Earnings Transcript for GNC.L - Q4 Fiscal Year 2020

Operator: Hello, and welcome to Greencore Group Plc Full Year 2020 Results. My name is Val, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I'll now hand you over to your host, Jack Gorman, Head of Capital Markets of Greencore Group plc, to begin today's conference. Thank you.

Jack Gorman: Thank you, Val, and good morning to everyone on the line and on the webcast. My name is Jack Gorman, and I'm Head of Capital Markets here at Greencore. I'd like to thank you all for taking the time to join us for our full year results conference call, which covers the 12-month period to the 25 of September 2020. I'm joined on the call today by our Chairman, Gary Kennedy; our CEO, Patrick Coveney; and also 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 also like to draw your attention to the forward-looking statements on Slide 2 and the agenda for this morning's presentation that's outlined on Slide 3. Thank you. And with that, I'll pass it over to Gary.

Gary Kennedy: Thanks very much, Jack, and good morning to everybody. Thank you very much for joining us here this morning. You will have seen earlier that we had 3 releases into the market

Patrick Coveney: Thanks, Gary, and thank you to everybody for joining us on this call. And indeed, to so many of you, thank you for your support through the year, as Gary has mentioned. We've released a lot of information to the stock market over the course of the last 12 or 14 hours, our annual report, our results statement, the details around the placing and the sustainability report. And Emma and I are going to try and draw those together over the next 30 minutes or so to kind of pull out the key messages for the business. But when you boil it down, there is one big theme around where we are today. It's -- we are balancing mitigating the near-term COVID uncertainty and the impact of that on our colleagues and on our business while ensuring that we set the business and the team and the capability in Greencore up to rebound strongly with both current and new customers as this pandemic eases most likely at some stage during 2021. In that context, the -- let me just reference Slide 6 in the presentation that's up on our website and just briefly summarize each of these points here before handing over to Emma. So the first thing to say, while it may feel like a long time ago, I think it's worth stating that following on from the relaunch of our strategy in September of 2019, our business was trading in line with that strategy, in line with that business model and in line with that economic model before COVID hit the U.K. at scale in the middle of March. We acted quickly despite the scale of the COVID impact. Fortunately, we have an experienced team. We know our business well. And when COVID hit our business, we moved quickly and decisively and we knew the levers to pull within our business in response. We took a decision from the very outset to run everything against 3 clear priorities

