually, if we were to see some elasticity effect associated with this extra pricing, given the fact that we're having to somewhat constrained demand anyway, it doesn't feel like it's going to be a materially economic like effect for us. And so, we're in -- that would be our current sentiment in regard to inflation now. So, this is a big, big task and we knew coming into the year, there was going to be a big task, and it's got bigger, because the view we had when our teams, led by Kev, put this in place was very serious, sharp, material intervention in quarter 1, we'd lock it away and then get on with things. And what's happening is we're going to be -- we're going again for a second time in quarter 1, we're going in quarter 2 as well. And that's just the context of what's happening given the inflationary pressures across all media different areas. Martin.
Clive Black : Thanks, Patrick. 2 for me. Just for [Indiscernible] Thank you. This 5 to 10 is missing demand. I want to understand what the constraint is, Patrick. And you've positioned it as a sort of downside mitigation, but is it symmetrical or asymmetric, if [Indiscernible] concerns turn out to be a flash in the pan and the businesses starts going up. Does that mean you've got very nice operating leverage on that 5% to 10%? Does it mean you suddenly need to start change cost to services? I wanted to understand the marginal economics of the business around that 5% to 10%. The longer-term question, just thinking about should we that being a strong point, if I may, is just what are your thoughts on the margin and return potential of the business, assuming a return to normality if we just positioned the H2 numbers, margins of 5.2, probably an H2 [Indiscernible] away provided a high est single-digit. I think pre-COVID you were 8% return on sales and mid-teens. What -- Given that H2 was within range of pre-COVID levels on the revenue line, what's explaining that 200 but is it COVID on costs that will go away? Or is the structural profitability of the business in some way degraded? Perhaps because of DST mix so, or something like that?
Patrick Coveney : Okay. I'll deal with the first one, just a couple of higher-level comments on the second but I might let you come in and give more detail on them forward-looking view on margin and returns. We're not delighted about the 5% to 10% mix to the unconstrained demand. And it's really a function of the management of some of the supply chain pressures that are in the business, some which we think are temporary and some which are going to require a different way over time of configuring our network and more automation, more specialty within our sandwich sites in terms of where we make individual type families of skews. But what we're doing at the moment is, if I give you -- just to give you hard measures here is, we probably have about 20% less range than our customers would want us to have, in the food to go area. And the upside for them on that is that they are getting a greater level of overall units than they would be if we were managing to a to that total range. But even against that reduced range, our service metrics, Martin, are probably 3% to 5% below where they would typically have been pre-COVID, right. And I wanted to become -- that is not all Greencore 's fault. A lot of that is actually a function of inbound supply and pressures on other parts of this -- and other parts of the food system, both backward and forward. So, the combination of somewhat constrained ranges and by the way, I think the 20% is in some of that has sensible, but some of it is necessary if I can describe it in the somewhat lower level of service. So that's where I mean -- notwithstanding the kind of substitution effects within the range of the days, which is why it's a judgment call is that's where we would see the 5% to 10% opportunity. Now, to unlock that opportunity there not -- if you didn't have any Omicron concerns, will require us to find solutions either to bring more people into our network than we currently have, or to configure our network in an away over time that requires somewhat less people. And that's what we're working on. I think it is an important in near-term and longer-term opportunity for our business. The reason I placed it in the context of Omicron is that, it is mathematically true that, if demand in the market [Indiscernible], we could, our service levels against that demand will go up slightly and we could choose to reintroduce some more products, as a hedge against that effect. Now, that -- and so that's where it's connected to Omicron. The simplest way for me to put it is, that we were -- we anticipated, this is on margin and returns by the way, we anticipated the volume and margins was -- volume and revenue would come back more quickly than profitability, and it has done. There is an element of mix and match, which is that some of that volume that's come back is distributed items. So, it's not quite a like-for-like volume. And that distributed item -- set of items has a different economic profile. Decent pick fee for -- pick fee per unit. But because we take titles of the products, the percentage margin on it is a little bit lower. But I think there are a couple of other factors that we need to get after as a business internally as well. So, 1 is, the some of the kind of direct and indirect consequences of managing through COVID from a cost base perspective as we're working to unwind, it's not all on bound yet. And I think the other feature of our business actually is that, we have chosen to prioritize outputs. And I think there are -- there will be opportunities for our business, in terms of the cost below gross margin and below contribution to get after going forward, and I think that's a focus for our team and our Board. And the point being this, and as we've done a stand back, both ourselves and with our Board here, we don't see any reason while why we can't guess the margin and the -- what I might call the like-for-like returns metrics. And I might even explain what we mean by that in a second, back to the position that we were at pre-COVID, post-COVID. And obviously the quicker that we can do that, the better it will be new for sentiment towards the stock and the better it will be for our ability to get on with driving returns and rewarding shareholders. And so that's obviously a priority for us but.
