Greencore Group plc ($GNC)

Right. Good morning. So 8:30, we will kick off. And look, a huge thank you for being here this morning with Catherine and I and making your way across a hot London to be with us for our FY '26 H1 results, and we have people online as well. So we thank you for joining us. Look, it's great to be presenting these results for the first time from our Greencore London office, which will be familiar to many of you from previous Bakkavor presentations. These results demonstrate that we're starting to reap the benefits of what we call internally better together, 2 businesses that were each very strong in their own right, but now together can deliver even more following the acquisition, which completed in January. I'll open with some key messages and an overview of our new Greencore business. Catherine will cover the financials, and I'll close out with an operating review. So to start with, in my view, Greencore has never been in a better place. Firstly, the enlarged group has delivered strong operating profit growth of 15.3% in the half and revenue growth of 3.2%. These numbers reflect the underlying growth rates for the new enlarged Greencore, and we're encouraged by the positive momentum. Catherine will speak more about the pro forma basis of calculation, but essentially includes 6 months of the old Greencore and 10 weeks of Bakkavor U.K. since acquisition. Secondly, our customer relationships, the backbone of our business, are in a really good place. Bringing these 2 businesses together enables us to deliver more for our customers and gives us the opportunity to further expand the breadth and depth of these partnerships. Encouragingly, we've already had our first new business wins as a combined group, and we know there will be more to follow. Thirdly, our integration program is progressing really well. We've completed a full top to bottom organization redesign. The new team is in place, and we're focused on driving the business forward and on delivering our synergy targets. Perhaps the best indicator of success is that we've had literally 0 disruption in our core businesses. We've launched just as many new products as in any other year. We've maintained our best-in-class food audit performance and colleague attrition remains low and service levels are above 99%. So overall, I'm really pleased with today's numbers and with everything our colleagues have achieved over the past months. On Page 5, I wanted to touch briefly on my first impressions of the Bakkavor business. Getting to learn about the sites, processes and ways of working has been a key priority. I visited 3 sites within 48 hours of day 1 completion and I've been working my way through them since. Overall, I've been hugely impressed. We've always known Bakkavor is a brilliant business. And since taking ownership, we're very pleased with what we found and the only surprises have been positive ones. The sites are in great shape and well invested in line with our own high standards. Walking around a Bakkavor site, there's very little to differentiate them from our Greencore sites. The people are great, too. We've experienced a strong cultural fit with the individuals across both businesses rolling their sleeves up and working collaboratively together. Customer feedback has also been really positive. And the theme generally is how can we do even more with you. And finally, we found a huge amount of opportunity to leverage the best of both, both where we can learn from each other, but also from where we can build something better together. Page 6 brings that scale to life. We operate across 13 categories, giving us a diversified and balanced portfolio. The majority of revenue comes from our powerhouse categories of sandwiches, ready meals and salads with a strong presence right across the convenience food market, covering all day parts from breakfast, lunch, dinner and snacking. In the U.K., we have 28,000 colleagues across 32 manufacturing sites and 21 distribution depots. And from a procurement perspective, we're purchasing over GBP 2 billion each year with people on the ground across Europe and China. Turning to Page 7. And what makes this business really special is the everydayness of it. Our operation never stops, not for a single minute throughout the entire year, and we do this at scale. For example, every single day, we book in over 500 deliveries of raw materials. Every day, we make 4,200 SKU recipes across over 400 production lines. Every day, we conduct over 5,000 individual product quality checks. And every day, we complete nearly 10,000 direct-to-store deliveries covering every postcode in the U.K. In any given month, our products are enjoyed by over 70% of the U.K. population. This is a hugely integrated and complex operation, and we manage it with real grip, delivering over 99% service levels, which is critical to our strong customer relationships. So in summary, our new Greencore business is in a great place. And with that, let me hand you over to Catherine for the financial review.

