Greencore Group plc (GNC) Earnings Call Transcript & Summary

Okay. Good morning. Let's begin. Good morning to everyone here in the room and on the line. You're all very welcome to Greencore's results presentation for the full year ended the 24th September 2021. I'm Jack Gorman, Head of Investor Relations at Greencore, I'm joined on stage today by Gary Kennedy, Chair of the Board; Patrick Coveney, our Group CEO; and Emma Hynes, our Group CFO. Before we begin, just a few housekeeping items. The presentation that we're going to go through today has been available on our website since 7:00 a.m. this morning, and you can follow it live on the webcast as well. And also, I would like to draw your attention to the forward-looking statements in Slide 2 and the agenda for this morning's presentation that's outlined on Slide 3. So with that, thank you, and I'll hand it over to Gary.

Here we go. Good morning, everybody. Thanks, Jack and very much appreciate you all attending our results presentation today. It has been a very challenging, I would say, energizing year for all of us at Greencore in terms of financial year '21. I have been extremely impressed with the resilience of the business, the enduring strength of our customer relationships and most of all, our 13,000 colleagues without whom this business would not exist. And I would like to thank everyone for their fantastic efforts over the year. Of course, you are aware we announced on Thursday last that Patrick will be leaving Greencore. And in March '22, will join SSP Group plc. Patrick has been an outstanding leader over 17 years in the business, 14 of those as CEO. He has contributed enormously to the strategic transformation of the group over the period, and he has built an excellent executive and senior leadership team. They have helped deliver the growth and leadership positions that we enjoy today. On behalf of part of Greencore. Thank you, Patrick. On a personal note, I'd like to recognize the strength of personal relationship, Patrick and myself have enjoyed and that has sustained us through many highs and some significant challenges over that period. And there'll be plenty of opportunity for me to thank him more formally. But again, thank you for that, Patrick. As you would expect, we activated our contingency plan immediately upon the news, I will take a more active role in the business, and we'll assume the role of Executive Chair from the 31st of March 2022. And I'm delighted that our Chief Commercial Officer, Kevin Moore, has assumed the role of Deputy Chief Executive. And probably most of you know, Kevin is here. Those online obviously can't see him, but he's the good-looking guy on the right on the chart with his name underneath us. So between Kevin and myself, we will manage the transition seamlessly. In the intervening period, we've had the benefit of Patrick continuing to lead the executive team as CEO. We've also initiated a 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 '21 highlights. Thank you.

Thanks, Gary, and thank you for your kind comments. As you say, hopefully, we will have plenty of opportunity between now and the end of March to -- for 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. In that context, I wanted to thank so many of you for coming in person today. 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 to antigen 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 be 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 7:00 a.m. this morning and the annual report, which has also been released this morning. And indeed, later on today, we'll be releasing our second annual sustainability report, and I'll say more about that later in the presentation. But over the next 35 minutes or so, Emma and I are going to run through these results. I'm going to just make a couple of introductory comments around where the business is. Emma will run through the results. I'll come back in on a strategic and operating review, and Emma will finish by going through our thoughts and outlook for the year ahead. So for those following on the conference call. I'm now on Slide 6, which is the executive summary. So the year has been all about momentum or all about progression. If I take just 3 economic metrics, by way of example, on revenue. In the first half of the year, our business was down 19% year-on-year. In the second half of the year, our business was up 35% year-on-year. And indeed, as we finish the year, and I think this is probably the most important single revenue piece of news, we were back as an overall business to a higher level of volume and higher level of revenue than we would have been pre-COVID. And there's some nuances across different parts of the portfolio. But overall, our level of volume output was back to pre-COVID level as we finished FY '21. We also have seen a path of rebuilding margin and rebuilding profitability. If I take operating profit as a metric. In the second half of FY '20, we actually lost money. In the first half of FY '21, we broke even. And in the second half of FY '21, we made GBP 39 million of profit. In other words, the full profit for the financial year was in the second half. From an operating margin perspective, we went from 0 in the first half to 5.2% in the second half. We have further to go on returns and margin, but the trajectory is positive and the build back of returns and margin is underway. Thirdly, and I think perhaps most importantly, from a financial perspective, has been where we have got our balance sheet as we finish the year. If I take this time last year, as many of you will know, we actually went to the market to raise incremental equity. We wanted to do that to give us headroom for the uncertainty that lay ahead turned down to be prescient actually given the lockdown that was imposed in January '21. On a national level, but it also gave us the resources to continue to build the business and to run the business with a view to building returns over many years rather than just getting through FY '21. But once we got to the second half of the year and as volumes came back, if I could say so, the cash generation of the business was absolutely spectacular. And we finished the year with net debt at GBP 183 million. And our net debt to EBITDA, our leverage ratio from a bank covenant perspective at 2x. That is our supply chain, purchasing, and in particular, our finance team deserve enormous credit for that. Because in effect, we've taken our business back to the sort of level of leverage that we were at as we came into COVID, and we've done that as probably more quickly than we'd expected. I think it's very encouraging. Notwithstanding those 3 financial metrics. The year has felt tough. I think anybody who's working in the U.K. food industry, in particular, through FY '20 and FY '21 has found it challenging. The well-documented COVID challenges impacted on demand really through until late spring of 2021. But since then, most of the focus has actually been on the supply side challenges rather than demand side challenges and challenges, which, in particular, hit an efficient just-in-time supply chain, which is the way in which the U.K. fresh food industry and fresh prepared food industry is set up. And working through that, I think, has been demanding. I think we've done it nicely, but it's been hard, and it's been a real theme, and I'll say more about that a little later in the presentation. And while Emma is going to go into our outlook statement in more detail, I might just make 3 comments in relation to that, if I may. First of all, we've got good momentum as we've come into FY '22, good momentum on revenue and good year-on-year progress, which we need to have, but which we are getting. And in that context, on the assumption that there are no material multi regional or national lockdowns in the U.K. and I don't think they are going to be, but on the assumption that they're not, then we are comfortable with the current market expectations there across the financial metrics that are in the market for our business, and I will say more about that in a while. And then lastly, given the recovery that we've seen in the leverage position of the business, we're fully anticipating reestablishing capital return to shareholders this year. The exact mechanism by which we will do that, will be determined by market conditions and Greencore conditions as we go through the year, but we do fully anticipate returning capital to shareholders as we go through this year, which again is a sign of a healthy business and our capital management system working. Turning now to Slide 7. As everyone will know who's followed Greencore Central to Greencore is the U.K. food to go market and our position within that. We currently have somewhere between 65% and 70% market share of pre-prepared sandwiches in Britain. And so it's mattered how we've rebuilt revenue through the period. And people who've been following us over the course of the last 20 months will know that we've repeatedly shown mobility data, and we've repeatedly shown the -- what that's meant for food to go revenues for our business, recognizing that at various points through this pandemic, there have been legitimate question marks around the impact on the food to go market of how people are living their lives and how people are working across the U.K. What's reassuring about this is that we now have Greencore food to go revenues essentially back to pre-COVID levels. That's a function of the performance of our customers in the channels in which they operate. Clearly, with some substitution between channels for our customers has been a really important theme. In other words, suburban outlets picking up the slack that might previously have been in city centers. But that's being augmented, and Emma will go through the details of this in more detail in a few minutes by very successful new business activity and market share build by Greencore through the period. Such that if you take the second half of FY '21, our food to go revenues were 59% higher in the second half of fiscal year 2021 relative to FY '20. And as I say, by the time we finished the financial year, we're back to broadly back to pre-COVID levels in terms of activity. That's not to say that we haven't had decent and very strong performance in other parts of our business. Our other convenience categories were up 2% on the year, and were up 10% in the second half of the year. So in summary, before handing back to Emma. If I wind back to this time last year, there were 2 existential economic threats to Greencore. The first was about our markets. Was the food to go market going to come back and was our position in that going to give us the basis to have a strong scale, growing business? And I think we have very clear evidence now that the market has come back and that our position in that is very robust. The second was about our balance sheet. Did we have the balance sheet that we would need? And did we have the resources to be able to invest to grow the business and to protect the business through here? And I think the progress we've made on cash flow and leverage is very reassuring in that regard. And so with that, I'm going to hand over to Emma, who's going to run through the results in more detail.