Emma Hynes : My perspective on this, I mean, as we all know, we think through an incredibly tough there, it's took overs and working through all of the disruption impact now, bringing things for the top-line, having come back really focused on delivering operating process. I think we've been consistent in saying with margin will come thereafter, both the headwind of inflation, as we need to recover us. We need to manage through all of the supply chain disruptions right now, and deal with them all of the consequences of that, and focus on, as Patrick said, rebuilding our leverage and looking at all of our cost base and how we manage effectively and takes the COVID disruption operation costs out of the business as well. When it comes to return on capital, I guess just structurally, they're a couple of things that are slightly different. One, is the IFRS 16 accounting, which has an overall increase in investor capital. So, both does have a drag effect as you look forward. And then with the higher UK tax rates to contend with as well, which will step up over time. So, I guess those are the 2 structural things that would have an impact. But I think as, as profit comes back, we built return on this capital.
Patrick Coveney : Do we [Indiscernible]?
Unidentified Analyst : I guess -- I've got a quick question -- 2 questions, if I may. First of all, is just trying to go back to the new businesses that you have onboarded. I remember, last presentation you were saying that, obviously when you onboard a new client, you don't really reach the efficiency levels that you would like to reach as far as. Can you give us an update on that and can you give us an idea of whether the new business that you have onboard is so far has been margin accretive or margin dilutive on the second half? Secondly, I was quite intrigued by what you were saying, in terms of the allocating, the way you actually produce your volume by product rather than customers. Is that something that just tried to have a sense whether there would be a higher level of CapEx embedded in the business as you transition away from the old way of production to perhaps a new way of producing, which might be more efficient. And what are the push backs you're getting from the clients, if any? And finally, I'd like to go back to the recyclable skillet that you have launched at the back-end of last year. What has been the feedback and what are the intentions, with regards to that item, rolling on to new customers?
Patrick Coveney : Okay. I mean, just to give you the reason here quickly. The progress on new business is as we expect it to be, which I want to be a little careful in being too specific in my examples here, but the experience we have of where we onboard a fundamentally new customer, is that it takes you a while to learn how to do it. And notwithstanding the fact that this -- much of this should be in our wheelhouse in terms of capability, inevitably the supply chain, the order patterns, sometimes the ingredients, can be different, 1 customer from another. And so that kind of rule of thumb that it takes about 6 months to get the business towards the kind of steady-state metrics in terms of performance is still about rice. Sometimes you can get it a bit quicker and sometimes we can't. Where we have a customer where we're doing, for example, they're taking one of our products and extending it into a new channel. But the product is substantially the same then, of course, we wouldn't have a problem in them -- and shouldn't have a problem in that instance. On the point, as to whether the new business is accretive or delusive and notwithstanding that transitionary effect, I think in general, the new business, the new channels that we took on started at a somewhat lower margin than our core retail business. Now, the truth is, the world has changed so fundamentally given the inflationary pressures since then of and our product and commercial agenda in those areas. But importantly, the way this will work over time is that some of the fixed costs are required are already in the business. And so, the actual flow-through to the return to profile and profitability of the group, should be a positive over time, right? Because you don't have to quite start to scratch on them in all of those areas. On your points on the CapEx and so we're doing -- maybe it is possible that, the whole world's new accept of mash, they we're going to be massive pressures on labor availability from April, May 2021 on and like we missed this. I don't think that will happen, by the way. I think it's come as a huge surprise to everybody. And the near-term mitigants that we're going with are a challenge, but we're delivering progressively better against them all the time in terms of getting the footprint on labor plans in place that we need in our key locations to get service to where it needs to be and to be able to onboard and make money from some of the incremental business opportunities that touch shot. But what that has brought into focus here is, and this will be a little bit simplistic and are connected back to [Indiscernible] point on the robotic technology across the 3 core tasks on 15 lines across what in effect is 4 different sandwich facilities that we're working on. The essence of, I think how this will evolve over the next while, is there will be some customers within the Greencore [Indiscernible]. You wouldn't need to be a genius to figure out which one I'm referencing, where the importance of keeping a solution that's ring-fence joked for them is so central to their proposition that it's likely to stay that way. But I think for customers that are already comfortable with the idea of sourcing products from several different Greencore sites, what you might well end up with us doing, is taking one of our sandwich sites for example, and moving as much on the automatable production to that size. And then in the sites, where we actually got more labor availability, doing some of the more the spoke products there. So, in other words, we would have some customers who would currently take product from 2 different locations, and we might need to -- need them to move straight in products, in 3 different locations, sort of thing. And that actually could potentially give us a better return on the automation and also enable us to step-up overall output and de -risk that output somewhat to the kind of beggaries of labor availability. Almost regardless of what happens in terms of some the government policy areas on them, on labor into the food industry. Last points around them, recyclable skillets, we -- well, both [Indiscernible] and Co-op, both issued a press release in September, talking about the fact, we were working with them on recyclable of [Indiscernible] skillet. That's 2/3 customers, the customers. The third customer, I don't think did, so I'm not going to name them. And the progress of those skillet operationally has been very good. And the consumer reaction to them has been -- there hasn't been any problem on -- in relation to product integrity or visibility of the products and so forth. So, there's been no negative reaction to some of the things that were potentially a compromise. I wouldn't, Dorianna (ph), say that there's been a big positive reaction on the other side, but that's in part because the essence of the trial was to see whether it would operationally work for us and through the supply chain. It then needs to be accompanied by a consumer engagement in education task, which will be largely driven actually by our customers rather than us. And I think they will be up for doing that as the -- as we complete the trial and demonstrate that there aren't any operational problems associated with what we're doing.
