Greencore Group plc (GNC) Earnings Call Transcript & Summary

Good morning, everybody, and you're all very welcome both [ who are ] those physically here and also people that are online. I'm not the main event, so you only have to put up with me for a couple of minutes. And I will just highlight the fact that we have forward-looking statements. I'm just going to do a quick intro and a quick summary of the year, and I'm going to hand over to Dalton, who will firstly give us some insights in terms of his first couple of months with the business. We're [ going to ] the financial review with Emma, and then Dalton will come back to talk a little bit more about the future in terms of Greencore. So maybe if we just move on to the summary chart. So I was trying to find a word really that's sort of summarized Greencore and particularly summarize maybe 2022 financial year. I have a dear colleague on the Board who hits the word resilience, so I'm not going to use that one, even though I've already used it. But I would say robust is how I'd described the year. And when I look back on my tenure and in terms of Greencore, I think it's a good term to describe the company because we typically do what we say we will do. We take opportunities in our [ innovation ] -- our commercial opportunities. But when things are tough, whether it's the financial crisis back in '06 '07, or even indeed what we've had to sustain through COVID and recovery, we are a robust organization. So I think that's my overarching comment in terms of it. I think also, like when you look at the environment through financial year '22, we tend to forget some of the challenges that we had. The first 2 quarters that we were involved, we still had COVID. Omicron was very evident, had a big impact on our business. We [ faced ] into -- huge inflationary pressures, supply chain challenges, supply chain deficiencies, big labor shortage. So it's been a fairly meteoric year. There seem to be weekly events happening whether that was the unfortunate passing of the Queen or rail strikes. There was all of something in terms of disruption. So that's the environment that we've had to live through. I think what's really positive in terms of the year, a couple of things. One is, I think the demand volume side has been really positive, and I think it validates our position in terms of food to go and food for later. So I don't think there's been a lot of talk about movements in the mobility index, but when you see the restoration in terms of our volume and growth, I think that's a validation of the segment that we're in. I think from an operational perspective, like we've had to move through a constrained volume delivery to our customers into unconstrained volume. But more importantly, we've really clawed our way back up in terms of our customer service levels. So we're back in the high 90s in terms of customer service levels because it's really important to us. We've also -- from an operational perspective, like we fully recovered the inflationary challenge that faced us and was evolving through the year. That's either been through recovery or through mitigation with our customers, and I think that's really important. Our own people have been really instrumental in really solving the supply chain challenges that we've had, and they were daily. And I think that's been incredible. We have had a focus on on-boarding new business as efficiently as we can. We've completed our strategic CapEx program in that regard. And I think when you look at it, it also allows us to expand our channel reach and also product diversification. But again, if you go back to our Capital Markets Day in '19 -- 2019, those were 2 things that we had identified as strategic opportunities. So the other thing, I think, that's significant through the year was that we launched Better Greencore. So like we have transformed our organizational model. It's gone into a fully functional role. That's still evolving and settling down, but it allowed us to announce a GBP 30 million benefit around people in our organization, which will manifest itself fully in 2024. I think there's a lot more to come under Better Greencore. We've talked about the other 2 phases. '23 we'll see the launch of the output optimization phase, and we have a technology enablement phase to come. So they're really important component parts as we move forward. I think the other thing from 2022 financial year, like our balance sheet is really strong. We've had to go through a liquidity bolster through COVID. But when you look at the liquidity -- sorry, the leverage outturn in terms of '22 is really positive. It's really strong. It's allowed us to look at capital return. We've done the GBP 10 million, and we'll talk a little bit more about where we're heading for. So I'm really pleased about that. So the demand area that's still work in progress is our economic model recovery, and I think we've made significant progress there through financial year '22. When you look at the margin improvement, if you look at the second half, absolute profitability, and you look at some progress that we have in return on invested capital. We are in transition in terms of our economic model, but it is work in progress and we've got to remember we are at a point in a cycle. So this is the last time you're going to have to put up with me here. I just want to sort of wish a couple of thanks before I hand over to Dalton. Big thank you to all of you. I mean, I've really enjoyed the challenge, the rigor and the support. I think that's really important. Big thank you to our customers. Without them, we're nothing, and that continues every single day in terms of Greencore. A big thank you to my colleagues for their relentless focus and dedication in terms of what to do on a daily basis. I've got Kevin and Emma here in the room. In particular, the triumvirate of the 3 of us in the last 12 months has worked well. So I really thank them for their support and leadership. And my conclusion on Greencore has been really enjoyable experience, but the future is all in front of us. And I really do think there is an exciting future. And the -- I've really enjoyed work in the first couple of months with Dalton. I'm really pleased with what I see. I have no doubt that, that excitement will get converted into reality under his leadership. So Dalton, hand over to you.

Thanks, Gary. That's the first time I've heard Gary talk about potential departure. Certainly, internally, we don't say it that way at all. It's business as usual, and he's on us like any good Chairman, and so, I'm not going to say any words of thanks yet because you're still very much firmly in the role. But look, it's very nice to be here in-person. Appreciate you all coming in. And some of you I know well, some of you I don't know at all. So I'm looking forward to getting to know you and working with you. So I thought what I'd do is that I'd give you a little bit of -- just an introduction on my first impressions. I'm on Page 7 of that slide, and I'll just stick to one slide, and then I'll hand over to Emma. But first to say, look, I've been in the business 9 weeks. So very early days, and I've been really fortunate because Kevin and Emma have really allowed me to join the business and to do what I set out to do, which was to listen, to learn and to see. And I was just speaking to Martin actually before over coffee at the beginning, and I've really had this opportunity to get into so many of our plans and spend time with so many of our people and have been very fortunate. So I really want to just express my thanks to both you, Kevin and Emma, for allowing me to do that. So in a moment, like as I said, I'll hand over to Emma. But I wanted to just give you my initial perspective, and I'll start with a couple of thoughts with you. Firstly, I'm really excited to be here and encouraged by what I've seen so far. Let me share a bit of my background for those of you that don't know me. Food is absolutely my blood. My family owned a poultry business in County Wicklow, which is about an hour south of Dublin. And I spent many, many hours on the line in my youth, in that poultry business. So as a child of the food industry, I've obviously been aware of Greencore. It's an iconic Irish business. For those of you that have spent time in Ireland, Greencore is this huge brand, less known here in the U.K., but a huge brand there. And I've also obviously worked with Greencore from the other side when I was at Morrison. So my impression is then of a dynamic and ambitious business. It was fanatical about servicing its customers, and Kevin and Patrick would be all over me as a customer back in the day. That hasn't sort of diminished whatsoever. So when the opportunity arose to lead Greencore, it was an easy decision to take. And so much of what I've seen so far cemented this positive view, the role we play in U.K. food, our strong leadership team and the exciting opportunities we have for future value creation. In my time over the last 9 weeks, I've been right across our business. I visited nearly all our plants. I've met with hundreds of colleagues in person, be it on the line or through the listening groups I've been running. And in each plant, I've run a listening group without the management in the room. I've also spent time meeting with our top 150 leaders, be it through functional deep dives or through the fortnightly leadership calls that I've been sharing. And furthermore, I've met with our largest customers to hear firsthand what they see in our business, how they see it, what we can do better for them to serve them better. And each and every week, I've been sharing a weekly video with the business on what I've been up to, areas of focus for me, and encouraging all team members to reach out to me directly with their ideas or concerns, and that's been very positive. So I've started to get a bit of a flavor for the business and the challenges and opportunities. Secondly, although we're facing some pretty significant headwinds, our business is built on some very strong foundations. And I've just been struck how strong Greencore is. In the last years, we've obviously been through a range of different challenges from the pandemic, Brexit, Ukraine, driving obviously the highest inflation in living memory. Despite all of this, we've been remarkably strong, taking action to improve performance. We're now producing more volume than ever before with our out -- with our recovery outpacing the broader market. We've won new business with customer relationships that are now broader and deeper, and we might talk about that later. And we've also got a very robust balance sheet, reducing leverage, now lower than pre-pandemic levels. So I recognize that this is not yet translating into strong shareholder return, something that I'm absolutely clear needs to change. We clearly have to chart a path back to pre-pandemic margins. However, I'm confident, with the right interventions, we have a business that is fundamentally well positioned for the future and which can deliver the returns our shareholders expect. Lastly, despite the challenges we're facing, there are significant opportunities for us. Since joining the business, I've seen a number of areas which give me confidence. We've put to bed the post-COVID volume recovery question, which now gives us the space to face into tough questions on the profitability of our portfolio and our conversion efficiency, which obviously will be a major near-term focus for me. We're helped here by plenty of growth headroom with existing and new customers to go after, thus giving us choices on capacity allocation. We're also doing a good job on inflation recovery in – all in FY '22, as Gary said, and continue to engage constructively, if not at times, a little robustly with our customers. So I'll come back to discuss these themes in more detail. What I'll do now is hand you over to Emma and we'll go through the '22 results.