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 are doing this in person. So it's really great to meet all of the analysts in person and to have everyone here. And look, FY '21 was really a year of 2 halves for us. My focus has been on managing the cost base, cash flow and liquidity carefully through the half 1 lockdowns 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 outlined a key financial metrics, Slide 9. So some brief recollections and reflections on the [indiscernible] 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 GBP 39 million was at the top end of our guidance. So we're happy with that performance. 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, 2x net debt to EBITDA is a little below average levels before cohort and it's approaching the '19 level, which was 1.8x. So we're really pleased with that trajectory. And finally, while ROIC is still well below historic levels as profitability recovers further, this should progress well from the FY '21 baseline. So moving on to Slide 10 and the detail of the full year income statement. And with the U.K. in some form of lock time 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 resilient performance in what was a tough market. And this growth was driven mostly by our Food to Go categories. And after a first half where we were effectively breakeven, so 0 margin. We started to improve profit conversion of a 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 profit rose by GBP 6.5 million, and we held on to most of this increase at the adjusted PBT line after a small increase in noninterest 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 3.7p, adjusted EPS, which is some improvement off a very low base in FY '20 despite the increased number of shares and issue in the period. On the next slide, I'll look at our revenue performance. So as a backdrop, we have to manage through a volatile U.K. trading environment during the period. And we felt this most in our food to go categories where demand was constrained by the impact of tiered restrictions and subsequent lockdowns across the U.K., which persisted for most of the first half as the U.K. economy reopened gradually from March onwards, 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 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. There were also several moving parts in the 2% advance in full year revenue from other convenience categories. So we had a good performance in ready meals, and that was offsetting cooking sources 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 onboarded several new customers and several new pieces of business from existing customers over the course of FY '21 and in particular, in half 2. So when we look at Q4 performance versus FY '19, 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 onboarded through the year. And more than 1/3 of that is in our distribution business in direct stores. So if we look at this another way, based on the Q4 run rate, the annualized revenue from these onboarded new business wins in Food to Go is over GBP 100 million. There was a small portion of wins in other convenience and that would bring the annualized run rate based on Q4 to about GBP 120 million. That 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 we've highlighted some of the key areas of how 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 turn to 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 profit delivered for KPI purposes, it is important to note the margin outcomes and namely 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 noted in our statement today, adjusted operating profit is after specific COVID-19 related costs of about GBP 5 million, which were incurred for the most part in half. And finally, here, one 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 DTS, which is direct to store, and that comes with a lower margin. Now if we just turn to Slide 4, which outlines the waterfall of free cash flow movements in FY '21. The 2 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 effect 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 a year-end effect, which is a benefit based on the timing of year-end that will unwind in FY '22. Our maintenance CapEx was broadly in line with FY '20 levels. So some of this was sort of phasing as it moves into the first half of FY '22. And the other line items were much as expected, which resulted in a free cash flow of GBP 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 target of converting at least 50% of our EBITDA to free cash flow. So we're pleased with that performance. And if we bring all of this together into net debt. There was a GBP 167.4 million reduction in net debt, excluding lease liabilities in FY '21. So strategic CapEx was GBP 24 million, which is up from GBP 13 million in FY '20 as we began to revitalize our excellence agenda and in particular, the rollout of our automation program. So in FY '21, 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 line. So what we were doing was focusing on the more labor-intensive tasks, including leading which is placing a top slice of bridge to close the sandwich; turning, which is adjusting the sandwich 45 degrees to an even triangular cost to ensure that it cuts costs evenly; and then matching, which is placing on half of the sandwich on top of the other before it gets packaged. We also accelerated our investment in CapEx in half 2 and we'll do so further in FY '22, which is supporting our new business initiatives. We had talked about a GBP 30 million capital investment to support ongoing new business, which will be onboarded in late FY '22. So we'll be progressing that further in -- and some of the spend on that GBP 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-supported equity placing, and that raised a net GBP 87 million. So -- while we also completed the sale of our interest in our molasses business and we disposed of an investment property, which also generated further proceeds. So where we landed as a result of all of this, we ended the year with net debt excluding leases of GBP 13.1 million, which compared to GBP 350.5 million at the end of our last fiscal year. So 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 2x net debt-to-EBITDA, which to approach FY '19 levels. We securely exited the covenant waiver period. We increased our liquidity by over GBP 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 U.K. 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. And 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 return to shareholders this year. And underpinning 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 do to get there, but it will be the guiding post 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 the Board will continue to assess these internal factors as the year progresses. So in conclusion, we've achieved a lot in FY '21 in very challenging market conditions. I would reiterate what I said in May as 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 look, this is a key focus for us in the coming months. We're well set up to achieve this through FY '22 and beyond. Now that concludes this section. I'll come back in for outlook at the end. But for now, I'll hand back to Patrick for the operating and strategic review.