Thanks, Dalton. Good morning, everyone, and thank you to everyone who has joined us online and in the room today. As Dalton has already noted, it has been a busy 6 months for the group, and I'm delighted to be here today to take you through our financial results for that period. Planning for and delivering on integration has been a real focus over the past months, and I'm pleased to share that our teams have come together strongly as the new Greencore. The integration of our 2 businesses is progressing very well, and we are firmly on track to deliver the synergy targets we have previously outlined. As you'll see in our results, we have also maintained a strong focus on delivery in our core business, and I will now take you through some detail on the financial results for the first half of FY '26. Starting on Slide 9, let me touch first on the basis of reporting that underpins the results that we will take you through today. Firstly, I'll be presenting a pro forma version of our results. This pro forma basis includes 6 months of the Greencore business, Bakkavor U.K. for 10 weeks in both current and prior year and excludes Bristol, a legacy site, which we sold in January 2026. This pro forma basis is, therefore, more reflective of the actual year-on-year performance of the new combined Greencore business. You will also have noted from our RNS statement this morning that the U.S. business has been classified as an asset held for sale. And therefore, what we are presenting here is our combined U.K. operations. I will cover some specific details on the U.S. business later in the presentation. Moving on then to the numbers. I'm pleased to say that we delivered pro forma revenue of GBP 1.3 billion in the period, reflecting year-on-year growth of 3.2%, the drivers of which I will take you through in a moment. I'm also extremely pleased to say that we have delivered adjusted operating profit of GBP 73.3 million for the period, reflecting year-on-year pro forma growth of 15% (sic) [ 15.3% ] and a strong pro forma adjusted profit margin increase of 60 basis points to 5.6%. This is a real testament to the focus of our teams who delivered this over a very busy period of the acquisition and integration of Bakkavor. Looking to our statutory or reported financial performance on a continuing operations basis and therefore, reflect the U.K. businesses only, we have delivered 43% reported revenue growth and 62% reported adjusted operating profit growth. When you look at our bottom line, you will see a GBP 13 million (sic) [ GBP 13.4 million ] loss before tax in the period, and that's largely reflecting acquisition-related exceptional costs incurred in line with expectations. Return on invested capital continues to be our North Star metric and is the key lens through which we manage the business. Accounting for the acquisition has resulted in an increase in our invested capital base. We have completed provisional acquisition accounting, and you can see from the release this morning that this has resulted in acquired goodwill of GBP 734 million and a further GBP 937 million (sic) [ GBP 937.5 million ] increase in intangible assets, reflecting the strength of the acquired Bakkavor customer relationships. To adjust for the impact of the additional goodwill generated, we have provided an adjusted view of ROIC, which excludes this goodwill. On this adjusted basis, ROIC was 10.8% for the period. Consistent with prior treatments, this amortization charge will be an adjustment to certain key metrics, such as our adjusted earnings per share. And as you can see at the bottom of the table, that adjusted EPS was 8p per share for the period, reflecting an increase of 31%, in line with adjusted operating profit growth. On a continuing operations basis, free cash flow was negative GBP 76 million, driven by a working capital outflow and exceptional charges related to the Bakkavor acquisition. We have, however, ended the period with group net debt of GBP 818 million (sic) [ GBP 817.6 million ] and a leverage ratio of 2.3x, which is lower than the 2.5x net debt-to-EBITDA post-acquisition level that we would have previously guided to, details of which I will cover in a little more detail shortly. So turning to Slide 10. Let me take you through the drivers of our pro forma revenue performance, which has increased by 3.2% year-on-year. Firstly, we are pleased to have grown volume and mix by 0.8% despite a slightly subdued market and with a particularly wet winter impacting momentum. Within this, there was a strong contribution from new business wins won last year annualizing into this year, especially across salads, sandwiches and our direct-to-store distribution. We have a strong pipeline of new business into H2, and Dalton will give you some more color on that shortly. Inflation recovery and pricing contributed 2.4%, driven by recovery of inflation in labor and ingredients, particularly related to protein. You will see that we have chosen to disaggregate performance into 2 distinct product category portfolios underneath our single segment of convenience food. Food for now or food you eat on the go, sandwiches, salads, et cetera, and food for later or food you would eat at home, such as ready meals, desserts and pizzas. When analyzed by portfolio, Food for now revenue increased to GBP 731 million, representing a 5.3% pro forma increase on the previous year, with strong performance in sandwiches, sushi and our direct-to-store business. Our food for Later portfolio grew to GBP 587 million, representing a small increase on the previous year, noting that this includes 10 weeks of Bakkavor sales, so not fully representative of future run rates. And this category is also one that we grew very strongly for the same period last year with our large Ready Meals win. Moving on to the next slide. Pro forma adjusted operating profit grew 15% (sic) [ 15.3% ] with margin increasing by 60 basis points to 5.6%. Let me take you through the main drivers of that improvement. Volume and mix growth, including the new business wins helped to contribute to adjusted operating profit growth and improved operating leverage across the network. Gross inflation was about GBP 40 million in the half. To give you a sense of the material drivers there, around 60% of that related to labor inflation, with the remainder coming from materials and packaging inflation. We recovered a large part of that inflation through pricing, including through the automatic joint models that we have in place with customers. On operational excellence, both the legacy Greencore and legacy Bakkavor operational excellence programs performed well, contributing to the offset of inflation and accreting margin by driving continued focus on standardizing labor and minimizing waste across sites. Finally, we have maintained a strong focus on management of the ongoing cost base, and this continues to contribute to improvements in margin. This will, of course, be supported by synergy delivery. Moving on to Slide 12 and cash flow for this first half period. While we have a cash outflow for the half, this is largely attributable to the timing of exceptional charges related to the acquisition and working capital outflows. You can see that underlying EBITDA was strong at GBP 111 million, GBP 38 million higher than the prior year. Net working capital is a negative outflow of circa GBP 86 million, driven by the timing of outflows around period end and also work that was ongoing to align how we manage our debtors and creditor balances with respect to terms and use of facilities such as invoice discounting, et cetera. We expect this outflow to reverse and for us to end FY '26 in a