Thanks, Dalton, and good morning to everyone, and thanks for joining us in the room and on the call today. My overarching focus during 2022 has been pretty simple, to work on progressing our economic model and returning the business to profitable and cash-generative growth so we could accelerate effectively out of COVID. I'm really pleased with the results we've delivered, noting that 2022 has been a year of significant challenge with substantial inflation to recover, labor availability issues and supply chain challenges, particularly in the first half, and that then followed by extreme weather events in the summer, combined with disruption from rail strikes. We have a lot of detail to cover over the next few slides, but I'll first reflect on our key financial metrics on Slide 9. So the first metric is pro forma revenue growth, and our strong recovery is clear with revenue up 29.4%. As we noted in the first half, we were back comfortably above pre-COVID levels in food to go and remained well ahead of pre-COVID levels in our other convenience categories. So we delivered real progress in year-on-year profitability with adjusted operating profit of GBP 72.2 million, up from GBP 39 million last year, and this was also reflected in a significant improvement in adjusted EPS to 9.2p, up from 5.5p due to earnings growth. We had free cash inflow of GBP 58.7 million in the year. We're very pleased with this as we delivered a more normalized working capital inflow having exited the COVID period. And we continue to make real progress on deleveraging to 1.5x, which is approximately [ 0.5 ] turn lower than at the end of FY '21 and has now reached our target leverage of 1x to 1.5x, which was rebased from 1.5x to 2x post-COVID. We have a lot of detail to cover now over the next few slides, but I'll -- sorry, if I just think about that 1.5x to 2x pre-COVID actually, the leverage at September '17 was 1.8x. So we're actually lower than our September '19 leverage at this point. And finally, ROIC at 8.4% has increased 390 basis points from FY '21 for 0.5%. So we're really pleased with the continued progression while recognizing it's still below the historic levels. So moving to Slide 10 and the detail of the half 1 income statement. Our reported revenue grew by 31.3% in FY '22. Now that was mostly driven by a recovery in our food to go categories, and pro forma growth was a little bit lower at 29.4%, and that's after adjusting for the impact of 53rd week in 2022 and the disposal of the molasses business in quarter 1 of '21 and for some movements in foreign exchange as well. Our adjusted operating profit rose by GBP 33.2 million to GBP 72.2 million, with year-on-year profit conversion improving as volumes recovered -- and look, I'll run through that in more detail in later slides. So in this context, FY '22 operating margin was 4.2% compared to 2.9% in FY '21, which, while still below historic levels, showed continued progress, notwithstanding the substantial inflationary environment in the year. So moving further down the income statement. Adjusted profit before tax increased by GBP 37.2 million to GBP 59.8 million due to the operating profit increase and to a reduction in finance costs as well. The exceptional cost in the year was principally related to our better Greencore reorganization program and represented a cash outflow in the period of about GBP 13 million. And then from an earnings perspective, we reported 6.2p basic EPS and 9.2p adjusted EPS. So on the next slide, I look at our revenue performance. And we were delighted to deliver pro forma revenue growth of 29.4%, given the level of volatility in the trading environment. We had to manage our business through in 2022. Pricing effects were in the mid-teens right across the group. Most of the revenue increase was in food to go categories, where we saw a pro forma revenue increase of 35.2%, which was driven by the volume increase due to the full year effect of new business onboarded in FY '21, which continued into 2022, and then the continuation of the ramp-up of the underlying business to pre-COVID levels. The strongest growth rates were in sandwiches and in those customers that have a balanced mix of urban and suburban locations. And inflation had a low-teen impact on food to go categories in year. We're also really happy with our revenue performance in other convenience categories. Revenue grew by 19.2% on a pro forma basis, and volume was broadly flat year-on-year within inflation recovery and new business driving the revenue growth, the numbers, and that was particularly in our Irish ingredients trading business. So if we just turn to profitability on the next slide, so, look, as you know, for KPI purposes we focus internally on the absolute level of adjusted operating profit, which increased from GBP 39 million to GBP 72.2 million in year. And we're really pleased with this outcome as we delivered these year-on-year improvements while managing through the impact of substantial disruption in the period. And look, it may feel like just a memory now, but in the earlier part of the year, we were impacted by the emergence of the Omicron COVID-19 variant, which impacted the food to go market and did hold back profitability in December and particularly in January. We experienced extensive supply chain and labor availability challenges, particularly in the first half. And we did invest a little earlier than normal in the year to secure labor availability ahead of product launches and our peak season trading, which was the correct decision for us, and it did support strong summer service levels. Then later in the summertime, we were impacted by the extreme weather conditions as the chilled food supply chain experience temperatures, which it was just not set up to withstand. There were also multiple rail strikes to absorb as well as the effect of the unexpected bank holiday in September. And all of these items combined had probably about GBP 3 million to GBP 4 million impact on profitability in that last quarter. And in addition, we're in the process of commissioning our new ready meals production unit, and we're dealing with some start-up disruption to operations. And look, this has been complicated due to the challenges associated with building a factory during COVID-19 and the supply chain issues that we had to work through at the time. So look, in this context, we're particularly pleased with the half 2 component, which was an increase from GBP 38.9 million in half 2 '21 to GBP 55 million in half 2 '22 , having absorbed the effect of all of those factors. And that outcome compares with the half 2 FY '19 outcome of GBP 61 million, which mark -- commentators will have noted with the challenging target, absent those factors. And it's also important to note the margin outcome for the year, which is a 130 basis point increase in adjusted operating profit margin in the year, of which there was a 50 basis point increase in adjusted operating profit margin to 5.7% in the second half, and people will know that we're seasonally second half weighted in that respect. Now just moving on to Slide 13, which focuses on inflation. And look, while, this is a scale of inflation we haven't experienced before, our market strength and our customer partnership model has underpinned what we feel is really impressive management of this challenge. And look, I'm pleased to note that we've fully recovered inflation in the year. The challenge isn't over as we end 2022, and we'll continue to focus on the same recovery mechanisms in 2023. So we've provided some direction on the composition of the inflation. The largest element, as you would expect, is raw material and packaging, where we do have explicit pricing recovery mechanisms in place with a number of our customers. And the other elements are being recovered through a combination of constructive dialogue with our customers and also operational efficiencies. So we work with our customers on multiple initiatives to manage inflation, which includes range alterations, packaging redesigns and product reformulation. So what I'd say is, it's a very collaborative and constructive approach, moving in [ lockstep ] with our customers. And our purchasing expertise is also really important here. It gives us early visibility on pricing trends and gives us the flexibility to adjust rapidly across ingredients and suppliers, if required. And inflation is increasingly being reflected in consumer pricing at this point across all our product categories. So we continue to monitor that closely to assess whether we are seeing demand impacted by those price points changing. Now if we move further down the income statement and briefly to the composition of EPS growth on Slide 14, you can see that improved profitability was the primary driver of growth in the period, and reduced interest costs partly offset the impact of a higher effective tax rate. And then, if we just move on to Slide 15, which outlines a waterfall of free cash flow movements in FY '22, so working capital was an inflow of GBP 2 million, which reflects a more normalized year-end position, now that we've exited COVID-19. Maintenance CapEx of GBP 16.9 million was broadly in line with the prior year. And then, exceptional cash flows of GBP 13.6 million were largely due to Better Greencore, which we noted at half 1, and look, the other line items from what [ is ] expected, resulting in a free cash inflow of GBP 58.7 million. So bringing all of this together on Slide 16, there was a GBP 3.1 million decrease in net debt, excluding lease liabilities since the end of FY '21. We spent GBP 33 million on strategic CapEx in FY '22, up from GBP 24 million in FY '21 as we revitalized our excellence agenda and supported our initiative to onboard new business from a key customer. We also completed a substantial proportion of our GBP 10 million share buyback program in the period, and that concluded in October. And as a result of all of this, we ended up with net debt excluding leases of GBP 180 million compared to GBP 183.1 million at the end of our last fiscal year. So if we just move on to the next slide to our balance sheet, leverage and liquidity position, as I mentioned earlier, our leverage as measured under our financing agreements, reduced to 1.5x at year-end, and that reached our target range of 1 to 1.5x. And this, as I said earlier, is lower than our leverage of 1.8x in September '19, which was pre-COVID. And this balance sheet strength is also reflected in our cash and undrawn facilities, which stood at GBP 398 million at year-end, and our weighted average maturity of debt, which was a healthy 2.5 years. And look, in this time, the focus on pension fund investments -- I think, it's also useful to draw your attention to the funding position of our legacy defined benefit pension schemes and the reduction in our net pension deficit. So there was a GBP 25.7 million reduction in the period, and our actuarial accounting net deficit after related deferred tax now stands at GBP 10.4 million. And this was driven by an actuarial gain on our U.K. scheme liabilities as discount rates increased, and our Irish scheme remained a net surplus throughout. So from a funding perspective, the schemes have also performed well. The U.K. scheme funding position has improved by GBP 20.8 million in the period, and there has been no requirement to supply incremental collateral to support its hedging position, and that hedging position remains intact. The triennial actual evaluation is due in March 2023. And based on the current funding position, the pension deficit contributions are expected to remain unchanged from where they are today. The Irish scheme remains in funding surplus and we're now in the process. In fact, we've just concluded the purchase of annuity contracts to ensure the pensioner liabilities and that represents 80% of that liability. And following the completion of that, there remains a very healthy surplus to manage the remaining liabilities in that scheme. So overall, our annual cash funding requirement for pension schemes was modestly below the previously guided levels of GBP 15 million. So we're very pleased with where those pension schemes are sitting actually, given the volatility of the last number of weeks. Now, if we just move to Slide 18. Look -- and we talked about this earlier in the year, and a real step change for us. We've continued to invest in our ready meals and salad portfolios with the onboarding of new business from one of our existing key customers. We've talked about the overall detail before. So it was a strategic capital investment of about GBP 30 million, involving capacity expansion at 3 sites in Kiveton which is in Sheffield, in Wisbech and Boston, and we've now onboarded this business across all the sites with commissioning ongoing. We are experiencing some challenges in volume ramp-up and our focus is on delivery of outpost and driving efficiency to our target levels now in half 1. The launch involved adding about 70 additional SKUs to our portfolio across ready meals and salads. The expansion of the site at Kiveton has increased our overall network capacity by about 30%. So it is a meaningful increment to our existing footprint. And this is the type of investment that we've executed successfully with multiple customers over the years, and it's a tried and trusted approach for all parties involved and a hallmark of our customer partnerships. So moving on to Slide 19. With our balance sheet in a good place and our financial model improving, we continue to have confidence in our model, and our longer-term reference point for all of our thinking continues to be maintaining an appropriate level of leverage for a business of our size and maturity in our type of industry. And we've now reached that target range of 1 to 1.5x. Our intention remains to return GBP 50 million of value to shareholders over a 2-year period. We've already completed the first GBP 10 million of that, and we plan to return another GBP 15 million in 2023, and we'll be guided by our own capital management policy and market conditions as to what mechanisms we use, as we deploy this return of value to shareholders over time. But this phase will be in the form of a share buyback as we believe it remains a good use of capital, given the current valuation. We've, of course, reserved the right to be flexible around the future phases of the value return and whether it would take the form of share buybacks, a reinstated dividend or a combination of both. So that concludes my section. In summary, I would say that we're happy with our full year financial performance, and it gives us a strong platform for future delivery. I'll come back in for Q&A, but I'll hand back to Dalton now.