Andrew Ford : Andrew Ford, from Peel Hunt. Just a couple of questions on costs. I know you've mentioned with labor the automation going forward. But in the short-term, what specific actions are you taking to ease pressure on labor? Is a vacancy rate and where is the trend going for you? And in response to question, you mentioned energy costs. Are you able to quantify that either as a percentage or an absolute? And lastly, on the structural shift in food to go, you able to compare it versus 2019, where you see that going, especially in light of potential pricing recovery next year. I don't know if you see an element of food to go being a bit more discretionary for the consumer or if you're expecting it to normalize above 2019 levels. Thanks.
Patrick Coveney : Yes. I mean, actions we're taking on labor the -- some we're doing nationally and some we're during regionally. So, the biggest thing we can do on labor, is to improve our retention metrics. That's because, I mean, we're talking about people here, so I need to be careful and appropriately careful in matters of language. But the point here is it's the net movements that really matters, right? So, it's how many people leave net, should against how many people arrive, so the most important thing that we can do is to improve retention. And we have a series of different measures in place in that, including what I referenced as part of the sustainability report, which is a decision to actually award shares to everyone who works, 13,000 people, who work for Greencore. Individually modest, in terms of what we're doing, but we think it's an important and purposeful commitments and we referenced in last year's annual reports that, we wouldn't scheme in place for this year. But over and above that, and we have a whole series of site-by-site or region by region initiatives, which include the labor race. In incentive programs to on recruitment greater flexibility around how we're configuring shifts. And then on the other side that we've got a whole series of supply and range things to actually make the facilities run more smoothly, reduce changeovers, reduce complex products, things like that, but it is into kind of it. It's a game of inches site by site what I would say in our weekly engagements and monthly reviews, we are tracking, where do we need to be in nash numbers of people per shift per site, and we're building in line with our plans. What it is -- but it's a task that's unfolding every day, in terms of how we would describe it. And I have to keep stressing that one of the features of us is that, even when we get that perfect, which we don't all the time by the way, but even when we do, if our suppliers don't get it perfect, and then we can't have people waiting around to make stuff, and we don't have any skillets, so we don't have any braid or our protein is in-line with spec. And so, it's -- the chain is only as strong as its weakest link in the -- in particular, in the kind of very short shelf-like make to order business areas. And that's one of the reasons why having a somewhat more concentrated range with more contingency in terms of inbound materials is quite important in that regard. Yeah. I mean, listen, energy and utilities are -- have -- it's a highly volatile market. You guys will know better than me. Just track the -- even tracking the oil price every day and what's happened even in the course of the last week and thus, we're seeing a materially higher forecasts utility inflation, without getting into specifically what it is, than we would have had 2 months ago, at a level that we are required to recover it in pricing. And that's what we're doing.
Emma Hynes : I mean, we've covered half and that, already. So, it will fix the price before OSB, additional, incremental price increases came through. So, half of our winter energy kind of assumption was already coverage version. I mean, we're still seeing high kind of single-digits year-on-year and millions in increase in costs in energy.
Patrick Coveney : Andrew, your last point was?
Andrew Ford : I was just [Indiscernible] shifts in [Indiscernible] especially [Indiscernible].