broadly flat working capital position as we focus on fully integrating our management of debtors, creditors and other payables. Cash exceptional charges for the period were circa GBP 59 million, with the majority of this increase related to acquisition and integration costs and making business easier transformation program costs. Further detail on the composition of exceptional charges can be found in the appendix. Maintenance CapEx of circa GBP 15 million (sic) [ GBP 14.5 million ], was an increase of GBP 2 million versus the prior year, reflecting our enlarged manufacturing network. Just going quickly through some of the other items here. Interest and tax charges were circa GBP 16 million (sic) [ GBP 15.6 million ], an increase of GBP 14 -- GBP 4 million, apologies, versus prior year, reflecting the increase in the group's financing facilities due to the Bakkavor acquisition. On pensions, as a reminder, our U.K. defined benefit scheme is now fully funded and the decline of GBP 5 million versus the prior year reflects this new reduced contribution obligation. Finally, lease payments at GBP 11 million were GBP 4 million higher versus prior year, reflecting the additional leases brought on to the portfolio following acquisition and other cash flow movements netted to approximately GBP 0 in the period. Our free cash flow conversion over the last 12 months was 3%, driven by the movements I mentioned. Over the medium term, we expect cash conversion to be in excess of 55%, and this will continue to be a key focus and a priority for us. Moving on to net debt. We are pleased for our leverage to be at 2.3x, which was below the expected range of 2.5x post transaction. The slightly faster trajectory here is driven by the robust performance and cash flows from both businesses since announcement of the acquisition in May 2025. Just to run through some details. Starting with the cash position at the end of the period, which was GBP 57 million, an increase of GBP 6 million versus the prior year. Our bank borrowings have increased GBP 839 million, an increase of GBP 733 million (sic) [ GBP 732.9 million ] which again is a result of the acquisition financing we previously communicated and asset financing of GBP 21 million (sic) [ GBP 20.5 million ] reflects Bakkavor financing we have added to our portfolio post-acquisition. The private placement of GBP 15 million is in line with the prior year. In short, we remain very confident about deleveraging to at or below 1.5x within 2 years post completion of the deal. Just moving on to Slide 14 then and synergies. The key takeaway here is we are firmly on track to deliver our synergy targets. We continue to target an annual saving of at least GBP 80 million. And since day 1, we've been able to get -- really get under the hood of the synergy delivery and validate the preliminary plans that we have in place. I'm pleased to say that we are making strong progress across all target synergy areas. We now have detailed performance management and tracking rhythms in place to ensure we meet our targets. We are also unchanged in our view of one-off costs of circa GBP 90 million to achieve the savings, which will be incurred broadly in line with the run rate synergy realization over the next 3 years. I've spoken about the components of the synergies before, but they fall broadly into 4 categories: organization, operational excellence and distribution, site footprint and direct and indirect procurement. We currently see no change to the run rate cumulative phasing, so 50% run rate to be delivered by January 2027, 85% by January 2028 and 100% by January 2029. Moving on then to our capital allocation framework. Post acquisition, the group's philosophy continues to be to deploy capital to balance both long-term growth and shareholder returns. Our immediate priority is to rigorously manage our synergy program and deliver on synergy opportunities as well as ensuring we continue to maximize the potential of the core business. The increased cash flow generated from the combined group, in addition to the savings the synergies will deliver will facilitate us to delever below 1.5x within 2 years post completion. In respect of CapEx investments and driving organic growth, we will continue to ensure funds are available to invest in critical maintenance and strategic CapEx, and we expect to spend circa GBP 80 million on a reported basis in FY '26. While we are very clear that our near-term priority is to delever the business, we are keen to maintain the payments of an annual dividend, having recently reinstated the group's dividend. And subject to the ongoing financial performance of the group, we would intend to pay a progressive dividend post the year-end. We don't anticipate any further acquisitions or shareholder returns in the short term, but we will, of course, provide further clarity on our plans as we delever into the future. Just moving on then to Slide 16. Before I wrap up, I'm going to touch on the U.S. business briefly. I referenced earlier that the U.S. business has been classed as a held-for-sale asset as we consider the best course of action for the business and for shareholders. Greencore U.S. is a really strong business that's performing well with excellent people, growth prospects and enduring relationships with some of the top U.S. retailers. Prior to the acquisition, there had been some consideration of the best long-term path for the U.S. business, including what ownership structure will best support its future growth. Following the combination of Greencore and Bakkavor, we have continued to evaluate next steps here. Our main focus is clearly the U.K. integration and synergies, but we want to be clear on what the best outcome for our U.S. business is. As a result, we are exploring a potential sale of our U.S. operations to the right long-term partner for the business. This is at a very early stage and no decisions have been made, but we will, of course, communicate updates to the market in due course. So before I conclude my section, I think it's important to reference the broader macroeconomic events happening in the world, which are causing inflationary pressures. I would say 2 things on this. The length of the conflict in the Middle East remains uncertain, and we remain cautious about further inflationary pressures later this year and into next and potential impacts to demand. That being said, we remain confident with the level of protection we have in place. We have pass-through mechanisms and protections in place across 75% of our raw ingredients and our gas and electricity costs are fully hedged in FY '26 and the majority into FY '27. To wrap up then, I hope you will have seen this morning that the group has delivered a very strong financial performance in H1 FY '26, continuing to deliver strong double-digit profit growth whilst completing a very significant integration. It's good to see strong growth in revenue and margin, both of which are key metrics for the group. There is good momentum in H2 FY '26, both in the core business with Q3 trading remaining robust as we lap a strong summer last year. We have rigorously combined and integrated our performance management and financial reporting from the close of the transaction, and I have real confidence around our ability to achieve our synergy targets and deliver on the potential for our combined business. Looking forward, the group expects to deliver FY '26 adjusted operating profit in line with current market expectations, bearing in mind that the published consensus contains the result of the U.S. business rather than it being an asset held for sale. With that, I will hand you back to Dalton.