Emma Hynes: Okay. Thanks, Patrick, and good morning to everyone on the call. Over the next number of slides, I'd like to provide the key elements of the full year results and performance and, in particular, highlight the resilience of the business through the unprecedented trading period. More particularly, I would like to build on Patrick's earlier comments around how we've been protecting our business from an operational and balance sheet perspective in recent months and how the decision to raise equity alongside a suite of funding and financing measures gives us confidence to navigate through the near-term challenges with confidence while ensuring we're well positioned for future growth. So let me first provide an overview on FY '20 results on Slide 8. It's worthwhile reminding everyone on the call that in overall terms, the business was progressing broadly to plan for the first 5.5 months of our fiscal year but was then overtaken by the decisive response we needed to take to the impact of COVID-19 on our business. I will walk you through our revenue and profit performance in detail in later slides, but at a top level, you can see we had a 12.5% decline in reported revenues, with pro forma revenues declining by 14.3% in the year. For reference, the pro forma growth for the group in half 1 was broadly flat, highlighting the depth of impact in the second half of the year. Profitability was down significantly with a GBP 73 million fall in adjusted operating profit compared to FY '19 level, which, when combined with slightly higher net interest charge, led to a fall in adjusted profit before tax to GBP 17.3 million from GBP 92.3 million in FY '19. Our post-tax exceptional charge was just over GBP 20 million. The main components of this are a debt restructuring and modification charge of GBP 7.1 million that reflects transaction costs to restructure debt facilities, to get equipment impairment related to COVID-19 and an GBP 8.2 million charge as we made fair value adjustments on some noncore properties. EPS was down by a similar magnitude, falling 81.9% to 2.9p on an adjusted basis and to 2.6p loss per share on a reported basis post exceptional items. And finally, as we would have communicated in May, we've suspended dividend payments as part of our range of cash flow initiative and unfortunately reset to take alongside all the other initiatives that we needed to make through the year to protect the business. Moving on to revenue performance. I'm focusing on the pro forma revenue growth in this slide to help you understand underlying revenue performance. We've also outlined the quarterly progression of pro forma revenue growth through the year to give a clearer view of the impact of the ramp-down and subsequent ramp-up in the business over the course of the second half in particular. So of the 14.3% decline in group pro forma revenue, there was a 22.6% decline in food to go categories, partly offset by 3.2% growth in other convenience categories. Within food to go categories, there are several key points to note on performance. Firstly, Q3 pro forma revenue growth in food to go was 53% behind prior year with declines of up to 70% in the first weeks of the pandemic. We then saw a step-up in food to go demand as we progressed through Q3 and through Q4 as lockdown restrictions eased and consumer mobility rebounded. In comparison, Q4 pro forma revenue growth in food to go was 29% behind prior year levels and on an underlying basis was better still, closer to low 20s by the end of the year. I also want to highlight Freshtime here. This business was acquired in September 2019 and have performed well through the year and has been well integrated into the group. It extended our presence in meal salads and chilling snacks -- and chilled snacks, and our salads business unit is now an ideal platform for us to take advantage of growth opportunities in these categories as they reemerge. In other convenience categories, pro forma revenue grew by 3.2%. There was a different trajectory to food to go with solid growth through the year, as demonstrated in the table on quarterly growth. This was driven, in particular, by a strong performance in our ambient cooking sauce business that benefited from the sustained increase in scratch cooking and food assembly since lockdown. Our ready meals business was broadly unchanged in revenue terms for the year, but we did see a more volatile revenue trend during Q3 that was beginning to stabilize during the final quarter. So turning to Slide 10 and EBITDA and operating profit performance. Firstly, we noted in our post close in October that we would deliver adjusted EBITDA of GBP 85 million, and this was the eventual outturn. We also noted that this was after charging additional operating costs associated with COVID-19, which was in excess of GBP 10 million, and included frontline employee recognition payments, incremental costs for furloughed colleagues, costs to reconfigure and implement measures to ensure safe working and social distancing and specific costs relating to the temporary closure of sites. Second point to note was that notwithstanding the sharp demand shock that we experienced in our food to go business as a result of COVID-19, our own cost mitigant response enabled us to generate modestly positive adjusted EBITDA in Q3 and to improve on this in Q4. So looking at profitability from a category perspective, there was a significant profit reduction in food to go categories as demand declined following COVID-19 disruption. This was offset partly by mitigating cost measures on the one hand and also from the full year addition of the Freshtime acquisition. Food to go reduction was partly offset by improved profits in other convenience categories, in particular, in our ready meals business, which benefited from the significant product and network initiatives put in place over the last few years. At a group level, inflation trends were broadly as anticipated. Raw material and packaging inflation was less than 1%, while labor costs, as anticipated, rose by approximately 5% largely as a result of increases in the national living wage and its effect on associated pay levels. And finally, we adopted IFRS 16 in the period, which is a new accounting standard for leases. As we transition to the standard using the modified retrospective approach, there is no restatement of comparative information for prior year periods. Though in FY '20, EBITDA increases by GBP 12.9 million as a result of IFRS 16, however, the impact on earnings is immaterial. Net debt also increases to reflect the lease liabilities, but this is not included in our covenant calculation. And for those who wish to understand the movements in fuller detail, they're included in the results statement. So just moving on to Slide 11. We took quick and decisive action from the outset of the pandemic to protect the business. As Patrick outlined, at a commercial level, we have to move to adjust our ranges and our network in collaboration with our customers during the various phases of the pandemic. Initially, we moved simplified product ranges in food to go to reflect sharply reduced demand and selectively focus production in our other convenience categories where demand was surging, most notably, cooking sauces, as highlighted earlier. We temporarily ceased production at our Bow, Atherstone and Heathrow facilities in April and rationalized production at our Northampton site. Then we had to carefully ramp up both ranges and the network again as demand recovers. This was complicated in August by a further temporary closure in our Northampton site, this time as a result of an outbreak in the area and at the site. The team managed this very well with our customer and also in parallel with the relevant health and government authorities to bring the site safely back into full production by mid-September. And ultimately, this had a low single-digit million impact on EBITDA. We also managed labor costs effectively and proactively, including utilizing government furlough scheme -- the government furlough scheme extensively, flexibly managing the labor force through vacancy management and flexibility in agency utilization. And as we noted in May, executive directors and the wider senior management team voluntarily agreed to temporary reductions in compensation. We also implemented a pay freeze across the wider organization, and that has been extended into FY '21. Finally, we managed cash and capital as prudently as possible over the period. The actions are balanced to ensure that we retain the fundamental strength of the business to allow us to accelerate quickly as social restrictions ease and the economy comes to life once again. Previously planned CapEx was deferred wherever possible. And as I mentioned earlier, we suspended dividend payments for the duration of the covenant waiver period, which I'll talk to in a moment. We should also note that it is our strong intention that we will reinstate dividend payments as soon as it is practicable. And during FY '20, we also extended our main RCF, secured eligibility for the CCFF in the early part of the year, and we deferred cash contribution on defined benefit pension schemes. So if we just move to have a look at cash flow on Slide 12, I would like to focus on a few items here. So there was a free cash outflow of GBP 29.7 million during the year, and there were 2 main drivers here