Thanks, Emma Hynes. For people following me on the conference call, we're on Slide 17 now. So I wanted to essentially be forward looking for this strategic and operating review because has really set out quantitatively how we've done in the period. And of course, as we've seen, particularly over the last 4 or 5 days, 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'd describe as the kind of muscle memory in terms of knowing how to flex our business down and up on 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 associated with them managing our way through cover. 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 that is maximizing output, but is leaving a certain amount of revenue on the table. So where the market to fall 5% to 10% or so in terms of -- 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 what that is in a second. So the 3 things that I'm going to touch on then are: one, how we're building back revenue and driving growth; secondly, how we're managing through the challenges, particularly on the supply side. And thirdly, I wanted to actually touch on some of the key highlights from our sustainability report that we're releasing today before handing back to Emma. So as has been a theme in everything that Gary, Emma and I have said, we're encouraged by the recovery in our business. I might go a little bit further than that and say we're positively surprised by how strong and how quickly demand has come back. I think that I think our commercial teams and the customer relationships that we have, have really helped that. And in that context, I do want to acknowledge the work that Kevin in particular has done and continues to do in shaping our commercial relationships with customers and sustaining that way of working and that trust-based relationship, which is so important, given all of the challenges across the supply chain that the whole industry is working through. Notwithstanding the fact that it really was a year of 2 halves in terms of performance. If I take the measures for the full year in aggregate, what you see is that -- and I'm on Slide 18 now, is that in a food market overall that grew 3%, Greencore grew on a pro forma basis by just over 6%. That's a function of the category -- product category mix that we have and the customer mix and growing customer footprint that Greencore has that's helping. Secondly, within the food to go market, which represents about 2/3 of overall Greencore revenues. What you've seen here is a market recovery. I'll touch more on why that is in a second. But very importantly, the part of the market that Greencore operates in, which is retail food to go. In other words, the sales of food-to-go items that go through grocery multiples, convenience stores, discounters and high street outlets, the relative share of that part of the market has stepped up quite a bit in the period since COVID came such that those outlets types that I've mentioned represent about 27% of of the total food to go market now. They were 24% of the food to go market in September '19. And the other piece that we've really learned there is that the impact of working from home dynamics are very manageable for Greencore. And a big reason for that is the location of the stores, that Greencore products are sold being very well represented in suburb close to where people live, which is mitigating, to a very large degree, any falloff in volume in city centers associated with changing work pattern. And then -- and if I look at Greencore's performance and relatively overall food to go market, you see that we've grown by 9% in the full year relative to 2% in the market overall. That's a function of a favorable customer mix and in particular, the regional profile of the stores that we supply but also the effects that Emma described a few minutes ago in terms of the onboarding of new business, that GBP 100 million or so of food to go business on a run rate basis. we've been using throughout this period in which we've managed our business and recovered our business through COVID, this mobility tracker to really draw people's attention to the strong correlation between food to go volumes and overall societal mobility. I stress that it's societal mobility and not whether people are working from home or not because what we found is even with emerging and different or more hybrid working patterns, people are still moving around and it's been moving around that correlates positively then with food to go volumes. And what you see here is that by the time we finish the year, as mobility has come back, food to go volumes have substantially come back to where they were on a pre-COVID basis. I might just add some just additional Greencore data to this because it might be just helpful and it's more real time. So every fortnight on a Sunday, we check in with in food-to-go shoppers to understand qualitatively and quantitatively what their experience has been in the previous fortnight and what their perceptions or views are for the period ahead. Clearly, in the context of the news throw from the end of last week, that sentiment, I think, is quite important. So I will just share some of that with you right now. The first point to make is in terms of penetration and what we mean by that is what share of those 500 food-to-go shoppers were purchased at least 1 food to go item in the previous week. The answer to that is about 40%. At peak pre-COVID penetration was about 45%; trough mid-COVID penetration fell as low as 15%. So again, substantially back to notwithstanding some of the uncertainty and concerns at the back end of last week. If I just go a little bit more qualitatively and forward looking into that, there's 4 themes I might draw your attention to. So clearly, one of the things that we're alert to as a just-in-time fresh food business that's made to order and not make to stock is has there been a change in volumes ordered even since last Friday. Short answer is there hasn't been, All right? The volume orders that we've got right now, and I starting to Kevin about this morning before and beginning this presentation, have not fallen 1 iota relative to the orders that we would have had planned in the system this time last week before the news of Omicron came to life. What has changed slightly is the level of concern or confidence that consumers have about leaving their homes, right? So we track that. We've been tracking that every week. And so we have seen a slight fall this Sunday, under the 28, Sunday the 28th in terms of confidence leaving their home. -- but it is a slight fall, and it's actually fallen back only to August levels, right? So we have people not unsurprisingly, a little concerned, based on all of the news flow government announcements and so forth over the weekend, but it's not dramatic. And it hasn't fed through yet into volumes ordered across our business. Third thing I would -- or second thing I would say in terms of consumer sentiment is an enormous level of pent-up demand and excitement about Christmas. And we're really seeing that through with 41% of consumers have already started the Christmas shopping. 30% of consumers have already actually purchased at least 1 either Christmas sandwich or Christmas specialty drink in the period, which is quicker than would normally be the case at this time of year. Third feature is perception of availability. We're seeing an improvement in how the shopping experience of U.K. consumers. In October, 2/3 of all shoppers cited gap and availability problems in the outlet in which they went into. That's now fallen to 49%. So you are seeing the industry and U.K. retail food industry is really good at adapting and you're seeing that feed through in terms of how shelves have been stocked and what that means for consumer experience when they go shopping. And finally, and I think this is -- this will definitely connect to what we're doing in terms of sustainability. There has been a marked step-up in the impact the consumers are placing on climate action on the part of the suppliers of their food and beverage. 