Thanks, Catherine. And look, let me turn to the operating review on Page 19. And as you'll have seen, the business is performing strongly. It's a tough market environment, but our volumes have held up well, and we see plenty of opportunities for future growth and market outperformance. Internally, we've continued to strengthen the key capabilities that give us a sustainable competitive advantage and increase our resilience, what we call our moat, which we continue to widen and deepen. And we've made really strong progress on the integration. We're now operating as one business, delivering synergy quick wins, which give us great confidence in our overall synergy target. Turning to the overall market on Page 20. In line with our pro forma methodology, we're comparing legacy Greencore against the market for the full 6-month period and legacy Bakkavor for the 10 weeks from acquisition in mid-January. So we split those 2 data sets into 2 graphs. Starting with Legacy Greencore. The business reported 0.3% volume growth against a flat grocery market. That flat market reflects reduced consumer confidence, which took a hit in the run-up to the autumn budget and has remained depressed since. Greencore's growth of 0.3% reflects good performance in our core categories and across our largest retail customers, including continued outperformance from M&S. On the Bakkavor side, the market declined by 0.2% over the period since acquisition, impacted by low consumer confidence and record rainfall affecting high street footfall. Bakkavor volume was also impacted by a small number of business losses from this time last year. We recognize this volume performance isn't where we want it to be, but we have dedicated teams driving volume across the portfolio, and we feel positive about our go-forward trajectory. We've also had a series of new business wins, including our first as a combined business, which will begin onboarding in H2 and will contribute circa 100 basis points of annualized revenue growth. In the longer term, we continue to benefit from structural tailwinds, as shown on Page 21. Our customers really value these categories. They're front of store, fast stock turn, high margin and rich in opportunities for innovation and premiumization. Three specific trends continue to provide a tailwind. Firstly, convenience. Retail sales in convenience stores are growing at 4.2% with store openings showing no signs of slowing. Asda Express just opened their 500th store having entered convenience less than 5 years ago. With 1/3 of our volume going through convenience formats, this is great for our business. Secondly, premiumization. Unit growth in the premium tier has outstripped standard tier by 600 basis points over the last 3 years, a trend we continue to capitalize on across our core categories. Thirdly, Eating at Home, consumers are increasingly choosing dine-in options as eating out becomes more expensive, while growing health and calorie consciousness further supports this shift. These are enduring trends that have held up consistently and convenience and value will remain important drivers of eating habits. A key Greencore-specific tailwind is the opportunity to grow further with existing customers as shown on Page 22. Despite holding the #1 or #2 position across nearly all categories, there's plenty of headroom, illustrated by the depth and breadth of category exposure across our 9 largest customers who represent over 90% of sales. The dark green shading shows our established partnerships, while the light green and white space highlight where we have room to grow either from a small existing presence or from scratch. Selling more of what we already do to existing customers is the most value-accretive growth we can achieve. So as retailers increasingly look to work with a smaller set of larger, more strategic partners, we see real opportunity to deepen these relationships further. Page 23 shows the moat I referenced earlier, the key elements that make our business unique, resilient and difficult to replicate. Let me talk specifically about our progress in 4 areas of our moat. Page 24 shows some examples of the innovative new products launched in the half. We had a really strong Christmas season, including the award-winning Yorkshire Pudding wrap developed in collaboration with M&S for their cafe range. We also launched a great new range of summer dips and deli products for Sainsbury's and Tesco, which are performing well. We also leaned into growing demand for health-focused products through our nutrient dense range with M&S and a new licensing partnership with Myprotein. In total, we launched 308 new products in the first half. And for those of you here in the room, you'll get an opportunity to take home and try some of these great products. All of this is made possible by a product development team of over 200 colleagues, including 50 chefs, the majority operating on dedicated customer accounts with strong Chinese walls between them. I don't believe anybody in our sector can get close to this level of product development resource for any individual customer. Moving to Page 25 and procurement. Prior to the acquisition, we had identified a significant cost-saving opportunity through standardizing indirect procurement. That is everything outside ingredients and packaging from PPE through to broadband through to stationery. We've been implementing this across our legacy Greencore sites, moving contract ownership to our central procurement director, creating clear policies, spend guardrails and group level supplier negotiations rather than site-by-site contracting. Examples from H1 include optimization of our inbound third-party logistics network or centralization of embedded contractors, so think maintenance contractors, reducing suppler numbers from 91 to 38 with a new rates tracking process or a sole supply model for forklifts across the combined business, or renegotiated PPE contracts, ensuring consistent pricing across all sites. These are just a few of hundreds of examples. And the bigger opportunity ahead comes from rolling this approach out across the enlarged business as part of our procurement synergy work. On Page 26, across the combined U.K. 32 sites, we had 871 operational excellence projects live in H1, ranging from an energy monitoring project, reducing usage by 12% year-on-year to automated veg prep, reducing labor by 50% to a new pasta depositor delivering GBP 140,000 of annualized savings. Looking ahead, our road map has 2 strands. Firstly, deploying best practices from each existing program more widely across the enlarged estate. And secondly, redefining our automation road map, capitalizing on best of both methodologies in the near term and evaluating breakthrough technologies and next-gen concepts for the longer term. On Page 27, on technology, our Making Business Easier program continues to focus on driving improvements in core processes using proven SaaS solutions. Our big 5 areas of focus are in operations, specifically operations performance measures and materials management. Secondly, supply chain planning; thirdly, time and attendance; fourthly, product lifestyle management; and finally, fifthly, net revenue management. And we will start to see these types of solutions going live in the new financial year. On the back of our site, Project Vision, the rollout of a standardized SAP ERP has successfully gone live in 2 pizza sites with 0 impact to service levels. During the integration period, we've continued to run these 2 programs in parallel and both programs have been delivering strongly. We're now planning to bring them together into a single transformation program to drive further efficiency and improved delivery. Turning to integration on Page 28. And we've made really good progress since January. Pre-completion, we established our integration management office and completed the key preparation work to hit the ground running on day 1. So from day 1, we focused on organizational redesign following the appointment of the senior leadership teams. We executed our business continuity plans whilst ensuring no impact to our commercial or operational performance, and we maintained 99% service levels. And from mid-April, we began operating as one combined business with a single functional leadership structure and operating model in place. Of course, there's still plenty more to do from day 100 to done, but you can see we're really pleased with the progress. On synergies, on Page 29, we remain firmly on track to deliver our GBP 80 million target in the time frames indicated. So let me add some further color. On organization, our new design is live and delivering savings with central function colleagues having now left the business. And we were really sorry to say goodbye to some great people who've been instrumental in driving both businesses forward, and it hasn't been an easy process. But we're confident we now have the strongest team in our sector with balanced representation from across Greencore and Bakkavor. On procurement, supplier engagement as a combined business is progressing well. On operations, whilst these synergies are naturally backloaded, we've developed a clear road map to begin executing from the beginning of FY '27. And on the right-hand side of this page, you can see examples of synergies already delivered. So that includes the org transitions, consolidation of our Central London office footprint, removal of duplication across professional fees and many, many more that together add up to a significant number. Before we wrap, let me return to the key messages. Our combined business is performing well with strong revenue and profit growth in H1. The new Greencore can now deliver more for customers who are seeking deeper, more strategic partnerships. Integration and synergy delivery are progressing well. And as Catherine said, we expect to deliver FY '26 adjusted operating profit in line with current market expectations. So in summary, we've done a lot. There's a lot more still to do, and I feel really good about where we are today. And with that, Catherine and I will be now delighted to take any questions you might have.