Patrick Coveney: Great, Emma. Listen, thank you for that update. For those of you following the presentation, I'm now on Slide 18. And let me just very briefly stand back in terms of -- kind of describe where our business is strategically. So following on from our exit from the U.S. at the end of 2018, we looked hard in 2019 at how to shape our U.K. strategy to best drive value creation for our business over the next 5 years. We shared these conclusions extensively at our Capital Markets Day in September of last year, and we built very strong internal and external momentum and alignment against that agenda. That's the strategy that we've been running with since then, and it's grounded in 3 pillars of growth, relevance and differentiation. We are explicitly a growth-oriented company, consistently seeking to move our business into and to play into categories, channels and customers who outperform in growth terms the overall food market. Our ability to do this is based on building ever-increasing relevance, both with our customers and with the end consumer, grounded in the quality and relevance of our products, that's the relevance for products in terms of the taste profile, the nutritional profile, the convenience profile for end consumers and also in terms of the way in which our range of products work economically and strategically given the format choices of our customers. We differentiate through a distinctive, repeatable Greencore way that in turn draws on 4 elements

Operator: [Operator Instructions] The first one comes from the line of Jason Molins from Goodbody.

Jason Molins: A few questions, if you don't mind, just to kick off. Firstly, really around cash. Can you maybe just talk through cash performance during the second half of the year, maybe putting in context Q3 and Q4? And again, you mentioned an improvement in Q4, but just wondering what that means when we're actually cash flow positive during Q4. And maybe looking into 2021, are there any specific cash costs that we should consider, whether that's around furlough or any government incentive schemes that you might have benefited from this year? Second question, again, just looking at your balance sheet, what the capital raise will do for that initially, but maybe just looking at it and beyond in terms of your leverage target or optimal leverage structure for the business given the challenges that you've faced this year, how are you thinking about the appropriate level of leverage that you would like to have in the business? And then sort of final question is around the revenue opportunity that, Patrick, you mentioned in quite a bit of detail. Just wondering how we should think about the flow-through from that from a profitability perspective.