Thanks, Emma. So let me now share a bit more about the potential I see, touching on our key markets, our consumers, and my first impressions at Greencore before focusing on our near-term priorities and some of the medium-term opportunities I see. So if I turn to Page 21, our size and scale enables us to play a unique role in feeding the nation. We produced 1.2 billion food items annually, which can be found up and down the country from large supermarkets to motorway petrol stations, providing consumers with fresh, great tasting and comprehensively priced products, supporting one of the largest food manufacturing networks in the country as a unique distribution network with a Greencore site located with an [ hour ] of 90% of the British population. All of this plays a key role in the British food industry with over GBP 500 million spent annually supporting [ bridge ] farmers and packaging businesses. If I turn to Page 22, I mentioned the theme of resilience earlier, and I've been really struck by just how robust our categories are. While we have faced questions about rebounding post-pandemic and coping with the current cost of living environment, I think it's telling to look back at just how well the market held up in previous recessions. This chart shows that during the past recessions, sandwich growth barely skipped to beat relative to the longer-term growth average. This gives me confidence that we can successfully weather the current headwinds. Turning to Page 23. More recently, we see food to go recovering well with the overall market shown in the gray bars forecasted to reach 103% of 2019 values this year. Despite changes in working habits towards more remote and hybrid working, food to go growth has rebounded strongly noticeably in suburban locations. We're also seeing the grocery retail market settling at a materially higher level than pre-pandemic with lots of headroom to grow further. In all of this, Greencore has had consistent outperformance, recovering stronger and faster than our markets as shown by the green bars. Our food to go business has outgrown the market by 20 percentage points when indexed to 2019. While in U.K. grocery retail, we once again outperformed a strong market by 15 percentage points. Turning to Page 24. This performance is clear when looking at demand despite record inflation. We've seen a 14% year-on-year sandwich retail price rise in the 12 months to Q3, yet at the same time, market sandwich volumes grew 10%. What's clear is, these products provide great value for money at a time when every pound counts. Likewise, ready meal volumes have weathered unprecedented inflation. Since Q3 2021, prices have increased 16%, but we're only seeing a modest decline in volumes, which is still higher than pre-pandemic. Together, this data on inflation and past recessions gives us confidence that we are well positioned, not just to weather the current macroeconomic challenge, but thrive as consumers see good fresh food with value for money top of mind. You can see on Page 25 some consumer research specifically on the sandwich market. This data is clear. Sandwiches are a mainstay of the British diet. 57% of the U.K. population buy pre-packaged sandwiches at least once every fortnight. We offer a unique value proposition in quality, convenience and competitive pricing. Sandwich meal deal is 20% cheaper than an equivalent in QSR and 1 in 3 regard pre-packaged sandwiches as one of the best value for money lunch options. As a result, 35% of sandwich consumers don't even consider another option and pre-packaged sandwiches are the #1 out-of-home food option consumed more than once a week. Page 26 shows we are well placed for future growth, supported by a healthy channel mix. On this chart, we can see IGD's prediction of food to go growth broken down by channel, and to the right of that, Greencore's exposure to these channels by share of revenue. There are 3 takeaways here: One, the market is projected to grow strongly at close to 5% cargo over the next 3 years; Two, Greencore is disproportionately exposed to the highest growth channels; and three, there is still white space for us to pursue. We made some gains in the coffee channel through COVID, but there are still plenty of opportunities beyond our grocery heartland. Turning to Page 27. I want to now transition from our markets to Greencore itself, where I've been impressed by the capabilities I've seen in the business right through the value chain. Firstly, we have privileged highly integrated customer relationships across the fastest-growing U.K. food to go players. We've also regained our position as the #1 private label chilled convenient supplier in the prestigious advantage survey as rated by our customers. Two, there's a really strong food DNA running through the business. Despite taking conscious actions to simplify our organization and product portfolio, we still developed some 800 new and refreshed products last year, many of them, of course, award-winning. And this is all supported by our food development team of nearly 150 people. The third point is our distribution footprint which enables us rapid delivery with over 10,000 daily drops across all British postcode areas from factory to shelf in as little as 12 hours. And before, we make speed with precision and consistently adhere to the highest standard scoring a 100% on the [ A/AA ] ratings in BRCGS audits for the fourth year in a row. Number 5, our business is supported by a scaled manufacturing network, producing a whopping 3 million products a day across our 15 product categories. So that's an average of 35 products, a second coming out of our facilities day in, day out. And number 6, we're supported by a 14,000 strong team, where we are continually driving engagement. And this year, our engagement scores grew 2 percentage points, despite all the headwinds I just described earlier. So taken together, these capabilities are not easily or cheaply replicable. So they give us confidence in our unique proposition and long-term position in the market. On Page 28, you'll see that we are leveraging these capabilities with laser focus in the near term where our priority will be driving core performance to start, to rebuild our profitability and drive cash generation. So firstly, we'll enhance our manufacturing efficiency through improvements to labor performance and automation across our network. We continue to make investments in operational efficiency, most notably in sandwich automation, but also through initiatives to unlock latent capacity and drive up utilization. Secondly, FY '23 is forecast to be another year of record inflation. However, we are building on solid foundations and have a clear playbook for price recovery that we had from FY '22, where we've recovered, as you know, this -- recovered this either directly through pricing or offsetting through our excellence programs. We're working with our customers to both mitigate and recover inflation and increasing the share of inflation that benefits from automatic pass-through via contractual commodity trackers. Thirdly, we're working to simplify our portfolio. In the near term, this will mean reducing product complexity throughout our ranges. To give out one example, we use over 20 different plain mayonnaise across our group. This creates significant complexity across our operation. So we're working on simplifying this to unlock value for us and, of course, for our customers. And fourthly, we'll continue to deliver on Phase 1 of our Better Greencore program. This is a multifaceted transformation targeting GBP 30 million of benefit by FY '24 across people, overheads and capacity. We've been making strong progress already with the successful implementation of a new functional, operational model, both to help our efficiency and manage our cost base. Alongside this, we're also making headway on a range of initiatives to reduce overhead costs in everything from standardizing PPE to tightening our equipment spend controls. We will combine these immediate-term actions with