Patrick Coveney : I mean, just to give you the benefit of my experience here, like is that -- it has not proven to be a product category that is -- where volumes are materially impacted by macroeconomic conditions or even inflation, if I take the last 14 years of looking at it. So, the -- I mean, clearly, the massive mobility impacts of COVID impacted volumes, but once people are free to move around, and it has not tended to be shopped in aggregate as a discretionary item that people [Indiscernible] when they're under economic pressure, that certainly was not our experience during the financial crisis.
Emma Hynes : I will conclude everything we can with our customers to mitigate the impact of inflation. So, it's not being passed on to the ultimate consumer, but the reality is that a level where we have to recover it in price, but you look at product and you look at what goes into it and you do all of those things that we would've done in inflationary period before to make sure that the value proposition available as well.
Patrick Coveney : So, it's in the rig. Mike, is there anything on the call?
Mike : Yeah, there's a couple of questions.
Operator: If you would like to ask a question [Operator Instructions] And first question comes from the line of Jason Molins from Goodbody. Please go ahead.
Jason Molins : Hi. Good morning, Patrick and Emma. Patrick, you've talked quite a bit about your constraints on servicing demand at the moment, so just wondering what that means or how we should think about that, given the new business still to come in during the latter part of next year. And in that context, are you able to give us some color on what the M&S agreement with customer, I mean, for Greencore in terms of revenues and margin profile, etc., and perhaps capital investment that maybe needed to support that new business? Thanks.
Patrick Coveney : Jason, thank you. Two things, I mean, in the -- if I look at the big chunks of incremental business for us through FY2022. The first it's going to be the commissioning of the meals and incremental salads business, which I referenced earlier that is -- will be supplied out of the £30 million CapEx investments that we've referenced. So, and we are on with the appropriate labor planning and team building in the 2 core areas where the product is going to come from, which is Sheffield and then -- I mean, Lincolnshire. So, your second point on incremental volume with M&S on the back of their announced business with Koster. Fortunately, 1 of the parts of our network where we do have incremental capacity is in North Hampton. And so, it -- so we'll -- and that is largely, it's not entirely, but it is largely skews that we are experienced in making and that are sourced through M&S stores. And so, it's we're not anticipating a material incremental capital associated with doing that, there will be bits and pieces around the margin. And we're building a workforce and labor plan to enable us to take that on as it comes on-stream in the spring of next year.
Jason Molins : And any sense of size of the opportunity, obviously, you supply into the coffee network already now, but obviously costs us quite a big player in that market. Can you give us any column? What do you think that might mean in terms of volumes and revenues?
Patrick Coveney : And that'll really be for M&S to say. It's their customer. And clearly, we're going through different scenarios with them, but it's -- but given the size of the state into which those products will be flowing, it's, obviously, helpful for our volume, as we look forward. And just, Jason, to join this particular question back to previous calls that we've done through this year, you remember in the summer, both in our -- when we did our interim statements and our Q3 trading statement, there was -- we spoke about ongoing business development activity and this would have been an important source in our -- in the comments we would've made then. And so, as a result, it's the guidance that we would have had for the year ahead would have had the on-boarding of this business as a feature of our internal planning for FY'22. And it's obviously helpful to have it confirmed, like it was last week.
Jason Molins : Thanks very much.
Operator: The next question comes from the line of Charles Hall from Peel Hunt. Please go ahead.
Charles Hall : Good morning, everyone. Just going back to Dorian's question on new business. Obviously, you've said that, it's going to be lower margin to start off with. Obviously, that came in before we had the labor issues, supply-side of issues, and inflationary costs. Should we think that this is going to take longer to reach the margins that you might have hoped when you initially took it on? Is that a fair way to look at this? And we'll say more generally, when there's -- when you're going for price increases, it's never even across all the categories. When you're looking at the business now, are there some categories where you may need to reconsider how involved you are in the -- given the precious you'll see?
Patrick Coveney : Yes. Charles, two questions that the -- the answer to your first question is, no. We're -- we don't see the inflationary environment as being a constraint on getting to where we need the margin to be. I don't want to go any further than that because it's subject to discussions we'd be having customer by customer, but we're -- the principle here is that the inflation that we are taking, we need to recover, and we're committed to recovering fully in price. And we don't want there to be any ambiguity about that. Your second question, which was -- sorry, Charles, the second question -- just remind --
Emma Hynes : Did we make any cash-free choices?