Emma Hynes: Great. Thanks, Jason. Look, I'll take the first number of questions around cash and balance sheet, and Patrick will come in on revenue and how we're thinking about that. But look, from a cash perspective, I mean, clearly, the impact in Q3 was pronounced with the revenue falloff. And given our working capital profile being negative working capital, that led to quite a substantial working capital outflow in the period. We would also have -- outside of working capital, we would have burned some cash in the period beyond that given the impact of trading in April. As we went into Q4, that improved. We actually generated cash. Working capital started to come back in as we went through Q4. It didn't come all the way back, as you can see in the working capital outflow for the year, but it's come back quite a lot, and we also generated cash outside of that in the period as well. I think you have to look at the half year numbers to understand the working capital fully. We had an outflow of $20 million in working capital in the first half. So in the normal course of events, that would reverse in the second half of the year as volume ramped up. That didn't happen because we saw a further decline in revenue as we went through that we partially pulled back. So we ended up with another GBP 20 million -- GBP 25-odd million of working capital outflow on top of that first half. But over time, we would expect that to come back as revenue comes back up. In terms of other government incentives and things like that, that were available and whether there's a consequence of those as we roll into FY '21, I would say there's not where we claimed furloughing support. The higher volume of numbers of colleagues that we had on furlough was in Q3. That has largely unwound. By the time we got to the end of the year, we have brought most of those people back into the business, and those claims were filed on a monthly basis. So we wouldn't have a carryover either way on that on other government support. There wasn't anything that we were availing of in the period that carried through to FY '21 that would have an impact in that respect. And we did defer contributions into -- some contributions into our defined benefit pension scheme. And those are due to be caught up actually in FY '22 rather than in FY '21. And then as it pertains to leverage, I think our medium-term leverage target remains 1.5 to 2x. I think the equity placing that we've done will help us get back to that sooner. But the way I would think about it is we need to get back to more sort of normal trading conditions, and then we think about getting to that range in and around 12 months after that.

Patrick Coveney: Jason, if I just pick up on revenue opportunity before I make one point on cash, which is a consequence of what Emma has described, which was much stronger cash generation in quarter 4 than quarter 3 because of the working capital dynamics beginning to flow back to us is that we actually haven't had the sort of level of working capital outflow post year-end that you might otherwise have had. And again, that's just kind of reflective of the somewhat different demand profile for our food to go business, and it gives you confidence actually that we can -- with growth and the negative working capital profile associated with food to go that we can start to generate cash with recovery, which would be helpful. Now as it relates to revenue opportunities, I am going to choose to be somewhat cautious on margin and profit consequences of new business here. As you know, I and we, our team here, have been doing these jobs for a long time. And we know that onboarding new business, if you do it well, is very, very positive to overall returns on capital, particularly if you're not having to add material new capital for that business over time. But it does take you typically a year or so, particularly if those products or channels are somewhat different from where the business has been before, to onboard that successfully to really delight the customer in terms of how you do it from a service and account management perspective. So I think there is -- there's a lot to be positive about here in the confirmed and prospective new business in very simple terms from a volume perspective. If you take those IGD forecasts and assume those to be somewhat accurate and you add the volume of confirmed business that I've referenced, you're back to pre-COVID levels in volume terms. But I think it might take a bit longer for that to flow through to pre-COVID profitability because we've got to onboard that business well, do a good job with it and then gradually work to enhance margin as we get better on conversion. So hopefully, that gives you a sense for how those pieces fit together.

Operator: The next question comes from the line of [Paulette Fletcher] from Shore Capital.

Clive Black: I think you might have Clive Black here. Just changed gender in the last minute. A couple of questions, if I may. Firstly, Patrick, what will be the priorities for capital expenditure in the future? And how do you see CapEx panning out? And secondly, just given what you said around the future revenue and profit trajectory, how do you see the shape of FY '21 to September next year, please?