Fintan Ryan here from Goodbody. Two questions from me, please. I guess, firstly, notwithstanding the heat wave that we've had over the last week or so, can you give a sense of what you're seeing in terms of consumer confidence behavior with regards to your categories over -- specifically over Q3 and sort of more broadly around since the outbreak of the war in the Middle East? And then secondly, I appreciate the very strong margin -- 60 basis points margin delivery in the first half. Can you break that down in terms of its component parts, gross margin versus OpEx savings? And what would you be anticipating to hold on to for the second half of the year before we start to layer on synergies and the M&A integration.

Okay. Thanks, Fintan. So look, I will give you some thoughts on where I see the consumer at this stage. And maybe, Catherine, you'll pick up the margin side. So look, it's a tough market, Fintan. Consumer confidence is low. It's at one of the lowest levels of the year, and you've got a cautious customer out there, not an absent one. There's been no collapse in demand across the sector, but it's a subdued market, and you can see that from sort of flat grocery growth that we showed for the half. Definitely, the consumer is expecting a cost of living squeeze. There's no doubt about that. And they're adopting increasingly defensive behaviors. These are behaviors they're not new to the sector, but they're sort of just coming back again. So overall spend being pulled back, prioritizing food, obviously. I think the material use of promotion, switching and loyalty mechanics out there. Again, none of these are new, but what happens is the customer sort of just moves more in or moves more out of them and loads of mechanics going on across the high street in terms of meal deals, dine-in options. And I really think this trade -- the continued trading out of out-of-home dining into in-dining, which is obviously helpful for us. And I think our categories are resilient. I think from the retailer point of view, clearly, there's still growth at the premium end and the value-focused retailers are winning and it's sort of a squeezed middle that's suffering further. I think what's interesting and slightly different from Ukraine, which we obviously experienced is the health-focused agenda continues actually. Interesting enough. I mean, I think we saw that really drop post Ukraine. But I think there's still a focus now on health and retailers are still sticking to that, and I'm sure we'll come back to that with GLPs, et cetera. So look, it's a quiet market. Having said that, Q3 for us, we talk about it being robust trading. There's a lot to go after in Q3. I mean with the weather like this, like that -- I mean, I was in one of our customers' shops last night. I mean the thing was rammed, you could hardly get through the front door. So it's great for our categories and long may continue this weather. And there is resilience. And of course, then you've got the World Cup coming and we could talk about the World Cup all day long. So there are opportunities for growth, but it is a tough market, 0% growth in grocery, like come on, not great. Are you comfortable with that?

Yes.

Catherine, do you want to pick up the margin piece?

Yes. Look, certainly. Look, the deck obviously kind of set out what we see are the key levers contributing to that margin growth year-on-year. And I think you'd probably be familiar with those. So they are the levers we have been kind of deploying over the last number of years to improve that number. Maybe if I just kind of walk through them and just give you a little bit of color. I suppose started the most material one, and unfortunately, it is a headwind, and that would be inflation. I think I referenced that, that was GBP 40 million in the half, and that would have been a pretty significant step on from the same period in the prior year, to be honest. I don't know if you can remember back to '25, we were in a kind of a deflationary cycle. I mean labor has been a pretty constant feature over the last number of years that labor inflation driven predominantly by national living wage, but raw materials and packaging had started to come off. But you might recall towards the end of last year, we started to see a pretty significant step on in a few raw materials, but I think predominantly from our perspective, protein really drove that. So that was the most material number in there. We did a good job as we have been doing with engaging with our customers and making sure that we were in a position to recover that. So I think, again, you know we have some automatic pass-through models. which give us good protection. And then we have the ability to negotiate and engage with whatever is coming through the pipeline and recover that with customers. And at a high headline level, we would have recovered about 75% of that inflation in that way. So then you're looking to kind of offset the rest of that. And look, I referenced our operational excellence program. Again, a lot of you will be familiar with how we've approached that over the last number of years, and it's great to see Bakkavor have a similar way of thinking about driving constant efficiencies in their manufacturing networks. We go about it in a slightly different way, but it's been really pleasing to see that they -- how they think about it. So I think there's good opportunity for us to really drive on in that space going forward as well. But operational excellence is continuing to, I suppose, offset the balance of that inflation and contribute to an accretion in that operating margin improvement that you would have seen. I mean we referenced volume and mix contributions as well. They were probably slightly lower. And then you're also into just that ongoing management of the cost base. That's another key lever that we pull to make sure that we're constantly stepping the margin on and then a small contribution from synergies. So look, hopefully, that's a bit of color around kind of the kind of magnitude of those various levers for the period.

Gary, did you -- it's probably easy, do say where you're from just for the transcript, if that's okay.

Gary Martin from Davy. I've got 3 questions. I'll probably take them one at a time, if that's all right. I'll start with the synergy piece.

[indiscernible] go one at a time.

I'll keep you guessing. I'll keep you guessing. I'll start with the synergy piece. I thought you had mentioned that any surprises that you had experienced with regards to the integration process were positive. And Catherine, you had mentioned that the synergy integration time line was broadly on track and kind of within the range of guidance. I'd be curious, are there any -- just in terms of phasing, is there any opportunity there with regards to maybe crystallizing some of those synergies sooner than you had initially anticipated? And if so, what are the moving parts behind that kind of crystallization?

Look, I think we're fairly confident with the original phasing that we put out there, to be honest. I think as I said in my remarks, we were planning before day 1, and we really hit the ground well for day 1. I think the area we've probably made most progress on, as you would expect, is in that organizational area where we had to go 2 into 1, the top layers of the organization. We've made a lot of progress in that regard, right? That was kind of the initial focus area. But we have really robust plans across the other kind of key categories that we called out. So I think I would stick with the message that we're confident with the phasing that we called out, Gary. But inevitably, there will be things that move at slightly different paces to the kind of plans that we had before day 1.

That makes sense. I'll just dovetail off the back of Fintan's question then just around the like-for-like piece and just the kind of volume trajectory into Q3 in particular. And I'll focus on Bakkavor here, if that's all right, just with regards to the weaker volume growth in the Q2 period. Is there an expectation there for a sequential pickup? And if so, what are the moving parts in terms of any degree of contract losses? Are those kind of permanent in nature? Or what's the way to think about it moving forward?

Well, look, Bakkavor was lapping some customer losses, which we talked about. And it was also, Gary, it was a 10-week time frame and a particularly tough period for the high street. But look, it's not where they want to be and it's not where we want to be. We've talked about 100 basis points of new revenue opportunities coming through in H2. That's annualized. We're encouraged by the reaction we're having now with customers in terms of new business wins. We've got some really exciting business wins coming through. And we are showing up to our customers in a way that they wanted us to show up, which is how can you do more for us? The innovation engine is firing well. We've got the World Cup coming at us and other opportunities. So, look, we're off to -- we've said trading is robust. We're feeling confident. But look, as we talked about, it's a tough market. There's not a lot of growth out there, but there's a lot of opportunity still to convert profitably, 15% profit growth in the first half. Like this is a real opportunity to continue to convert profitably and maximize the growth potential.