longer-term planning to set the trajectory for our future performance. Now if I turn to the longer term on Page 29, over the last 9 weeks, I've also observed several areas where, I believe, we can do much better to drive meaningful change to our performance and longer-term outlook. These are areas that I'm going to put a laser focus on over the coming months. As I said in my introduction, this is a business whose profitability has suffered materially. We have a strong and robust top line, but our ability to convert this into pounds, shillings and pence has been compromised, and this needs to change. Firstly, on operations. There's a real opportunity for us to build on the foundations of Greencore manufacturing excellence to deploy a truly world-class operational model. Our new COO, Lee Finney, will be instrumental in this. And although, he like me is pretty new in the role, he's really hit the ground running. Together, we're building a perspective on how we can deploy a reinvigorated view of excellence across 5 pillars, including: number 1, driving our overall equipment effectiveness or OEE. This is the metric that measures the full 24/7, 365 utilization of our assets. Off the back of this, we can optimize utilization and efficiency within our factories and across our product set grounded in a clear fact base. We'll also enhance our network and supply chain management by building a digital twin of our assets. Alongside this, we'll put in robust processes for early equipment management and asset care. And finally, we'll drive efficiency within our distribution network. These interventions will support the delivery of our sustainability strategy too, with particular near-term focus on managing utilities and food waste. Secondly, beyond the tactical interventions on ranging and ingredients mentioned previously, we'll also be reviewing our customer and category portfolio in the months ahead. Across all customers and products, I want to take a long hard look at what is driving profitability and how we can enhance this further to get the right margins. In particular, we'll be looking at who is using our capacity. I recognize that in the past, we may have priced marginally to drive up utilization. However, in a world where we are producing more volume than pre-pandemic, we can be more selective and assertive about how we deploy our capacity, because this capacity doesn't come cheaply. To put this in real terms, just after I started, we made a decision to exit a material ready meal contract rather than renew on unacceptable terms without full inflation recovery. We did this because we believe that we can deploy this capacity over time more efficiently and profitably elsewhere. And of, course, we can't shrink to greatness. When taking these kinds of tough decisions, we will need clarity on profitable growth opportunities against which we can deploy this capacity, which is a parallel work stream. Thirdly, I want to ensure we take a very disciplined approach to capital investment and allocation. I'm acutely aware that a ROIC of 8.4%, we're not covering our cost of capital, and this clearly needs to change. Well, over time, we'll look at -- excuse me, while over time, we'll need to look at all growth and margin levers. First and foremost, my focus will be on doing everything we can to enhance performance from our existing assets to drive returns. Alongside this, I'll also want to understand the profitability and returns profile of the different assets that we hold, and we're already seeing variations across the portfolio. And although it's early days, I'm keen to understand what drives this and the potential actions we can take to make meaningful change. If I now turn to the fourth area on Page 30, and whilst mindful of the point I just made on capital discipline, I want to take a good look at how we use technology and what opportunities there are to do better. I appreciate I'm still only a couple of months into role, but I've seen some really clear opportunities in this area while touring our sites. Our IT landscape is complex to say the least, with 8 different ERPs in place. Our systems are also pretty dated. Until early this year, we still had Windows 2003 live in certain parts of our network. Now that's not to say that we don't also have pockets of technology distinctiveness. We do. For example, we recently developed in-house a dynamic [ Should ] cost analysis tool to ensure our purchasing teams can secure the best possible deals on supply. All in all, I think there's a real opportunity to ensure our technology supports our value creation ambitions, which, in time, I believe, can become a real source of competitive advantage for us. Lastly, but significantly, I'll be very focused on engaging our people, all 14,000 of our colleagues, to ensure we're all in it together on this journey. I'm very cognizant that our frontline staff have a tough job, which is often shift work on their feet. Perhaps unsurprisingly, we have high levels of staff turnover, which adds significant cost to the business in recruitment fees, duplicate training, lots of productivity, the list goes on. My early sense here is that this provides a real opportunity for us with direct labor spend of close to GBP 300 million a year. Small movements here will make a big difference to our P&L. Beyond the front line, I also think the reset earlier this year of our organization from 5 disparate business units to 1 functional team will help us drive a single best Greencore way of working. I'm also encouraged by the high-calibre team that we're building. I've been well supported not just from experienced hands like Kevin and Emma, but also from a new crop of Greencore leaders who I'm thrilled to be starting this journey with. For example, as mentioned, we have Lee Finney as our new COO. Damien Moynagh has recently joined as General Counsel and Company Secretary; and of course, Leslie Van De Walle due to come on board in January. I'll also be spending 1.5 days with our top 50 leaders in-person next week to reset how we're going to work together and make sure we're all crystal clear on the priorities I've just outlined. Turning to Page 31 and to summarize. I'm both excited to be here and by what I'm seeing across the operation -- by what I've seen across the operations from our scaled and precise manufacturing to our unique customer relationships. Our business is robust and well positioned in so many ways. We're in strong recession and inflation resilient categories and provide consumers fantastic value for money. And despite our challenges, we have significant opportunities to go after, across our business, from the people to portfolio and operations with a talented, engaged team to do so. We have a strong top line, but our profitability is not where it needs to be. However, I'm confident that with the right interventions, we can grow both our top and bottom line, and this is what is going to get all my energy and focus as we move forward. If I turn to Page 32, specifically to the outlook, and you'll note in the presentation, we've added some additional details on Page 38 to help with your modeling in the appendix. So FY '23 will be a year of further substantial inflation, and we're working with our customers on recovery and mitigation. We continue to make decisions on customer contracts. We will remain focused on the execution of our Better Greencore change programme, and we will now plan for the second phase. Revenue performance is holding up in the early weeks of this new year. However, we remain cautious about the potential impact of the recessionary environment and cost of living factors. And finally, the Board is confident that a continued focus on the strengths of the business, underpinned by our resilient balance sheet and the efficiency and productivity gains related to our Better Greencore programme will support the further successful progress of the group in the years ahead. So with that, I'll conclude the presentation, and we'd be really open to taking any of your questions. Thank you.