Patrick Coveney: Yes. Clive, I'm -- your voice has deepened remarkably since your intro there. But let me deal with your second question first, right, and this may disappoint some people on the call. But we just don't feel in a position to reinstitute guidance for FY '21. There are just too many uncertainties here around what's going to happen with COVID. And even, frankly, the view that we had unlikely outturn for FY '21 had obviously been impacted since we started the year by our experience of the regional lockdowns and the national lockdown since and, frankly, just an inability to call what's going to happen, particularly in quarter 2. I think we start feeling more confident given the positive set of aggregate medical news about where Britain may get in relation to the virus in 3 and 4. So that's why we're being cautious. We'll continue to run our business against the priorities that we've given, and we'll continue to be transparent with investors around what's happening with volume. I think many people would think, including ourselves, by the way, that while lockdowns are clearly a negative, that the impact on food to go volumes of this lockdown is perhaps quite a bit more muted or a lot less negative than one might have anticipated before it was called, which I think, again, is evidence of the resilience of our business and some of this changing shopping habits, particularly this contrast between what's happening in suburbs versus what's happening in city centers that's starting to unfold and is really underpinning the volume of our business, and I think gives us a good platform to rebound when we come out the other side of COVID. In relation to priorities for the future on capital, I think the 2 areas where we're going to be prioritizing are, one, making sure that as we start to get line of sight to more stability around food to go volumes, that we're ready to implement the work that we've been doing around automation, particularly sandwich automation, that enables us to achieve a step change in productivity when we have confidence around what the volume and manufacturing schedule looks like as we go out the other side. So that's one big area. And then the second, I think, is just making sure that we're not static in terms of how we think about the food to go opportunity and that we're able to, if I use the expression, tweak our production network to get after fast food to go salads or to get after fast top breakfast sandwiches, and we can do that out of our existing production network. But of course, it may require modest additions in line or assembly technologies and things like that within a well-invested food network. And the last thing I would say -- listen, you don't need me to tell you this because you've seen many of our plans. We came into this pandemic with a relatively new and very well-invested asset base. We don't have big deferred capital catch-ups or an aging estate that requires some step change in maintenance CapEx or replacement CapEx. We're in a nice nick in that regard. And so, again, that will impact to what our overall capital expenditure level will be over the next number of years.

Operator: The next question comes from the line of Roland French from Davy.

Roland French: I've got 3 questions, I think. So maybe just coming back in the first instance to the new business wins in food to go, are you able to tell us the absolute scale and revenue terms of that contract? And notwithstanding you've called out margin friction over the next 12 months with that contract, how has it been priced? Should we think about it being priced in line with existing -- gross margin existing contracts? Or has it been more competitively priced essentially? That's the first question. The second question is just in relation to your network and capacity more generally. And I know through COVID, it appeared that you'd manage your network and staffing levels in context to where like-for-likes are tracking, at least in food to go. And you've now mentioned, obviously, the network is now fully open and most of the colleagues are back in the buildings, but like-for-likes are still down at least 20% in food to go. So I'm just trying to understand the rationale for that. Is this reflective of imminent volume infill from new contracts? Or is it the fact that the full network needs to be up on running in totality to service your customers? So that's the second question. And then maybe dialing into November performance at food to go, so pro forma, it's down 26%. Perhaps you could split it out by product or at least some color by product, i.e., salads, sushi and sandwiches. And maybe with that context, some comparison to Q3. So Q3 was down, I think, 53% in a lockdown scenario, and we're down 26% in the second lockdown scenario. So what's the delta there? Is it back-to-school volumes coming on stream? Or is it less adherence to the mobility restrictions? So color on that would be useful.

Patrick Coveney: Yes, Roland, listen, a lot in that. Let me try to pick up the point. So first of all, on new business. The GBP 75 million of pre-COVID revenue that I've referenced, that's actually across 3 different contracts, not one. And the -- and each of those customers now has been moved on to the Greencore model of commercial contracting, which is quite long term in focus. So the -- some of those 3 are on new 3-year deals and others are on new 5-year deals in terms of how they're put in place with the kind of payment terms and working capital dynamics being reflective of how Greencore thinks about this and the way in which we engage with suppliers. I would say that the pricing is a bit tighter than we would -- we might have in some of our traditional customers. But as against that, it's somewhat better than we might have observed when -- with the previous incumbent. And also, it's reflective of the fact that there was some level of competition in terms of procuring that business. But we like the economics of the deals that we've done here, particularly in the context of being able of having the installed capacity to -- and the kind of wider overhead structure, leadership team structure to be able to observe it. And of course, I have to give the caveat here that, that GBP 75 million was pre-COVID, and we have to see how those accounts settle down as we begin to come out the other side of COVID through their trading below the pre-COVID levels at the moment. In relation to our network, you characterized it very accurately that all of our sites are open. Clearly, with the modest level of falloff relative to where volumes were in September, we don't have quite as much production going through each of those sites. And so we have modified our shift structure somewhat. We do have some people out furloughed, nothing like the scale that we would have had in April or May. But importantly here, we're planning for 3 different effects. First of all, the actual impact in the lockdown is materially less than the impact in the first set of lockdowns. There's a whole plethora of reasons for that, frankly. Partly, it's that schools are still open. Per level education is open. Somewhat more people are going -- are working back in the workplace. That would have been the case in April, May. I think it's also true to say that the level of fear of the virus, rightly or wrongly, is not what it was in April now. And I think also our customer set have learned the format and regional lessons of the last lockdown in terms of where demand is. And we've learned how to tweak range based on our experience in the summer too as well. So that supply side, format side of it is, I think, also important. Last 2 things I would say is that this lockdown was for 4 weeks. The Christmas trading is the -- is huge for our customers. The lockdown formally ends on the 2nd of December, and we needed to have a range and a proposition and capacity ready to fire from when that lockdown eases and more people -- however, how many more still to be seen, but more people are -- choose to come out and shop, particularly in the lead into Christmas. And so that's another reason to -- why we've decided to keep the network fully open and the ability to turn capacity on fast as we come out. And then as we look forward and we think about the utilization of our network, we -- that's when we layer in the new business considerations that I mentioned, both at the beginning of this question and also in the presentation.