51% of the people that we spoke to on Sunday indicated that their shopping behavior will be influenced by the perception of the climate actions of the brands that they're buying. That is the highest it's ever been in a survey that we've done. I think it's important in signaling notwithstanding all of the COVID, a real cut-through actually coming out of [indiscernible] in terms of the consumer impact on and consumers' desire and interest in engaging in climate matters. Now if I -- So that's the kind of macro demand recovery in some of the consumer sentiment. And what I wanted to touch on now is how are we managing this demand? And you'll see the set out on Slide 20. So clearly, a key feature of the demand, as we've highlighted throughout the presentation, indeed, throughout the year has been the volatility, right? Huge changes in terms of underlying demand at different points through the year. But in effect, if demand volatility was the big challenge from -- for the first half of the year, indeed, even the first 3 quarters of the year, supply vanity has been the big challenge of the last quarter and will be the big challenge as we see it through FY '22. We're in solution mode as an industry and as an industry leader in this regard, we have done a ton of work on bespoke ranges with a focus really being on maximizing output even if that means somewhat constraining overall choice at the margins that are feeding through either to our customers or from our customers through to suppliers. We sit in the middle of a just-in-time efficient make-to-order supply chain. So transparency and engagement backwards with our suppliers and forwards with our customers is really important. And I think we have now got to a point where while availability isn't perfect, it's pretty good in meeting consumer and shopper expectations right now. But it will remain a focus for us and other players in the industry through the year. If we were to try to give you the kind of the benefit of the judgment of people like Kevin and I in terms of what does this mean? And I mentioned this earlier. Our best judgment, and this is a judgment, it's difficult to back it off entirely with data, is that the effect of all of the demand management metrics and measures and processes that we're putting in place with our customers is that we're probably tapping or missing the underlying unconstrained demand by somewhere between 5 and 10 percentage points right now. And so if I talk about the kind of risk looking forward here, if you were to see some modest falloff in consumer demand, it's very unlikely you'll see that actually hit Greencore revenues until it falls by a margin that's greater than that. And that I think gives us a little bit of buffer as we think about some of the uncertainties, particularly on the demand side in relation to COVID. Second big feature, the demand management side is the positive impact of new business wins. And I missed out quantitatively what that looks like growth. I just wanted to touch on what it means for us strategically. And here, if you allow me, I'm going to just move everybody back to the Capital Markets Day that we did just over 2 years ago when we spoke about the strategic development of our business from a channel and product perspective. And actually, we've done a really nice job of executing against that through the COVID period. Part of that was what I might describe as sort of filling in the kind of the customer category tricks from a product perspective. In other words, where we have very strong customer relationships. So we didn't supply them with sandwiches and we didn't supply them with ready meals, and we didn't supply them a salad and have we found a way to fill in that, that image of a matrix and we've done a very, very nice job. The most marked in that has been what we've done with pantry, where we're currently putting in place a capacity solution that will enable us to become a very material ready meal supplier with them and a much bigger solid supplier with them alongside the very strong sandwich and food to go business that we've had with them for some time. We're also doing the same with Tesco on plant and solid, and we will continue to work to fill in with existing customers where we have product competencies that we haven't quite been stepping up to equivalent scale as we normally do in sandwiches in other product areas, and that's an important part of our new business agenda. The second part, though, is around accessing new channels and in particular, bringing our food to go business into the convenience store channel and into the coffee shop channel. And we've done that with new customers and Neuro, the coffee shop; and Shell in convenience stores would be examples of that. We did not supply either of them before COVID. But we're also doing it with existing customers. We've done that through our relationship with Morrisons in Cole's and you'll have seen last week, M&S announced the fact that they're going to put M&S products into coffee shop stores. Most of that product will be Greencore manufactured. So in effect, we will be working with M&S to step up our business in the coffee shop channel through their relationship going forward, which will come on board in the spring time and again, very material. So the net effect of that is that Greencore will become by far the largest supplier of food-to-go items into the U.K. coffee shop channel by far from a position where we had almost no position 2.5 years ago. So in other words, our equivalent share in coffee going forward will be about the same, actually as the share that we have in retail. And as an example, actually, of us using the COVID period to strategically develop the business and set ourselves up on the other side. And then the last piece I'd say on the demand side is what are we doing in relation to product competencies. And here, we've got a big focus across our business and stepping up what we're doing in salads and plant-based offerings, a huge part of that is leveraging the capability set that came with the acquisition of Freshtime just over 2 years ago. We've seen our business from a salad and plant-based product solutions increase with all customers through the period. But much of that is on the back of the capability that we have from Freshtime. And I think as we look forward strategically and we look at some of the themes that are happening more broadly in the U.K. around the -- one of the product competencies and nutritional requirements that are coming out of the national food strategy and where we're going to need to get to in terms of the types of products from a climate perspective that we're going to need to have in the market and the competencies that we've got and we're building in this space will become -- will become more and more important. So that's the demand side actions that our business is taking. If I just touch on the supply side now. And the context for this is very important, and there's people in the room who I've been speaking to for a while, but who deeply understand how the U.K. fresh food supply chain is configured. And I would say, by the way, Britain went into COVID with a fresh food supply chain that was the envy of the world, right? It was an efficient just-in-time fresh food system that delivered remarkable food safety outcomes through to U.K. consumers as well as very, very good fresh food choice. But some of the pressures that we're living with now are putting near term and indeed longer-term stresses on that system. And I want to just touch on what some of those pressures are and what we're doing about it. So part of it -- and by the way, many of these trends are not U.K. specific. Some of them are amplified in the case of the U.K., but most of them are actually global. So the pace of COVID recovery in terms of what it means for demand on what the pressure that's putting on supply chain that's an impact. The pace of the unwind, which has been relatively slow for good social reasons of COVID support and what that means, in particular, for labor availability, residual levels of sickness and absence through contact tracing, which is still a feature for -- across the U.K. labor market. Labor, availability generally with vacancies in the U.K. now running at a 20-year high. And finally, the impact of immigration policy choices and what that's meaning for labor availability both through the year and at peak season. And so -- the effect of all of those factors is putting pressure on the whole U.K. food industry, but particularly on the fresher make-to-order parts of the system. And in the context of Greencore, that's most acute in our sandwich supply business, which is very much a short shelf life make-to-order supply system. Some of these factors, by the way, play out to a greater or lesser degree in certain regions versus others. So for example, if I take in the context of