Yes, I agree with that. Look, I think Bakkavor is probably a factor of lapping some losses historically, but we're absolutely on with kind of leveraging that combination, and we're already starting to see some green shoots there. So I think we're in a good place.

Just as an aside to that part 2 of that question. Part 2, would you say that some of the new contract wins are -- would say they're eclipsing some of the previous losses that you've experienced that you've seen with Bakkavor?

Yes. And we're encouraged by them, and they're good categories with good customers and customers we know very well.

Okay. Helpful. And then my final question, just around the leverage piece and free cash flow into year-end. But then thereafter as well, I'd just be curious as to how you envision leverage over the next 12 to 18 months just with regards to potential U.S. sale, forward CapEx? Is it going to stay at the level that you expect in FY '26 into FY '27 as well? And just a general flow of free cash flow with regards to that move up towards 55% free cash flow conversion. How do you expect the kind of everything to settle there?

Just a apologies on the drilling. That's not us drilling away here because we could stop that. I think it's the building and we will -- apologies for that.

Look, there's a few things I would say on that, Gary. And if there's anything to follow up, please do. Look, I think the underlying business is performing well. I think it is doing what we expected it to do, generating strong cash flow. So we're obviously focused on making sure we drive that on. I think from a CapEx perspective, I think we had about GBP 50 million on an annual run rate basis that backup were slightly higher at about GBP 70 million. If you added those together, simplistically, you would expect that kind of an envelope. But as you can imagine, we are really trying to get under the bonnet of understanding what their plans were from a CapEx perspective and our own and where to prioritize, I suppose, our focus over the next 12 to 18 months. So GBP 80 million feels about reasonable, but it could be between, I would say, GBP 80 million and GBP 100 million. GBP 80 million, I think, for this year and into next year, probably GBP 80 million to GBP 100 million, broadly speaking, could be where we're at. And just then, I think -- yes, I think from a net debt perspective in general, I think broadly speaking, we are sticking to that overall message that we will be back down to within our target range of 1 to 1.5x within 2 years of the closeout of the deal.

Karl Burns from Berenberg. Just on that new contract win, I don't know if you could give any more color on sort of the categories it's in, 100 basis points as well, you must be pleased. Any sort of guidance on full year contribution from net new business wins? And then just a second question on the U.S. disposal. Any time frame on that? And have advisers been appointed?

So look, on -- we probably won't give too much Karl if that's okay, in terms of that business win. But it's -- what's really exciting about this specific win is that this is a category that Bakkavor does really well that we don't do, going to a customer that we know really well that Bakkavor doesn't deal with. And it's been us going in. And what we've had to do here is essentially say to the customer we know really well, you're going to get the Greencore proposition in terms of the whole package, Karl, should I say, in terms of how we serve the customer innovation, et cetera, coming from Bakkavor with their expertise in this category. So it's encouraging because I think what it really said to us is what we thought would happen is happening. Customers are saying they want to do more with us, and this is an example of that. So I won't go more into the category, but it's not one that we do, and it's one that they do, and they do it very well. And look, there'll be more of those. That's the point. And actually, the complementarity of this combination is such that when you look at that football field of white space versus green, I mean, there are customers where we have real white space that we know really well on the Bakkavor category. So encouraged there. In terms of the U.S., I'm sure Catherine will comment on that. Yes, advisers have been selected. We are super early in this process. And as Catherine said, it's a great business. Should we be the long-term owner to really unlock the potential, I think that's what we're going to see. I mean it supports some of the best retailers in the world, if you think about Amazon and HEB, Kroger, like these are fantastic retailers. So we'll just see where that goes. It's early stages.

Yes. Look, that was exactly the point I was going to make. It is a fantastic business. It's performing very well. So we are just considering what the best thing to do with that part of the business is, but we won't be giving it away. So we will go through the process that we need to go through to kind of come to some conclusion on future course of action there.

Matthew Webb from Investec. First question is on some of the figures on Page 10, which showed a very stark difference between the performance of food for now versus food for later. And given that the business that you've acquired in Bakkavor skews more to food for later. I just wonder whether that's something that you're concerned is going to be a bit of a headwind for you, whether you think that the different performance of those 2 categories will remain as stark as that. And I suppose what you can do, a, as category leader potentially to reinvigorate that whole category, but also what you can do to gain share within it? That's my first question.

Yes. Look, just to pick up on that, you're right. And I think this is directly linked, Matthew, to what we've been discussing there around the Bakkavor volume over that period, right? Because that you're absolutely right, the majority of that is feeding into that food for later category. So the volumes were a little bit behind what we would have liked for the reasons that we would have set out. And you're absolutely right, Bakkavor's categories predominate into that food for later side of the house. There are also some interesting things going on in there from an inflationary perspective. Absolutely, there's some high inflation going on, but there was some deflation coming through with dairy and other categories that really also impact the Bakkavor portfolio. So net-net, that's kind of contributing to that softness from a top line perspective. But I think all of the points that Dalton raised around how we're driving on with regard to those categories, how we're leveraging those relationships that we have and Bakkavor has to really drive into that white space. I think that's where you will see that showing up hopefully in the future.

And I would add to that, Matthew, that structural tailwind of the move from dining out to dining in very much skews towards the Bakkavor side of the portfolio because typically, I mean, you can see some of the examples there. These are products that are consumed in the home. So, look, I'm confident that we're focused on it in the right way. We're very focused on volume market share growth, like every single week, we have the top 40 people on a call every Thursday, we go through our market share. We, to be quite honest, talk very little about revenue because the revenue flows. We just talk about volume. Volume is actually the metric we use in our organization to drive it. And we do not want to have negative volumes and everything goes into that, it's got to be accretive, but that's where our focus is. I think you had a second question.