Right. [indiscernible] Martin, do you want to see what hand coming up for us?

I've got a couple. Maybe the fair thing is to ask one and you come back to me later. Dalton, just picking up on everything you've just said in the last few minutes. So I know it's a first draft, but I'm going to try and pin you down a bit more. I'm reading it as a margin returns and cash story going forward, because everything is -- that's not -- no criticism implied. I'm just trying to get a rise out of you, because it's not so much about top line growth. You're saying the category is resilient. It's all about driving efficiency, portfolio optimization. Am I hearing you correctly? I guess is the -- and I'll come back for another one later.

Yes. Look, I think in the short term, you absolutely are because our -- we're not covering our cost of capital. There's 200 basis points that have been shipped out off late. And I think you've got to earn the right to grow. And we have very -- we're in resilient categories, as you know. We've got good volume growth in our food to go categories. Food for later is a little bit tighter at the moment, as we talked about. But until we can start getting back to where we should be, I think there's no point in me coming back to our shareholders and saying we're going to grow in these different categories or channels, because there's a lot of self-help here, and I think that's the priority.

Firstly, well done on navigating a tricky year, and welcome Dalton. Just a couple of questions from me. In the statement, you talked about sort of noting a mix effect between categories. I just wondered if you could explain sort of what you mean by that, sort of -- a bit of detail around there? And on costs through FY '23, can you give us an idea of what sort of cover, if any, you've got in place? And maybe similar to what we see on Slide 13, the distribution between where those costs are coming from and the weighting of recovery there? And lastly, on the security incident that you mentioned in the results. Can you give us some detail as to what that was? And I note it's not going into exceptionals. So is there a sort of a recurring element of that?

Yes. So I guess I'll probably throw most of that to Emma, but we clearly have a mix effect going on between the food for now and the food for later.,and that obviously flows through. I don't know if you want to talk specifically to FY '22 on that? I can come back on FY '23.

Yes. I mean, look, we've talked in food to go about some mix effect where we've seen volume come back to the business, and then we see some negative mix impact, which is as we look at some of the subcategories within food to go, but also, when we look at all of our customer set and sort of relative levels of complexity and relative margin performance for us. So this is what Dalton is talking about in terms of looking at how we've allocated capacity and making sure that we're getting value for all of the capacity that we've allocated. So we're going to look at mix closely. But we're also seeing from a consumer perspective, different choices being made around what products they buy. We have talked about it earlier in the year where we've looked at less food to go salads and more sort of pasta based salads as consumers make choices around the types of products that they're going to buy, and those higher premium products that come at a higher price point have seen lower demand in year. And I think we're watching that pretty closely now as we go into the winter, and Dalton can pick this up. But things like sushi, we're seeing less demand for that and more demand come through for our ambient sauces which are seen more as a component for people quasi scratch cooking at home.

On the -- you might want to pick up on some of the costs.I'll pick up the security. It was -- we got hacked. Cost us this -- we had to deal with all -- just the disruption of all of that. There's no recurring coming back. We've got -- as I said, we've got work on our IT platforms to do, but it was an incident. We've worked our way through. Not unusual for many companies to have had similar incidences.

Yes. I think what I'd say is we had a breach. We moved container pretty quickly. We mitigated the impact on customers very, very quickly. We were also [ ensured ] -- which is why you see a fairly limited impact on the P&L, and we will have done an enormous amount of work since then to make sure that there's an appropriate level of containment in place.

Did you have a -- specific other costs that I didn't gather?

I mean, I guess, maybe on the -- with regards to the IT.

No, was there a third ---

It was just on the recovery profile, as in the distribution between -- well, I think basically, the distribution between raw materials, labor, et cetera, but then also the recovery. I think you had about 90% recovered through price and yes, 8% through internal efficiencies. Is that balance shifting in FY '23?

I don't see it shifting. And Kev, you might have some thoughts on this. I certainly don't see it shifting at the moment. It's -- you've got high inflation in terms of ingredients and packaging. You've got high inflation in terms of labor wage rates. And so, the majority of that will get back working collaboratively with our supply chain base. I mean, you've got pass-through mechanisms. So we've got a very high percentage of pass-through mechanisms. You've obviously got efficiency programs in place like Greencore excellence that we've talked about. You've obviously got the one-to-one conversations on -- when there's inflation coming through the tracker that's not on a tracker. Obviously, we can have one-to-one conversations. You've got range rationalization. You can obviously have strong conversations up and down the supply chain because, obviously, we're a big customer for many people as well, and then finally for hedging in place. So I don't -- and those are the 6 tools we use in '22. We'll be using the '23.

Yes, I'd probably make a couple of observations on top of that, Dalton. I think the first thing is, if I think about last year, and I think about this year, we're already well ahead of where we were this time last year. Obviously, we're used to it. It's not that inflation is new to us, but bear in mind where we were last year, we're significantly through. I think to Dalton's point, there is a series of levers that we've got. Clearly, there is more volume going through pass-through models this year than there was last year, which I think is really important for us, and I think we've evolved that really well. I think the second area is that retailers, despite what you may or may not, [ a ], more broadly are very understanding and sensible about the fact that we are facing into inflation. And clearly, we have to work together on that, and the level of collaboration continues to be very positive. The next areas -- and Dalton has touched on it earlier in terms of one of the areas of technology investment, it's around how we think about our buying model itself because the inflation is not just a one-way street, which we obviously have to think about that back down the supply chain. I'd say that we're continuing to get efficient in that. And that's -- would that be the balance of where we get those ingredients from, how we get those ingredients is really important. And then the final area is around specification and ranging. And a great example of that with -- this Christmas, we've launched probably 10% less SKUs into the Christmas range. And year-on-year, that range is performing better than it was this time last year. So we're just getting more efficient and more smarter dealing with inflation more broadly, is what I'd probably say to that.