Greencore, we actually have been really well set in London, but under greater pressure in Yorkshire, for example. And even within that, actually, you see different regions, different towns, different cities in the U.K. where those impacts are more acute. Dealing with these issues from a supply perspective has a short-term dimension, which we're onward. Critical to this is the engagement initiatives that we have across our business. And that context actually, our Board, our senior team, we're delighted to see very, very positive progression in our engagement scores when we tested it across 13,000 people in the summer. But it's also going through to retention metrics and to labor rate decisions and labor benefit decisions that we're making both nationally and regionally in order to actually secure and underpin the workforce and supply chain that we need. This will also feed through to longer-term actions. In has touched on it one element of it earlier, which is the level and pace of automation that means for the configuration of our future network. I think the way in which we configure our network in the fresh food part of our business was naturally evolve over time, too, by which I mean we will probably move from a site focus that's principally driven by customer to a site focus that's principally driven by production components such that we've got a way actually of maximizing output and giving ourselves more contingency against pressures on either individual ingredients or labor availability. All of these points impact on the pace of recovery in terms of our return Our returns on capital and our returns on sales. And it is true, so evidently based on the results that we're sharing and the outlook that we're showing that the pace of revenue recovery has been quicker than the pace of profit recovery. and we think that will continue to be the case that we are pushing hard to bring that pace of recovery and returns forward, recognizing that in the second half of the year, we saw a very significant improvement on the first half, it went from 0% margin to 5.2%, but we need to keep pushing that on and the management of some of these factors will be an important part of that. Of course, in addition to all of that is inflation. And what we're seeing now is continued build in likely levels of inflation for FY '22. So we've been having this conversation a couple of months ago, we would have said, hey, we think inflation -- total inflation level across raw materials, utilities, distribution, labor is likely to be mid- to high single digit. Now we're pretty confident it's going to be low double digit, right? It has stepped up pretty materially even in the couple of months since that we've been trading in this financial year. And of course, and we shouldn't lose sight of this. Everything that we're doing does need to recognize that we should be trying to protect consumers, particularly the hard-pressed consumers for whom value is very important in terms of what it means in terms of pricing through to consumers and the availability of fresh nutritious food through to U.K. consumers. But it's an important, but we've got to protect our own business as well. And we are doing that by pushing the pricing lever with our customers very, very hard. And to date, where we need to be in terms of inflation recovery. It's a big task for our commercial team. but it's one that our customers under understand, and we are pushing through price increases hard consistent with that level of forecast around where inflation is going to be, and that will be a sustained and continuing journey, we think, at least through the next couple of quarters. We'll see where inflation by the time next summer, but our spend is between now and next summer, further inflationary pressure will necessitate further push-through of pricing, and that's a big part of Kevin and I and Kevin's team are doing with customers. And I have to say the progress that we're making there is where we need it to be. We're not trying to pretend a walk in the park, but it's where we need it to be, and we need to keep it there. So turning now to Slide 22. And I think it's important as I kind of bridge from what I've just been saying around inflation recovery that it matters how we manage our customer relationship through all of this. Our task is not just to optimize performance in FY '22. It's to have a vibrant, growing business where we are relevant and where we have growth plans and appropriate long-term partnership agreements with our customers for many years to come, and that's how we're managing our business. And we always have through these pressures. In that context, we have reset and lengthened several of our biggest commercial agreements through FY '21. And that's giving us the context and indeed the tools to deal with some of these short-term pressures around range optimization choices and inflation recovery. And we think it's giving us a platform to continue to develop our business in the sort of growth areas that I've mentioned earlier as we progress through '22 and into '23. And we're also -- and I'm fortunate that we have the resources to be able to do this. where there are opportunities to invest with customers, we are taking it. And so 1 particular example of that is the GBP 30 million capital investment that we're making across 3 sites to set up our what in effect will be a new ready meal facility at 1 of our sites, just outside Sheffield and incremental solar investments as well that will enable us actually to materially step on our scale and breadth of business with one of our largest customers that I mentioned earlier as we go forward. So just to finish that in a completely different area, which is what we're doing in terms of sustainability. Today, we are releasing our second stand-alone sustainability report. It's our better future plan. It's an exciting document actually. It is incredibly readable. And our team, led by Andy Wright, who put it together. I think they've done a stellar job, both in setting out the narrative for what we're doing in sustainability, but also putting together with all of our leadership teams on board the right balance of kind of process and quantitative metrics and targets in terms of what we're trying to do. We made really nice progress in FY '21, and we've put in place since space targets against our carbon emissions against Scope 1, 2 and 3. We've reduced food waste in terms of output. We've got community action plans in place across almost all of our sites will be on board under the banner #startswithfood. We have brought to market in September the first completely plastic-free fully recyclable at timescale with 3 of our customers, and we'll be rolling that out across more products with those customers and across more customers through FY '22. And from a social perspective, we made a decision as a Board in September that we were going to find a way to make every Greencore colleague a shareholder in Greencore and we'll be implementing that in January of FY '22 as part of aligning purpose and stakeholders across our business. We've got new targets for FY '22, some of which we're already well on with. We signed up with the signed manifesto. We've signed up to the cage-free egg commitment. And we will have net 0 road maps in place in every site. And as I said earlier, we'll have rolled out our [ skillet ] and employee share ownership schemes through the year. And then I think if I just finish on sustainability by lining back to the point on demand around plant and salads, which is -- we have made a commitment in the sustainability report that we're releasing today that we will have reduced by 30%, the quantity of meats in all of our product ranges by 2030. It is not going to be possible for the U.K. to meet its climate obligations. And nor is it going to be possible for us to deliver the nutritional outcomes that the health professionals required in the U.K. without a material reduction in meat consumption in the U.K. and we're committing to a hard metric between now and 2030 of taking 30% of the quantity of meat in our total product range out by them. So that's the journey that we're on in terms of sustainability. It will be a big theme for Greencore. Fundamentally, we believe we're a sustainable business in terms of fresh food, short supply chains, high nutritional outcomes, and we're going to continue to deliver against all of that. So with that, I'm going to hand back to Emma for the outlook.