Patrick Coveney : Yes, we are. There will be -- one of the features of what we're doing here is that -- is that if we -- if we can't deliver once, we know we need to recover, in terms of pricing will we resigned the business. And there are very small examples already of us doing that. So, it is not a position that our business can adopt here that we're go-to-market for these price increases and we don't get them go out less grand. So, we'll just live with a lower margin. And so, there are -- in particular, there are some of the more commodity solid areas where we have -- we've gone with what we believe to be, and can evidence be very legitimate inflation recovery. And 1 or 2 customers haven't taken us and we resigned business. And that's the policy that we're going to have here, which is that, our capacity is scarce. We're not in the business here because we believe in long-term partnerships or what I would describe as, sort of egregious margin grabbing, but where the inflation is there. We need it recovered in pricing, and if we can't recover it in pricing, then we're not going to be able to serve. And there are some examples of us, not huge in terms of quantum, but there are some examples, where we have already agreed with customers that we are going to step away from business where they won't support to some pricing. And that's the policy that Kevin and the team are working through.
Charles Hall : Got it. Thanks [Indiscernible]
Operator: The next question comes from the line of Roland French from Davy. Please go ahead.
Roland French : Hi. Thanks, and good morning, everybody. I'll keep it to 2 questions, if I could. And maybe, Patrick, just your broader thoughts on the outlook for food to go through 2022. I know typically there's a slide that's included in the presentation which includes that. And, I guess, taking the 88% of pre-COVID volumes at the end of September as the starting point, what's your outlook for '22? And then just secondly, it might be one for clarification. I might have missed this. Just on your pricing in your custom engagement, in particular in food to go, what percentage of your customers or your contracts today pricing aligns to that low double-digit inflation that you've called it?
Patrick Coveney : Yes. Roland, I don't think we can say very much more on outlook for food to go, given the -- some of the macro uncertainties, except to say this substantially the volumes are back to where they were pre-COVID, and we have incremental new business that confirmed that, we will onboard through the year. It is -- I think, we're very reassured about where it is, but we're also cognizant stash and COVID isn't gone, and there could be some impact associated with this. And, indeed, there could be some quite positive further volume upside depending on how that plays out, too, particularly with them overtime and some of the City Center on travel locations. And we'll just have to see how that goes through. But in general, we're -- to go all the way back to where we started, on the assumption that there is not material lockdown activity within the UK, then I think our volume view for the food to go businesses is pretty robust and pretty positive. On your point on pricing and customer engagement. I mean, the -- pretty much all of our commercial agreements with customers have a - either a formal mechanic or an agreed process by which raw material inflation and aspects of labor get recovered in some version of a pass-through model. Very few of them would have a mechanism by which things like utility inflation, or distribution inflation, or more broad -- broader labor inflation to be recovered. And so that's what we're negotiating and working through right now. And plus, the residual component of raw materials that might not be formally covered within a tracker and there always be some things at the edges that made -- that might not be tracked. The view we've taken here is just the aggregate effect of these things mean that we need to recover in pricing regardless of what is anticipated, are set out in the commercial agreements and actually in the vast majority of cases, our customers have got bash. And while I've been delighted about is, we are working through pricing solutions with them and we'll continue to do that.
Roland French : Okay. Great. Thanks.
Operator: There are no further questions on the phone lines. I will now hand the call back to the room to Clive Black.
Clive Black : I don't think I've been described a veteran on this by too many people, so I think it's fallen on me, Patrick, to say a few more words to you. Firstly, the Chairman talked about ups and downs in our 17 years. It'll be interesting to hear what you're up to. And also, just thank you for your -- the time you've given us. You've always been very accessible, always had amazing insights and strategic overview. And just to wish you all the very best at SSP, and to wish the Chairman well in the search of the need to figure.
Patrick Coveney : Thanks, Clive. And I didn't -- I don't want to make the result presentation -- our results engagement around this issue. But just to say, there has been hundreds and hundreds about to answer your question. The -- its worth -- and it will be for someone other than me to recognize the business that Greencore was when I joined and the change that have -- the change that we have put through since then. And the big ups for me would be the team that I've got to work with, the customers that we've got to work with. I've loved the capital market's engagement, capital's ways. We are accessible. We like being accessible. And so, the -- my main task in this job has always been to enjoy doing it. And I've loved doing this for 14 years as CEO. And so -- and whether I'm -- as long as I'm here, and long after I'm gone, I will be a cheerleader for Greencore, which is a great business, and it has been the huge part of my life for, I'd say, for 17 years, and on a great part. That's all I'll say. Thank you for your comments and for -- there are other veterans in the room here. I'd say that looking at Martin.
Martin Deboo: I'm glad you did.
Patrick Coveney : as well, and there's people on the call, Nick Lamars, same Charles. So, there's [Indiscernible] Kenny, there have been people who have covered the stock from the very, very beginning, to earn yourself, and not quite the very beginning but pretty much it. And it's -- hopefully that engagement has been positive for you, as has been positive for us. Thank you. Bye.