Roland French: Great. And then just on the food to go in November.

Patrick Coveney: Oh, yes, sorry. It's -- I mean we're -- I think 26% down is the numbers that Emma shared earlier in the -- year-on-year in the first 2 weeks of the lockdown. The -- I mean the truth is the vast, vast majority of our food to go product is sandwiches. Our salads business, the -- what I would describe as the food to go part of the salads business is down equivalently to sandwiches. But we do have some, what we call, side of plate salads that we also manufacture in those units, things like coleslaw and potato salad, the volumes there have been a bit more buoyant, somewhat similar to our other convenience categories. But in a -- from a materiality perspective, it's not meaningful, any difference between sandwiches and the rest. The bigger lesson I referenced earlier here is this significant level of variation between suburbs and city centers between those convenience stores in locations which people are still shopping hard versus the formerly high-traffic locations in airports and train stations and city centers.

Operator: The next question comes from the line of Nicola Mallard from Investec.

Nicola Mallard: Just a couple for me as well, I'm afraid. The GBP 10.7 million you mentioned, which was the sort of COVID costs, if you want to call it that, I was just wondering if you could give us a bit more shape in terms of what's recurring. What should we expect to see still coming through in the current year when assuming you're not paying another staff bonus? And also with the changes to the debt and the equity raise, et cetera, I mean, can you give us a guide on what's happening to the cost of your debt? Again, you put a number in the exceptionals as to some one-offs associated with that, but is there an ongoing element in terms of interest rates or et cetera within the sort of interest line? And then finally, waste. I mean, clearly, we've had a very volatile order pattern, as you say. Maybe the retailers are getting better at predicting what people are going to what and when. But who's bearing the cost of the waste? Is that something you're sharing with customers? Or is that still their concern? And maybe they're just being cautious on ordering as a result of that?

Patrick Coveney: Nicola, it's Patrick. Listen, let me just deal with that question on waste and then Emma will pick up the COVID costs and the debt questions that you had. I mean in a formal sense, the economic responsibility for finished product waste sits with our customers and not with us. But clearly, we're doing a expletive [ph] job if we end up with a misalignment of supply versus demand -- and demand, particularly from make-to-order products. So we've got to be all over that with our customers. I actually think we've done an incredible job together in managing -- to keep waste very, very much under control with the level of volatility we've seen in demand. With the benefit of hindsight, Nicola, I would say that we probably overcorrected in terms of range rationalization in the spring for the lockdown. And one of the reasons that you're seeing a much smaller level of falloff in this lockdown is that we haven't pared back range to the same degree, but where we've been really pushing hard is what I would describe as format or regional specific ranging where we had the effect I've mentioned numerous times here of consumers shopping differently in terms of location for food to go products and making sure that we and our customers are aligned in terms of how we manage availability and waste there. So I'll hand over to Emma for the other 2 questions.