Ashton, I think where you're going to -- Michael you drive that..

And if you could just say their names and -- for the transcript, please?

You mentioned you've walked away from one unprofitable ready meals contract. Is there any other business currently under review? And maybe how should we think about the impact of that lost contract in terms of revenues or profit or maybe additional capacity? And then the second question is just on the commissioning problems in the new ready meals unit. What are the main issues there? How quickly can they be resolved? And I guess is there any penalties that you could be charged if you don't resolve them quickly?

So what -- I'll just take the Kiveton and then maybe hand to you. So look, on Kiveton, as Emma said, there's a tried and tested model of working with our customers,making material investments into new capacity for them. Kiveton is absolutely state-of-the-art, but building a state-of-the-art plant during a pandemic with global supply chain challenges has not been without its challenges. And specifically to that, Patrick, you've got a lot of different kit -- it's a highly automated line. You've got a lot of different kit that needs to talk to each other. Now often this kit is not from the same manufacturer. So getting them to speak the same language can be challenging. And because of the global supply chain issues, we have to make some decisions on equipment, that we might have normally got equipment piece A and we've actually bought equipment piece B from somebody else. So we've struggled to stitch it together. We're not comfortable with where we are. It is obviously material, which is why we're talking about it. Lee is all over it, but I think we're going to be dealing with this through H1. And obviously, coming out into H2, we should have all this rectified. I think in the longer term, we'll stand back and say, did we make the right decision by putting leading-edge technology into this category? Absolutely. The challenge always, and this is a debate you have, is, do we go leading edge, which can at times be bleeding edge, or do we go with tried and trusted. But you've got to push on. You've got -- and I would really admire the team for pushing on and trying to be ambitious. And I think we'll work our way through this and will be stronger for it because we'll have -- I mean, this is highly efficient. We should take the guys -- we should take you around at some stage. It would be very interesting. In terms of customer choices?

Yes, I think my reflection would be, the first thing is we were certainly in the -- if I look like over the last 3 years, we've been in a period of recovery and finding volume. We're now in a period where we're just valuing our capacity in a slightly different way. And the decision on the specific piece of business was the right one for us. We're in a world of inflation, and we need to recover inflation. And as Martin's question alluded to and Dalton's response was that we're in margin recovery mode in certain categories. There's a particular category where we made a choice that we didn't want to continue with this particular piece of business. And I refer you all to 12 months ago where there was a particular piece of salads business where we gave notice on, at a relatively low level of margin. None of you will be surprised to know that, that particular piece of business has now come back into Greencore at a much higher level of margin. And therefore, I think the approach that we take with valuing capacity and the price at which we charge for that capacity is absolutely critical to our future, and that's exactly what we're doing. So we'll continue to look at the business in that way.

And I think we just need to look at the complexity because we've taken on customers, which can be very complex. I think 50% of the runs out of one of our salad lines -- 50% of the items, the line only goes for 30 minutes, i.e., you've got constant changeovers. And I think those are the sorts of areas where we've got a look at it and say -- it's like the mayonnaise example, going from 23 to 9, or, I think we're going from 3 [ duck ] suppliers and types of [ duck ] to 1, 3 croissants to 1. All of that complexity just costs money and we've got to take it out and -- or at least we've got to be seeing now with our customers and saying, if we can't be compensated for it, we can't subsidize it.

I guess just touching on the last point that you were making, Kevin, just on that business which you dropped last year and it came back into the system. I suppose -- just trying to understand the market like from a competitive perspective. Are there other options at the moment in the market where that volume might go which you dropped? Are the people turning down business? Are there other people that can beat you on price? Just trying to get a feel for that. I guess secondly, just on the price point of your product at the moment, you sort of said that what's reflected in the market at the moment is more reflective of inflation. I suppose, give a sense of if that needs to go a little bit further based on where inflation is at the moment? And I suppose -- are retailers absorbing inflation in your categories? And then I suppose just a third one, a little bit cheeky, but no profit guidance. What are you thinking directionally and what would give you the confidence to issue guidance?

So look, between us, we'll take some -- in terms of -- I don't think it's a cheeky question, it's just -- I think we've outlined that this is a very difficult market. There's lots of challenges. There are -- there's a lot of self-help in this business. We've been very clear in terms of the 5 levers, Ashton, where we can go after that self-help. I think we're all aligned as a senior team that there's money there. And we'll focus hard on that, but it's a very complex market at the moment. I think in price point, I'll maybe you -- hand to you for capacity and competitors, but I think in term -- and you may have a view on price point. But look, in price point, I think the charts are very clear that these are 2 categories that have absorbed a lot of -- there's great elasticity in these categories, particularly in the food to go. And there's been pricing being pushed through. You've seen the meal deal pricing continue to nudge up across all retailers. But the point is, Ashton, that you've got a 20% minimum delta between a meal deal offer out there and a QSR. And what we're seeing is just with the propensity of people who are taking on second jobs or just working longer hours, this is a very resilient category. You can go in, you can feed yourself very quickly and very cheaply. So the retailers and the manufacturers, everybody is absorbing some of this because everybody is trying to do their best to protect the consumer. And when I talk to the retailers, they talk to me about how great Greencore is, the relationships, the data, the insight, the people we put on it, but they're very firm. They are really struggling with the levels of inflation being pushed through because they are struggling to push it on. So I think we're all caught in this difficult situation where we're got to kind of do the best we can and wait it through. In terms of capacity ---

Yes, I might just add one point on pricing, if that's okay, Dalton, just to give you some color. In the last 12 weeks, food to go market is growing 8%. And you've got to bear in mind that in that same period, pricing inflation has been 8% as well. So these -- to -- going back to the point, the other one about resilient categories, they are very resilient. Is there more to go? There potentially is more to go, when Dalton talks about that 20% premium to QSR, for example. So look, we're really confident there is more to do. But look, ultimately, that's the retailer's decision in terms of what they do. What's really important for us to do is to protect our business and make sure we're getting value for the products that we've got. With regard to market capacity, what I'd say -- and I'll use the particular piece of business that's come back into Greencore -- coming back into Greencore in January as an example. Retailers can make short-term decisions on pricing. But fundamentally, Greencore offers more than just pricing. And it's really, really important that the market in this particular country reflects that, reflects on the quality of the team, the quality of the technical service, the capacity consistency, the service levels we provide. One of the most challenging things for us over the last 12 months, as Emma will say, has been actually getting our business back to a 99.97% service level. Having that as a sensible position in fresh food, sounds incredible, but that's exactly how we operate and retailers are prepared to pay for that. So one of the reasons I think that Greencore has been able to get the level of inflation recovery they've got is because we've been able to give the service levels to retailers because they can only sell product when it's on the shelf. And I think that's where Greencore benefits and values. And I think the retailers respect and understand that especially in difficult times.

I think in terms of capacity, there's not a lot of capacity out there in the market. I think people would have to make meaningful investments -- meaningful capital investments before we see more capacity in the market. That doesn't mean we're not complacent, but there's been a lot of the smaller suppliers, who essentially were dormant during COVID, come back into the market. But for -- particularly in food for later, you'd have to put capital in the ground for that capacity.

And look, in terms of sort of forward guidance, just given the challenges we have in guiding, when you think about the economic environment, what we have done for the first time is included a page in the appendix of the deck where we can give guidance on some specific items. So Page 38 has got some notes to help you go with their model.

Can I just follow up on the -- sort of perhaps your comments, Dalton, on the food to go market? And then Kevin, get your thoughts on where sort of Greencore's capacity currently stands and sort of whether you think -- how quickly you think you can sort of fill whatever uplift you have? And just to clarify your comments, Dalton, on the industry capacity in food to go, there isn't any ready meals, there isn't any either. Can you just clarify that?