Thanks, Patrick. And look, I'll just briefly bring this together on Slide 25. So look, overall, when we think about the outlook for FY '22, we've had an encouraging start with the demand backdrop being pretty strong. We're progressing well on inflation recovery. But as Patrick said, I mean, that number is a moving target. So we're working hard on it and progressing well. But 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 FY '22 outturn in line with market expectations. We expect to deleverage further as we go through FY '22. And we are committed to what is a dynamic capital management model, with strong positions in our markets, and we're confident about our medium-term prospects. So look, thanks, again, to everyone for participating and for being here in person today, and we'll move to Q&A now.

Clive Black from Shore Capital. Really distinctive series of moving parts. You talked about, Patrick, as someone who's looked at the industry for a long time. I just wondered in terms of price recovery, where you stand on capacity alongside demand in market and also what that means for potential volume and mix with the magnitude of inflation that you're talking about needing to be recovered, double-digit inflation in the market that showed the product is very distinctive.

Yes, and just to -- so first of all, the -- if you think about the pass-through, right? So if we have had 12% total inflate assets through all in price that's about 6% for our customers. And that's the nature of the markup, right? It's about 100% markup for our customers. And what the feature of this inflation relative to the only equivalent period, Clive, in my tenure in role of very high inflation, which was into 2008, '09 is then it was all about raw materials, whereas here, it's probably about 40% to 50% of our raw materials, but actually labor, utilities, distribution is a very, very pronounced element here as well, which, of course, is a traditionally is brand traditionally trickier to recover in price through the U.K. food system or indeed the global food is and where typically that type of inflationary pressure that isn't in 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 some 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 got to get it through price. And the -- And that's the 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 tactics of the 2 final things I observe, first of all, -- the industry is pretty full, right? 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, right? And of course, that's partly a function of what I might call the kind of notional machine capacity of our sites, which are lower than they've been for a while. But it's also a function of the labor market, right, and the ability to actually -- even 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, right, because we've got the ramp-up of that [indiscernible] Ready immune and solids business, and we've got the incremental M&S cost of business. So we're having to plan for that from a labor perspective in any event. And then the other effect here, which to date were 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 reasonable that in the end, consumers are going to have to pay more for food. And the reason I say we're relatively relaxed about that is not that we don't care about providing good value through the consumers. We really do care about that because it's often easy and environments like this in Central London with people like we're talking to here or to not actually have kind of empathy for the huge portion of the U.K. population for home food inflation is going to be a serious stress on their live, right? 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 constrain demand anyway, it doesn't feel like it's going to be a material economic effect for us. And so we're -- that will be our current sentiment in regard to inflation now. So this is a big task. We knew coming into the year, it was going to be a big task and it's got figure because kind of view we had when our teams led by Kevin was put in place was very serious, sharp material intervention in quarter 1, we'd lock it away and then get on with things. What's happening is that we're going to be -- we're going to gain for a second time in quarter 1. In quarter 2 as well. and that's just the context of what's happening given the inflation and pressure across so many different areas. Mark?

Two for me. This 5 to 10 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 symmetric or asymmetric? If Omicron turns out to be a flash in the pan and ability starts going up. Does that mean you've got very nice operating leverage on that 5% to 10%? Or does it mean you suddenly need to step change cost of services. And I want sort of understand the marginal economics of the business around 5% to 10%. The longer-term question, just taking advantage of having your swan song, if I may, is just what are your thoughts on the margin and return potential of the business, assuming a return to normality. If you just position the H2 numbers, margins of GBP 5.2 million, probably in H2 ROIC of, I don't know, high single digit. I think pre-COVID, you were at 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. Is it COVID on costs that will go away -- or is the structural profitability of the business in some way degraded perhaps because of DSD mix or something like that?

I'll deal with the first one. I make just a couple of comments on the second, but I might let you come in and give more detail on the kind of forward-looking view on margin returns. We're not delighted about the 5% to 10% miss to the unconstrained demand, right? And it's really a function of the management of some of the supply chain pressures that are in the business, some of which we think are temporary and some of 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 SKUs. 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. 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, right? But even against that reduced range, and our service metrics, Martin, are probably 3% to 5% below where they would typically have been pre-COVID, right? And I want to be clear that, that is not -- That is not all Greencore's fault. A lot of that is actually a function of inbound supply and pressures in other parts of the food system both backward and forward. And so the combination of somewhat constrained ranges. And by the way, I think the 20% is -- some of that is sensible, but some of it is necessary, if I can describe it in terms and the somewhat lower level of service. So that's where you -- notwithstanding the kind of substitution effects within the range as it is, which is why it's kind of a judgment call is that's where we would see the 5% to 10% opportunity. Now to unlock that opportunity -- 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 a way over time that requires somewhat less people, right? And and that's what we're working on. I think it is an important near-term and longer-term opportunity for our business. The reason I close in the context of Omicron is that it is mathematically true that if demand in the market fell a bit, we could our service levels against that demand would go up slightly, and we could choose to reintroduce some more products as a hedge against that effect now. And so that's where it's connected to Omicron. The simplest way for me to put it is that we were we anticipated that this is our margin and returns, by the way, we anticipated that volume and margins would -- sorry, volume and revenue will come back more quickly than profitability than it has done. There is an element of mix in that, 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 set of items has a different economic profile, decent fee per unit, but because we take title to the product. The percentage of margin 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, right? So 1 is the -- some of the kind of direct and indirect consequences of managing through COVID from a cost base perspective, and we're working to unwind, it's not all on round yet. And I think the other feature of our business actually is that we have chosen to prioritize output. And I think there are -- there will be opportunities for our business in terms of the cost that sit below gross margin and below contribution to get after going forward. And I think that's a focus for our team and our Board. The point being that as we've done at stand back, both ourselves and with our Board here, we don't see any reason why we can't get the margin and the -- what I might call the kind of like-for-like returns metrics. And we can explain on that in a second, back to the sort of position that we were at pre-COVID, post-COVID. And obviously, the quicker that we can do that, the better it will be 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.