Emma Hynes: Look, in relation to the GBP 10.7 million, I mean, what we did when we pulled out that number is -- really are referring to clearly identifiable costs. So it obviously doesn't include any cost of sort of inefficiency in the system around how we're manufacturing and impact of social distancing and lower SKUs and all of that. So the GBP 2.5 million frontline recognition payment, you're right, that is a one-off payment from our perspective. There was -- the GBP 5.5 million of incremental costs related to our furloughed colleagues, we had quite substantial numbers of colleagues furloughed, particularly in Q3. And we're not anticipating at this point having something similar to that, but we would have seen that as a one-off cost. Clearly, the government has extended the furloughing program, and we're using it to an extent now but nothing like the extent to which it was used in FY '20 and in Q3. We had wound that down. Actually, there were very few people, the vast majority of those colleagues that were furloughed had come off the furlough scheme actually by the end of September. And then the other items there are specific costs related to introduction of sort of PPE or essential distancing measures, screening and things like that in our facilities. So again, I wouldn't expect to see that type of cost reoccur in the period. In relation to -- in future periods. In relation to interest, the exceptional charge -- the vast majority of the exceptional charge relating to financing and debt is actually the debt modification. And what that is, it's an estimate of the higher interest cost through the waiver period as a result of the higher level of debt and leverage. So you largely front slow that through the way -- the accounting now works in that respect. So you won't see the type of step on in interest costs that you might have seen in the past when something like that has been reflected.

Operator: The next question comes from the line of Martin Deboo from Jefferies.

Martin Deboo: I've just got 3 brief ones and completely unconnected, so I'll just fire them off. On the comment on deli, I mean, GBP 75 million, I mean, I think the last company's housed accounts from a deli, which are a bit old, had revenues of over GBP 200 million. I'm sure it wasn't anything like that by the end. But I just want to clarify, were you suggesting in the words that there might be more to come from the record of a deli? Or sort of are you done at GBP 75 million? Second question, probably for Emma, is -- Emma, I think you said labor costs were up 5%. I wasn't sure if that was total labor cost or unit labor cost. But given sales were down 12.5%, just looks odd that labor was up that much. Can you sort of help me understand what's driving the increase in labor cost? And how are you feeling about the labor market going forward? I'm less bothered about Brexit. I'm more interested in whether you think higher unemployment is likely to loosen the labor market a bit at your end of it or not? And thirdly, just a cheeky one, I know we should be gratuitously nosy, but do you want to give me the revenue growth of M&S versus the co-op as the 2 biggest customers? I'm interested in the difference between the more sort of city center and transportation-based M&S proposition and the sort of more neighborhood suburban co-op proposition. But you probably won't tell me, but I'll try.

Patrick Coveney: It's Patrick. I'll do questions one and three, and Emma will come back in on labor costs. Yes, the -- our hope and expectation is that we'll capture considerably more than that GBP 75 million of pre-COVID revenue. What we're confirming today is that we have already put into long-term Greencore contracts 3 large deli customers which had cumulative pre-COVID revenue of GBP 75 million. But let's see how we get on with the rest. In relation to your final question, you are correct in saying that it's not my job to actually give detailed revenue numbers for an important subcategory for our 2 largest customers. What I would say, though, is the trends that I have described about the performance of suburban market town, village convenience stores versus either larger stores or city center stores play out across all of our customers. And so the relative impact will, frankly, be a function of the relative shape of the store portfolio of our different customers, including the 2 that you've mentioned. So I'll hand over to Emma on labor.

Emma Hynes: Yes. Look, in relation to direct labor, when we -- or, say, to labor, we're talking about direct labor, and that's largely -- the 5% is largely driven by national living wage increases. In terms of labor availability in the market and the change in that dynamic, I guess we don't see that having an impact on the rate of inflation because, again, it's regulatory and it is driven by that ratchet in national living wage, which is outside of our control. But the big focus for us, which we've talked about before in helping mitigate that, is actually our automation project and getting that up and running so we can manage the overall impact of labor inflation in the business.

Martin Deboo: Yes. And then just quickly, was the 5% your total labor bill in millions? Or was it unit labor cost? I just want to be crystal clear.

Emma Hynes: Unit labor cost.