Right. So just in terms of the food to go market, look, as Kevin said, we've got 8%, 9% volume increases at the moment. So it's very -- we've had a strong start to the year in food to go. Sandwiches, obviously is the driver there. Sushi, you've got maybe 20% volume declines for obvious reasons. This stat around that -- and some of you will have -- I'm really trying to get my arms on a better stat, but it looks like there's about 5.2 million people now picking up second jobs in the country. Anecdotally, I'm hearing that can go to 10 million, and I'd be -- if somebody's got better information on that, great. But this second job is becoming -- I think this is partially a driver of that volume growth because you've got more people out there, less time, and the value proposition is still strong. And if you all know, if you go out and you buy the individual components of the meal deal, it's going to cost you 6 quid and you can get for [ GBP 3.50 to GBP 3.90 ] with most retailers. So I think I would be encouraged by the category at the moment.

And then Greencore's capacity to sort of grow in food to go?

Again, I'll make a couple of points. I think the first point I'd say that puts us in a very unique position is that we've got a network of 6 sites. So not every single one of those sites are what we describe as full. That's the first thing. The second thing I'd say is that the impingement point comes at peak, and our peak is in the middle of summer when it's really, really warm. So one of the skills here and one of the points that Dalton's already made is this piece of work that we're doing about efficiency, rationalization, working with the retailers around how big those ranges are, how we do changeovers, gives us scope to be okay for capacity. So from a capacity perspective, in general, we're okay. The other thing I'd say that's really, really important is, this time last year, a lot of our frontline employees were relatively new. Those individuals are now [ bending ] down. When people [ bend ] down they become more efficient as a consequence of efficiency. Our output gets better. So from a capacity perspective, we're broadly okay. There are certain points within the network where we will make limited levels of investment to create more capacity, but for now from a capacity perspective, we're actually -- we're okay.

And just one last one for me. Just sort of -- Dalton, you sort of said that you're not at the right margin yet. Can you tell us what that right margin is? And also what your WACC is?

Yes. So I'm not going to tell you either at the moment. But, Damian, on a serious note, look, we're not covering our cost of capital. We've got -- we've shipped out margin for many good reasons. And I think what's beholding on me and the executive team is to be very clear about the value creation that's out there. And I think we, at the appropriate time, need to be coming back and sharing that with our shareholders about where we see the margin and where it can get to.

I should say also congratulations on the appointment, Dalton and congratulations on the departure, Gary. Long-term [ badge ]. Two questions just around a single subject of cost recovery, please. First of all, how do you see the shape of 2023 given that you are in a period of what looks like quite intense cost recovery again? You said you've got '22 recovered, but there's work to do. And then in relation to that, a lot of inflation has been passed through. And I can't remember who asked the question a moment ago, but the actual resistance, not just from the retailer, but the shopper as to how much more they can take -- and what that means there for 2023 in terms of margin recovery capability?

Yes. And look, Emma, I'll hand to you in a second. But look, I think that we know that the shopper is under huge pressure. And I think the [indiscernible] index is showing the loss of disposable income. But I'll go back to what Kevin was saying in terms of, Clive, on the food to go categories. The volume is still there. And I think it's the fact that people have to eat. And we are seeing, obviously, pack lunches increase. I think it's about 14% increase year-on-year in terms of people making pack lunches at home, but it hasn't been impacting our volumes. I think, obviously, we're going to see -- I think Sushi is going to remain under pressure, salads are going to remain under pressure. But I think in the core sandwiches, we should be okay. In terms of the shape, it's clearly going to be a H2 story, but -- maybe you'd like to share more on that.

Look, I mean, what we have talked about in terms of shape of the year is second half weighting. We're always second half weighted, but I think we're doing a good job on inflation recovery so far. But it's a big number, and it's as big a number as it was in 2022. So we've got a very large proportion of it done already. About 40% of it comes through our transparency models. And then we've got a lot of negotiation to do. And the big areas of increase include energy, which wouldn't typically be in our model. We've talked about that before. Some of that is coming through. So we're going to see a lag impact on the first half, on inflation recovery, with more to come through in the second half, and we'll do what we did this year and aim to get it all in year.

Two from me. Just building on what you just said, Emma, building on Ashton's question. I completely understand why you didn't want to offer guidance or a forecast for '23. But can you just walk us through the obvious moving? And I've seen Page 38 by the way, but the question is EBIT -- What are the obvious moving parts of EBIT you would encourage us to think about when modeling? And a technical one, Emma, is the debt maturity is 2.5 years, but just remind me of when your next [ ReFi ] event is and sort of what the quantum of that will be?

Yes. Look, we've -- I'll deal with debt first, actually. So we've got a GBP 75 million facility that comes up in March. That was the COVID liquidity facility we put in place. And given how substantial our headroom is, we're not going to seek to extend that. We're going to let that go. And that will save us on commitment fees as we go forward as well. The big event actually is our revolving credit facility. So that's a GBP 340 million facility, and that's in place until January 2026. So we've got some smaller ones within that. And we will think about how we manage average maturity as we go through. But really the big chunk is that RCF. Then, when we think about modeling and the building blocks on EBIT, I suppose, look, it's quite challenging to land given the environment we're trading in and the recession environment in the U.K. As we said, we're seeing some mix in demand at the moment. So encouraged in some spaces like sandwich demand and where it is and things like ambient sauces, but we're seeing some choppiness elsewhere, and we're pretty cautious about meal overall, given what the market is doing there. I mean, we're predominantly in Italian, which is a subset. But we've got to wait and see how that plays out overall because there's a decline in overall market. When we think about inflation, it's a very big number. We've got a lot of it done, but it's going to go right out to the end of the year. So we're just cautious about that last mile actually, as we get to the end. I mean we'll have got 92% in price this year and offset the rest with our recovery mechanisms internally. We'd be delighted if we got something like that next year, but we've also got to think as we push it through and price, what that's going to do to demand. So I think that just adds a bit to that level of uncertainty. But we've also got some challenges around commissioning of our meals facility, which we flagged, and that's going to impact us through half 1 and will be a weight to the half 1 numbers. And the other thing we've referenced is customer contracts and how we're thinking about them, and we are exiting a meals contract in year, and that will have an impact on we're reviewing other customer contracts and assessing how we're going to think about all of that. And I think we will have some short-term pain and things like that, if we make decisions to exit, but I think it's the right thing to do for the business, which, again, does lead to some challenges on how you think about the full year outcome depending on when we exit.

Is that a 53rd week, Emma, is that in there as well?

Yes, there is a 53rd week this year that won't [ recur ] next year. So we don't normally get certain EBIT impact of that. But I think you probably have a reasonable estimate, Martin, of how to think about that.

Any other questions on the call?

[Operator Instructions] Our first question comes from Karel Zoete of Kepler Cheuvreux.

I have two questions. The one is on the pace on choices for the medium term, how to recover margins and where to compete. But at the same time, you have in the near term, the Better Greencore programme, which also focuses to improve efficiency. What are kind of like the differences and then -- between the 2 programmes or things you have in mind? And the other thing built on to that is the reducing complexity. You provided some examples on a few -- different products, et cetera. But could it also entail really fundamental choices around segments where you play, that are just less profitable or where Greencore has a more limited scale?