Yes. Mark, let's just give my perspective on this. I mean as we all know, we've been through an incredibly tough period through COVID and working through all of the disruption impact now. Really pleased with the top line having come back, really focused on delivering operating profit. I think we've been consistent in saying that margin will come thereafter. But headwind of inflation is we need to recover it. We need to manage through all of the supply chain disruptions right now. And deal with 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 take the COVID disruption operating costs out of the business as well. When it comes to return on capital. I guess, just structurally, there are a couple of things that are slightly different. One is the IFRS 16 accounting, which has an overall increase in invested capital. So that does have a drag effect as you look forward. And then we've got higher U.K. 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 profit back, we rebuild return on capital.

Doriana.

I've got a few questions, if I may. First of all, is just trying to go back to the new businesses that we have onboarded. I remember last presentation, you were saying that, obviously, when you onboard new clients, you don't really reach the efficiency level that you would like to reach at first. Can you give us an update on that? And can you give us an idea of whether the new business that you have onboarded 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 reallocating the way you actually produce your volume by products rather than customers. Is that something that -- just trying 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 efficient? And what are the pushbacks that 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 regard to that item rolling on to new customers?

Okay. I mean just to give it quickly. The progress on new businesses as we expect it to be, right, and the -- I want to be a little careful in being too specific in my examples here, but that experience we have of where we onboard a fundamentally new customer is that it takes you a while to learn how to do it, notwithstanding the fact that 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 end, so that kind of rule of thumb that it takes about 6 months to get that business towards the kind of steady-state metrics in terms of performance is still about right. Sometimes we can get a little bit quicker and sometimes we can't. Where we have a customer where we're doing, for example, they're taking 1 of our products and extending it into a new channel, but the product is substantially the same. And of course, we wouldn't have a problem in the and shouldn't have a problem in that instance. On the point as to whether the new business is accretive or dilutive, notwithstanding that transitionary effect I think, in general, the new business and 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 our kind of product and commercial agenda in those areas. But importantly, the way this will work over time is that some of the fixed costs that are acquired are already in the business. And so the actual flow-through to the returns profile and profitability of the group should be a positive over time, right? Because you don't have to quite start in scratch and in all of those areas. On your point on CapEx and so we're doing -- maybe it is possible that the whole world now accept us that there were going to be massive pressures on labor availability from April, May 2021 on. And like we missed this. I don't think that's what happened by the way. I think it's come as a huge surprise to everybody and the kind of 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 tier 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 I've touched on. But what that has brought into focus here is -- and this will be a little bit simplistic, and I connect it back to Emma's 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 that you wouldn't need to be a genius to figure out which 1 I'm referencing, where the importance of keeping a solution that's ring-fenced just 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 product from several different Greencore sites, what you might well end up with us doing is taking 1 of our sandwich sites, for example, and moving as much of the automatable production to that site. And then in sites where we actually have more labor availability doing some of the more bespoke 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 to taking products in 3 different locations. And that actually could potentially give us a better return on the automation and also enable us to step up overall output and derisk that output somewhat to the kind of vagaries of labor availability, almost regardless of what happens in terms of some of the government policy areas on labor into the food industry. Last point on the recyclable skillets. And we -- well, both Sainsbury and co-op both issued a press release in September talking about the fact that we were working with them on the on recycled sandwich. That's 2 of the 3 customers that third customer, I don't think did, so I'm not going to name them. And being progress of those skillets 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 or potentially a compromise. I wouldn't -- Doriana 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 whether it would operationally work for us and through the supply chain. It then needs to be accompanied by kind of consumer engagement and 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 Hall 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 these pressure on labor, sort of where -- what is the vacancy rate and where is the trend going for you? And in response to gas question, you mentioned energy cost, could you able to quantify that either as a percentage or in absolute. And lastly, on the structural shift in food to go, you're able to sort of compare 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?

Yes. So I mean, actions we're taking on labor. The -- so some were doing nationally and some are doing regionally. So the biggest thing we can do on labor is to improve our retention metrics because I mean we're talking about people here, so I need to be careful and appropriately careful in my choice of language. But the -- the point here is it's the net movement that really matters, right? So it's how many people leave net 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 14,000 people who work for Greencore, individually modest in terms of what we're doing, but we think it's an important and purposeful commitment, and we referenced it in last year's annual report have put a scheme in place for this year. But over and above that, then we have a whole series of site-by-site or region-by-region initiatives, which include labor rates, 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 -- kind of -- it's a game of interest site by site. What I would say in our kind of weekly engagements and monthly reviews, we are tracking where do we need to be in net numbers of people per shift per site, and we're building in line with our plans, but it is -- 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 it 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, then we kind of people waiting around to make stuff and we don't have any skillets or we don't have any grade or our protein is it 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 life 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. Yes. I mean in Energy and Utilities are have -- I mean it's a highly volatile market, right? You guys will know better than me, you just track even tracking the oil price every day and what's happened even in the course of the last week. But we're seeing a materially higher utility forecast utility inflation without getting 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.