Operator: The next question comes from the line of Sriram Gurijala from Barclays.

Sriram Gurijala : I have a couple. The first one is on your long-term projections from IGD. Given that at the moment, in a second lockdown, you're at 75% of pre-COVID levels or year-over-year levels, do you think the projections are slightly on the conservative side because they're at 80% next year and 90% the year after? And the second one is how do you think the consolidation will play out longer term because you said that you've gained GBP 75 million in new contracts from 3 different suppliers? Longer term, how do you think it will change the industry dynamics, the whole consolidation, and if you're able to get through in a better shape than others? And the last one is, Patrick, you spoke about e-commerce and some of your customers partnering with Ocado, et cetera. Could you talk more about what you are doing in that channel? And you also had some numbers around people continuing to eat sandwiches at home just in a different channel. So is there an opportunity there by getting into delivery models or things like that?

Patrick Coveney: Yes, Sriram, thanks. Listen, I'll try to be brief because I know many of you want to be on a Cranswick call in 5 or 6 minutes' time. I kind of got one answer to all of those questions, right, which -- or one integrating thought, which might help a little bit, right, which is if you look at a combination of the IGD forecast numbers that we shared, the evidence of how our business correlates with Apple or, indeed, you could use Google mobility data if you want it as well, if you look at the stated and most up-to-date investment plans of our customer set, and then you layer on top of that the business wins we already have and the potential for a bit more, but you don't have to be too heroic on the potential for a bit more, what all of that means is we get our -- we get back to pre-COVID volumes quite quickly. And the -- and everything above that is gravy, right? If the IGD are too cautious, fine. We'd love that. If we win more of the -- convert more of the deli business, which obviously would be our plan, but I'm not guiding to that yet, great. We crack on in relation to that. And the last point I would say is we cannot just rest on the current customer set that we've got. We have to be relevant to how consumers are sourcing product, including food to go product. And so we've got a whole set of different kinds of technology in D2C experiments, if I could characterize them. Some of them are with formats of our existing customers, and some of them are with the higher-profile direct-to-consumer models that are out there. And so that's how we're knitting it all together, but the end result of all of that is that we want to get our volume back in food to go to where it was pre-COVID quickly and from -- and then set ourselves up to begin to grow from there thereafter.

Operator: The last question for today comes from the line of Charles Hall from Peel Hunt.

Charles Hall : Just asking about the employee costs. Can you just comment on where you are now with levels of temporary labor? And also, have you made any changes to your central cost base as well? And finally, any comments, Patrick, on Brexit and how you see things panning out for Greencore?

Patrick Coveney: Yes. I'd be really fast, Charles. We've got just over 500 people currently furloughed on the direct workforce side associated with the volumes coming back a bit. We've had, in effect, a hiring freeze in situ since April now. And we have certainly learned, as I'm sure many businesses have, that we don't need to quite bring back everything that we had before and that we can be a little more structurally efficient as we go forward. And so you expect us to be acting and implementing on those lessons, and we are. And then lastly, in relation to Brexit, 2 things I'd say there. One, we as a business have been in one form or another planning for Brexit for nearly 4.5 years now. And so we've made a series of structural changes in the proportion of the raw material and packaging that we source from within the U.K. versus outside the U.K. We've changed our balance of Greencore workers versus the use of agency labor providers. Although we still -- to your very first question, we have a modest level of agency labor staff currently working in our business, but obviously, we pared that back a little bit as we came into the lockdown, too. So if -- we would prefer for there to be some form of trade deal agreed perhaps by this weekend. But I think we can manage our way through it. Notwithstanding the fact there'll be a bit of disruption, we'd have to manage the modest level of tariff impact net if that deal didn't happen.

Patrick Coveney: On behalf of the team here, listen, I know we've gone on a long time, but we had just a plethora of news flow that we released last night and this morning. So thank you for spending the time with us, and Emma and I and Jack are happy to follow up with anyone if there's any questions that we didn't get to address on the call. But stay safe, stay well, and we look forward to talking to everyone soon. Bye-bye.

Emma Hynes: Thanks.

Operator: Thank you for joining today's call. You may now disconnect.