So look, the Better Greencore is a platform on which we can build the rest of these opportunities. So better Greencore is a GBP 30 million by financial year '24, which looks right across our business. What we're talking about now is we're going to have to go again. We're going to have to look -- that GBP 30 million isn't going to repair the erosion in margin. And that's why we're saying, if we look at our manufacturing, particularly our OEE, where we think that there's a material opportunity to improve our OEE, it's a hypothesis at the moment. We'll obviously need to come back with the detailed workings. But we think there's -- if there is a material opportunity there -- if there is a material opportunity -- and this leads to your second question about the segments we play in. If there are material opportunities to relook at our portfolio -- the complexity of our portfolio, who we serve, how we serve them, we will -- we're not absolutely in any stage today to be talking about the segments we will or we won't be playing in, but we'll certainly be looking at it all. And I think over the years, Greencore has evolved the segments. It's been in desserts, it came out of desserts, it's got into salads. So it is a business that is comfortable in moving with the market, but it's too early to say at this stage. And if you wanted to add anything to that. Is that okay?

Our next question now comes from Doriana Russo of HSBC.

I just want to come back to this -- to basically profitability versus new opportunity. I have a sense that the priority for the immediate future is actually more to try and find areas to improve return on invested capital, improve service and -- maintain service level and improve the profit conversion ahead of finding new opportunities. But nonetheless, in the presentation there was mentioning that there is plenty of room to grow. Now am I correct that priority is profit first and growth next? And can you give more of a sense of where do you see the opportunity for Greencore to expand? That's my first question. And my second question is on the change in relationship with clients and trying to prioritize contracts which address inflation and give you more opportunity to pass it on. So the question is on timing of recovery. Have you changed the timing? Normally, it would take you a quarter to pass on prices. Are you trying to basically shorten the time that it takes you to recover inflation and have you changed anything in your new contracts to include inflation in your favor more than vis-a-vis past practices?

Look, in a moment, I'll pass you back to both Kevin and Emma on the inflation recovery. We haven't changed our timing. We're trying to get more on trackers and the team have done a good job of that. And the timing hasn't changed. We want to -- in-year all is -- we want to be compensated for all of it, but I'll come back to that with the guys. I think in terms of your first question, look, the priority is to improve the ROIC and that's how we will earn credibility with our shareholder base. So there's a lot of opportunity to expand, and I showed that slide Doriana on Page 25, which showed-- if you just take the food to go categories, the sort of the blue sky or the space that's out there for us to expand, but I think first and foremost, let's get our house absolutely in order, and let's really look at how we can be the most efficient in what we do, and that's good for us. It's good for the retailers, and it's obviously good for the consumers. And I think we've got to look hard at our efficiency, as I said, our OEE. I mean, we now have challenges. We have [ plants ] where we are now having to take outside storage to house raw materials because of the complexity that's in there. And complexity is good if you're properly compensated for it. It's bad if you're not. And so I think that's where we feel is a real focus. And remember, for 3 years, there's been a huge amount of effort on a whole lot of other things, Doriana, and now it's time to relook at how we do things around here. So that's the priority. There will be in time, opportunity to expand. I could name 5 categories -- I won't do, but where there's real opportunity to grow, but that's not our focus at the moment. In terms of the contracts --? [indiscernible]

Yes, what I want [indiscernible] the specific point on, is inflation included in the contracts? The answer is, yes. I'd say that 10% more of our inflation this year is covered on trackers than it was this time last year. So yes, that is a mainstay of how we think about that. We're also putting other mechanics into contracts as well, such as -- I mean, you just take the lessons of life. So we now have volume mechanics in those particular contracts. And such -- like as Emma touched on earlier on, we're trying to find ways of getting into those contracts, extended areas of inflation, whether that be labor or utilities as well. So we'll continue to evolve those and you'd expect us to do that, and that's exactly what we're building.

Can I ask just a follow-up? On the contracts that have been put on the -- more that have been put on track here. Can you give us a sense of what sort of percentage of total contracts is not on trackers the way you want it to be?

I mean, the answer to that is I'd like everything to be on 100% trackers, quite frankly, but the reality of either the customer or the engagement, both ways actually means that that's not the case. But as I say, I think the figure I could give you is that there is 10% more of that cost of goods that is now on track as this year than it was against last year. It's probably as close as I can get. I don't know if there's anything you want to add, Emma.

Yes. I mean, Doriana, typically, we wouldn't have that energy. We've got that with a couple of our customers now. We wouldn't have had labor historically in the more recent contracts with a component of labor inflation going in as well, but they're all quite different. And what we do now when we're renewing contracts is, we make sure actually that we do have commodity trackers in place, and we look to include things like labor and energy as well.

I think I'd probably just say to the floor one other thing that, this particular phase of our industry has generated, which is just a better level of collaboration, even more so than previous. So how we buy, when we buy energy. We [ earn ] in collaboration with our retailers. We're talking to them about it. We're helping each other do that. I mean this is a completely different world to where we were 3 or 4 years ago. And I think the market needs to recognize that as well. The way we're thinking about inflation is not just one single lens. It is a broad brush approach to how we think about it.

I think we take one more question because I think people need to go.

Our next question comes from Roland French of Davy.

A couple of questions, if I could. Maybe one for you, Emma, if you could firstly try and quantify, I guess, for FY '23 to the extent you can, the impact from the challenges from Kiveton and the exit of what you know in context to ready meals, is there some tramlines around that? And then the second question is for Kevin. You talked about valuing capacity appropriately, which was an interesting phrase, and this might be a difficult question, but what percentage of capacity are you referencing there? And I guess how confident are you in achieving that objective? And then finally, one for Dalton. I guess we've seen multiple years of heavy capital investments. And clearly, that's been accretive top line but [ lesser ] to returns and cash conversion. And I guess the question is how are you thinking about capital allocation and discipline going forward?

Roland, very specific question. In terms of disruption on what we're seeing on meals, the impact is going to be mid single-digit, millions of that disruption. And when we look at the exit of the meal contract, when we're looking at a full year effect, you're looking at between GBP 40 million and GBP 50 million of revenue.

I'll just pick up in valuing capacity. I think how I'd respond to that, Roland. is that in particular categories where our service is tight, where our capacity is tight, the natural thing for Greencore to do is to look at the top metal of those particular customers, of those particular contracts. And it's around those areas where we will make decisions. Either we will reprice or we will exit, and that's something that we actually do constantly on an ongoing basis, and we'll continue to do. So that's what I mean by valuing capacity in a different way. And when you're obviously in recovery, as we were at the beginning of the pandemic and building volume back, it was about finding volume. Now it's about the quality of those -- of that particular volume.

And, Roland, just in terms of capacity, look, we're going to look at all assets and what their returns are, what their capital needs are going forward. So I think that's going to be the first step. The second is to really look at what latent capacity is in the system that we may not have identified. And that goes back to the OEE and really looking at 24/7, 365. And I would hope that we would be able to unlock latent capacity. That may not be the case. There's been a lot of smart people in this business for many years looking at it. But if we can, I mean, that's the best returning capital that we'll find.

I think Nicola Mallard has probably dropped off the call because of the -- [ it reached ] results. So I think just as we conclude, I'd recognize she's retiring. This is going to be the last call that she was joining. So I did want to sort of recognize her and say she will be missed, I think, right across the industry as a very, very experienced analyst who's covered us for many, many years. And I guess what I would like to follow up with is the recognition of last, but very far from least, our Chair, Gary Kennedy, who has shown unwavering commitment to Greencore over the years. I have very much appreciated sports and encouragement over the years, and through COVID and particularly in the last 12 months where he stepped in as a great personal and caused as Executive Chair at a time when he might have been thinking about doing other things. And I would really wish him the very best for the future and would like to thank him for everything he's done for Greencore and all of that support over the years. Thank you, Gary.

Thank you, Emma. Thank you.

Thank you very much. It's been a pleasure.

Anything else before we close out, Gary?

Nothing from me. No. I'm good.

Okay. We'll close it out. Thank you again for your time.