Probably so. Yes, second question, just on the ERP systems. You mentioned that there's good progress being made with both. And ultimately, the aim is to bring those 2 programs together. Could you just explain a bit more what that entails? Because I think perhaps a bit earlier in the integration process, there were a few questions about whether ultimately you might transition your systems onto the Bakkavor system as a more upstate one. Is that what we're talking about or we're not there yet?

It is not what we're talking about, to be brutally honest. Look, I've spoken to you before about making business easier and what we're trying to achieve within the Legacy Greencore portfolio with our ERP. So we had 4 or 5 ERPs and our proposition there was to get all of our 16 sites in the world at the time onto 1 ERP. And I think we have an understanding that getting our legacy sites on to System 21 rather than SAP is the right place for us to be at. It would have been -- we felt too much a leap for us to consider moving to SAP at that point in time. So we're going to standardize across System 21. Bakkavor had decided to go on an SAP journey. I think they had a risk around out of life around their ERP system. So it was something that they were kind of compelled to do, and they're doing an -- I'm sorry, we are doing an excellent job of putting that in place. So I think we are happy. We've considered this in detail, happy to let those 2 programs continue alongside each other. I don't think we're going to be in a place, to be honest, in the medium term where we're going to be deciding to do a big SAP rollout across the entire network. And we have -- we're happy that you can have 2 ERPs running alongside each other and still drive some of those efficiencies that we are really hungry to deliver that we've spoken to you about before.

That's the 3 SaaS implemented processes that sit on top, agnostic of whether it's System 21 or SAP. So when I talk about time and attendance and workforce management or materials management like they have Red zone, for example, which is our operations performance management system, like that's independent on whether it sits on top of System 21 or SAP. So we'll have 2 ERPs. There's no point in putting everybody on SAP at this stage. But when we bring in the supply chain management, that will sit above both, and that will be 1 system, it won't be 2. So you'll have 1 time and attendance sitting on top of the legacy Bakkavor, legacy Greencore ERP.

Sorry, do you mind if I just -- are there any particular supply challenges that have been thrown up by -- or either by the conflict in the Middle East, most obviously or weather conditions, et cetera, that either you've experienced or that you've had to sort of pivot away from by switching from one region to another or anything like that?

No, nothing material. I mean actually, a huge amount of work happened post Ukraine in terms of supplier resilience. So our procurement team have been very much looking at supply resilience and had put a lot of contingencies in place post that. And actually, that's helped us now. But we've seen no supply issues. So we've got nothing on the horizon either. It feels pretty balanced at the moment.

It's Karel Zoete, Kepler Cheuvreux. I have a couple of questions. The first one, can you discuss the operational performance of the North American business? Last year was a bit of a year with 2 halves for Bakkavor and the business saw acceleration. Did you see that continue in terms of top line and that's right margins? And then a question with regards to the working capital outflow. Bakkavor was more enthusiastic with the factoring of receivables and Greencore more modest. Has that been something you've adjusted that kind of explains this? And then the third point is with regards to cash out of exceptionals. I think by now, you booked most or the largest part of the exceptional budget. What should we anticipate for the remainder of this year and next year?

So I'll take the U.S. and you might add to it as well. And then working capital and cash, you can pick up. Business is performing really well, actually. Performance is strong. They're right on where they need to be. Customer partnerships are really good. As you know, they've got a big partnership with HEB. Innovation engines, good, technical engines, good, sites converting well. Revenue has been strong. I mean, it's relatively early days for us in terms of getting our arms around it. It's a very stand-alone business. I mean, Catherine and I obviously are involved, but it is -- it has its own structures over there. But so far, we've been very encouraged by what we've seen. And there's -- I mean, I've -- through my own network, used to work in for a U.S. retailer, like we are getting inbound. As you know, lots of the U.K. -- U.S. retailers come to the U.K. to explore this market. They all want it. Problem is the distribution, as you know, across the U.S. But I'd be encouraged by it. I think there's a real opportunity there.

Yes. No, look, I totally agree on the U.S. business. But look, with regard to the working capital outflows, it has been interesting. You're absolutely right. Bakkavor would have leveraged invoice discounting at a more significant scale than us and in different ways as well, and that's been a lot of what we've had to work through. We have some better terms associated with our platforms and the same is the case on the Bakkavor side of the house. So we're just trying to understand how we should move forward because some of these are specifically with customers. Some of these are kind of facilities that we access via our banks and that would have similar situation. So we just need -- we're working through that to kind of understand how we optimize that. And then I suppose with regard to exceptionals, we have provided some incremental guidance at the back of the pack, and I think we're indicating GBP 110 million for the total exceptional cost for the year and about GBP 60 million from a cash flow perspective of that is to do with the acquisition and integration. So, yes, that's obviously going to be a significant proportion of that cost incurred, but we will definitely have some of that into next year as well as we continue with the integration element and the costs associated with the delivery of synergies.

Charles Hall from Peel Hunt. Dalton, you talked a lot about volume growth and pushing on that front. Can you talk a little bit about product optimization and plant optimization? And are there any products or customer service levels that you need to address and maybe drop some product lines?

So from a product point of view, we're still at early stages, I would say there as we get to learn the categories and get more familiar and the teams come together. I think there's quite a lot of optimization that can go in, in terms from the ingredient side where we can go back now to customers and say, look, actually, because of our enlarged scale, we can source slightly differently. The opportunities -- I mean, like, for example, I'll give you an example, the Asda pizza launched in U.S. the pizza. We're obviously big buyers of tomatoes from our grocery business in Selby and across the network, being an Italian. They're obviously a big purchaser of tomatoes because the pizza base is a tomato base. So there'll be an example like that where we've been able to come together and leverage our know-how in terms of procuring in this case, Italian tomatoes. So I think there's a lot of that, that's starting. In terms of optimization, we talk about a column that uses this word, [ Tetris ]. It's sort of like Tetris moving products around. We're at the early stages of our thinking there about where it's best to produce what product. And I mentioned earlier about our operational synergies, and we're at the early stages, it's more FY '27 and a lot of that thinking is going to come in there in terms of how can we fill the network. The network has got capacity. There's sort of we've got run at about 15% capacity. They run at 20% capacity. So that capacity is there. The commercial team, our focus on the to them is, okay, how are you going to lean in and sell that capacity profitably? So that's their focus. And the operations team, the focus is, well, how can you convert as profitably as possible so that we can offer the best value for our customers. So I'd say when we meet again later in the year, we'll have a lot more on this, but that's where the thinking is it's still that we came together as a combined structure in mid-April. So early days. There's clearly a huge amount of opportunity to sell more through existing capacity and be more efficient because, quite frankly, we make similar things in similar plants.