I mean we've covered half of that already, so to fix the price before the additional incremental price increases came through. So half of our winter energy consumption was already covered, but I mean we're still seeing sort of high kind of single-digit year-on-year million increase in costs in energy.

Sorry, your last point was...

[indiscernible] just about this structure shift in especially by [indiscernible]?

Yes 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 it has not tended to be shocked in aggregate as a discretionary item that people cut when they're under economic pressure. That certainly was not our experience during the financial crisis.

I guess 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 it is at 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 have done in inflationary periods before to make sure that there's a value proposition available as well.

Sorry [indiscernible] in the room. Mike, anything on the call?

Yes, there's a couple of calls questions.

[Operator Instructions] And first question comes from the line of Jason Molins from Goodbody.

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 custom mean for Greencore in terms of revenues margin profile, et cetera, and perhaps capital investment that may be needed to support that new business?

Yes, Jason, thank you. Two things. I mean, in -- if I look at the big chunks of incremental business for us through FY '22, the first is going to be the commissioning of the meals and incremental salads business, which I referenced earlier that is will be supplied out of the GBP 30 million CapEx investment that we've referenced. So -- and we're on with the appropriate labor planning and team building in the 2 core areas where that product is going to come from, which is Sheffield and in Lincoln Shere. So your second point on incremental volume with M&S on the back of their announced business with Costa. Fortunately, 1 of the parts of our network where we do have incremental capacities in Northampton. And so will -- and that is large actually, it's not entirely, but it is largely SKUs that we are experienced in making and that are solar 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 kind of workforce and labor plan to enable us to take that on as it comes on stream in the spring of next year.

And sense of the size of the opportunity. Obviously, you supply into the cafe network already now, but obviously cafe is quite a big player in that market. So can you give us any color on what you think that might mean in terms of volumes and revenues?

That will 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 estate 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'll remember in the summer, both in our -- when we did our interim statement and our Q3 trading statement there was -- we spoke about ongoing business development activity, and this would have been an important in our -- in the comments we would have made then. And so as a result, it's -- the guidance that we would have had for the year ahead would have had the onboarding of this business as a feature of our kind of internal planning for FY '22 and it's obviously helpful to have it confirmed like it was last week.

Next question comes from the line of Charles Hall from Peel Hunt.

Just going back to Doriana'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 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 also more generally, we 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 them given the pressures we're seeing?

Yes, Charles, 2 questions. 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 the discussions we'll be having customer by customer, but where the principle here is that the inflation that we are taking we need to recover, and we're committed to recovering fully in price. I don't want there to be any ambiguity about that. On your second question, which was. Sorry, -- the second question on -- just remind.

We can make an [indiscernible] choices.

Yes. We are -- there will be One of the features of what we're doing here is that if we -- If we can't deliver what we know we need to recover in terms of pricing, will we resign the business. And there are very small examples already about doing that, right? So it is not a position that our business can adopt here that we will go to market for these price increases. And if we don't get them go out of that grant, so we'll just live with a lower margin. So there are -- in particular, there are some of the more commodity solid areas where we've gone with what we believe to be and can evidence is very legitimate inflation recovery and 1 or 2 customers haven't taken it, and we've designed the 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 of what I would describe as sort of egregious margin grabbing but where the inflation is there, we need recovered in pricing. And if we can't recover 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're going to step away from business where they won't support some pricing and that's the policy that Kevin and the team are working through.

Next question comes from the line of Roland French from Davy.

I'll keep to 2 questions, if I could. Maybe, Patrick, just your kind of 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, the starting point, what's your outlook for '22? And then just secondly, it might be one for clarification. I might have missed it. Just on your pricing and your customer engagement, in particular, in food to go, what percentage of your customers or your contracts today have pricing aligned to that low double-digit inflation that you've called out?

Yes. I don't think we can say very much more on outlook for food to go given the -- some of the kind of macro uncertainties, except to say that substantially the volumes are back to where they were pre-COVID and we have incremental new business that's 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 that COVID isn't gone, and there could be some impact associated with us. And indeed, there could be some quite positive further volume upside depending on how that plays out too, particularly with over time in some of the city center and travel locations, right? 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 U.K., then I think our volume view for the food to go business is pretty robust and pretty positive. And your point on pricing, customer engagement, I mean the pretty much all of our commercial agreements with customers have 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 broader labor inflation will 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 will always be some things at the edges that might not be tracked. So -- and the view we've taken here is that the aggregate effect of these things mean that we need to recover in pricing regardless of what is anticipated or set out in the commercial agreements and actually -- in the vast majority of cases, our customers have got that. And while I've been delighted about it, we are working through pricing solutions with them, and we'll continue to do that.

There are no further questions on the phone lines. So I will now hand the call back to the room to Clive Black.

I think I've been described a veteran analyst by too many people. So I think it's fallen on me, Patrick, to 1 or 2 words to. Firstly, the Chairman talked about ups and downs in the last 17 years. I'd be interested to hear what you're up to were. And also just -- thank you for your -- the time you've given us. You've always been very excessive always had amazing insight and strategic overview and just to wish you all the very best at SSP, and to wish the Chairman well in the their [indiscernible] .

Thanks, Jagan. I didn't and don't want to make the results presentation, our results engagement around this issue. But just to say there have been hundreds and hundreds of [indiscernible] to answer your question. The -- it's worth someone other than me to recognize the business that Greencore was when I joined and the change that the change that we've put through since then, being the big ups for me has been the team that I've got to work with the customers that we've got to work with. I've loved the capital markets engagement that cuts both ways, we are accessible. We like being accessible. And so the my main test in this job has always been to enjoy doing it, and I've loved doing it 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 mature leader for Greencore, which is a great business. And it has been a huge part of my life for, I would say, for 17 years and a great part -- that's all I said. But thank you for your comments and for -- there are other veterans in the room here. I'd say that looking at Martin as well. And there's people on the call Nicola Mallard, Charles, and so others, Kenny whether there's any, there have been people who have covered the stock from the very, very beginning such as yourself and not quite the very beginning but pretty much it. And it's hopefully, that engagement has been positive for you as being positive for us. Thank you.