And just a second question if I may. On the inflation, what do you see coming through over the next few months? And what sort of quantum of food inflation do you think we might be getting to?

I think we'll be at sort of 5% by the autumn. I think it has to be because it's so lagged if you think about energy and fertilizers. I mean, think about what's happening in packaging, et cetera, there's a decent lag, but I would say 5% is what we will be faced into in the new commercial -- sorry, in the new calendar -- sorry, in the new financial year, so this autumn, as Catherine said, look, in our particular case, we're very hedged. But it's back to Fintan's original question for the consumer only 5% that's [ hyper stomach ]. So it's going to be all around value and how we can drive that value. So meal deals, GBP 375, dine-in meals, GBP 10, et cetera. That's where the opportunities are. Do you want to comment on inflation?

No, no. I think. Yes, no that's...

Clive Black from Shore Capital. I have to say for a start, I do hope you're not hoping on or expecting England to be Croatia to deliver Q3 on the 17th of June or Ghana for that matter. Two questions. In terms of that matrix of opportunity, from a substance perspective, what are the most meaningful categories for you to shade in? And then from a strategic perspective around the manufacturing platforms, how have you found the 2 processing systems? And I'm thinking more 3 to 5 years rather than 1 to 3 years. Is there rewiring? Have Greencore got optimal process engineering that can go into Bakkavor and vice versa?

You mean it from an automation or...

Yes, from a process engineering, manufacturing platform perspective, everything from end-to-end systems, automation, robotics, you name it.

Yes. Well, we'll both come in on that. In terms of the matrix opportunity, look, there are on the value -- there are a number of retailers where we have a very material presence. Aldi has been a terrific customer for us and a great partner. And Bakkavor typically has not served them. So I think the opportunity is on some core customers in the same way that Tesco is an incredible customer, but typically for Greencore, it's sort of been our #5 customer. So I think from a customer point of view, we're very clear where the opportunities are. And then I think from a category point of view, look, they've got some terrific categories. I think they're doing some fantastic stuff in dips. And I think we see an opportunity to invest further in that business and really propel that whole Med deli areas you can see on the high street, just continues to increase. So we're excited by what they're doing there. Actually, interesting enough, we get lots of questions around desserts and where does that market fit in a GLP world, et cetera. Actually, pretty encouraged by what I've seen out of the desserts business. It's very capital intensive, but that also means that if you've invested the capital, you've got a real opportunity to do things that maybe others haven't who haven't previously made those investments. So I'll be excited by that. And I think salads is just a business. We're strong in salads, they're strong in salads. It's nearly 20% of our business now going forward is salads, and that has huge tailwinds behind it. So I think there's sort of that matrix of there's a few customers where we see a real opportunity and there are a few categories which we'd be keen to really drive. Sandwiches is nearly 25% -- just over 25% of our business, probably not so much opportunity there. Ready meals is 20% of our business, real opportunity there. You think what they did, I think M&S, which you follow closely came out, and they specifically talked about the revamp of their collection range that Bakkavor had done and think about that expertise coming into our business. In terms of process, I think we're both at early stages in terms of process optimization. There are 2 businesses that have been built up through acquisition. They're very well run operationally. Many of you have been through the plants. But I think in terms of automation, and we've talked about NextGen, I think there's a real opportunity. If you think about AI, like this time last year, it was kind of a little bit more conceptual. And today, AI year on is very much in the practical. I think this NextGen, I've talked about it for a while here. I keep feeling it's nearly there. I think it feels to be getting closer. And I think that opportunity in terms of automation, robotics, dexterity, replication in terms of automatic -- from automated arms, et cetera, could really have a material difference. And then the whole MBE, which I'm sure Catherine will cover, like we're a patchwork of Excel. We're a patchwork, both businesses, like we have hundreds of people in areas where they're literally doing a lot of stuff mechanically. And we'd love to have those people focused on doing more for customer, not sort of redundant work.

Yes. Look, there's 2 things I would call out. Firstly, I think it's important to call out that all of our manufacturing sites exist and can continue to operate with their own individual systems and processes, and they find their own ways to plug into the center. So from a business continuity perspective, we're working fine in that regard. And I suppose back to pick up on Dalton's point, I mean, this was the original issue that we had in Greencore that encouraged us to really just bite the bullet and invest in fixing the underlying processes, driving standardization and leveraging automation because each of our legacy sites would have had different ways of doing things and a lot of them weren't even on spreadsheets. So there's a lot of paper involved. So that was the business case around that investment from our perspective. So -- and again, as we move through that program, we are looking to deploy automation around operations performance, and we've now started looking at something that Bakkavor had deployed. So that's a fantastic kind of synergy that is really going to drive consistency across the broader group and will drive efficiencies and further improvements into the future. Also another area, demand planning and supply chain, like that is a massive area for a business like ours. We currently do it all sorts of different ways, right? So again, we're looking to centralize that and drive consistency across 32 sites. It's not going to be easy because you really are going to have to address well embedded ways of working. But once we get that unlocked, again, it's going to drive a massive efficiency, I think, from our perspective. So everything is fine at the moment. It all works, but there's massive potential there for us to kind of just make everything more seamless.

Okay. It's like conscious of the time, and I know that you've all got busy agendas. So if you're good with that, we'll wrap it up. We really appreciate you being with us this morning in person, and we thank you for those that have joined us online. We'll close it there.

Thank you very much. Thanks, everyone.