Good morning and welcome to the Greencore FY 2024 Results Presentation. I would now like to hand over to Dalton Philips, Greencore CEO. Please go ahead.
Good morning and thank you for joining us for our FY 2024 full year results. It's good to be sharing a strong set of numbers with you today. We've worked hard to stabilize our core operations and rebuild profitability onto what's now a really solid foundation, which we'll cover with you this morning, and at our Capital Markets Day in February, we'll share more on our medium-term trajectory and ambition for our business. Let me share some key messages on page five. Firstly, we exceeded market expectations in terms of profitability, and this performance has given us real momentum into this new financial year. Like-for-like revenue growth was 3.4%, and like-for-like volume growth was 0.5%, which continues our outperformance against the wider market. We've successfully delivered against our commercial and operational excellence agendas, which has enabled us to achieve an adjusted operating profit of GBP 97.5 million.
And this improvement has been driven right across our business. I'm particularly pleased by the strong execution of our turnaround plans in some of our previously lower-performing categories. Our leverage is now at the lower end of our target range, which gives us wider capital allocation options. We've completed our GBP 50 million capital return to shareholders. This includes the recommencement of a progressive dividend policy of 2p per share, which equates to circa GBP 9 million to shareholders, and our buyback of GBP 40 million completed during the year. As we look to FY 2025, we remain confident in the outlook for the business, our cash flow, and our balance sheet strength. We will continue to consider all options to create value to shareholders, and today we're committing a further GBP 10 million to buybacks, which we will execute in the coming months.
We will, of course, continue to review our capital allocation options and our buyback program as the year progresses. And finally, we remain encouraged by the underlying momentum in the business and expect FY 2025 adjusted operating profit to be within the top half of the current range of market expectations, despite the new labor cost headwinds, which we will fully mitigate. Let me now hand you over to Catherine, who's been with us for almost a year and making an enormous contribution.
Thanks, Dalton. Good morning to everyone, and thank you for joining us in the room and on the call today. I'm delighted to be here with you this morning to take you through some further detail on the full year results for the group. If we start with an overview of the key financial metrics on slide seven, as Dalton has referenced, we've delivered a very strong performance year on year from an adjusted operating profit perspective, with an increase of 28% to GBP 97.5 million and ahead of our revised expectation. While our reported revenue for the period declined 5.6% due to the decisions made in 2023 to exit a number of contracts and the disposal of Trilby Trading, this has been underpinned by an encouraging like-for-like revenue performance of 3.4%, which I will provide more details on in later slides.
Adjusted earnings per share grew 37% to 12.7p, driven by the increase in adjusted operating profit and a reduction in the weighted average number of shares in issue following continuation of the share buyback program. We had a free cash inflow of GBP 70.1 million for the year, an increase of 23% when compared to 2023, driven by the improvement in adjusted EBITDA and partially offset by working capital movements and an increase in financing and tax costs for the year. We continued to make good progress on deleveraging, with our leverage at one times net debt to EBITDA being at the lower end of the group's target range and down from 1.2 times for the equivalent period in 2023.
Finally, return on invested capital at 11.5% has increased 260 basis points from last year, with specific actions taken in 2024 to drive returns, and this is something that both Dalton and I will give you further color on throughout the presentation. Moving on to slide eight, I wanted to highlight a couple of the key metrics and themes in greater detail. The group saw progress across like-for-like revenue growth and margin in full year 2024, with an increase in the adjusted operating margin to 5.4%. That's up 140 basis points compared to 2023. This margin progression was delivered through like-for-like volume growth and other commercial activity, with this volume being delivered more efficiently due to the continued deployment of our operational excellence program.
The group has also continued to strengthen its balance sheet position with net debt at GBP 148.1 million and leverage at the lower end of the group's target range, ensuring that we have the financial flexibility as we move through Horizon Two and look ahead to Horizon Three. The group has also created shareholder value, as demonstrated by the increase in earnings per share mentioned earlier, driven by the improved profit outturn and share buyback program. As Dalton mentioned, we have declared a dividend of GBP 0.02 per share in respect of full year 2024, and we will reintroduce the payment of a dividend going forward on a progressive basis in line with earnings growth. Moving on then to slide nine, I'm going to take you through a little bit more detail on our revenue performance across 2024.
So, as mentioned, reported revenue for the 12-month period has declined 5.6%, with 4.2% of the decline caused by the disposal of the Trilby Trading business and proactive contract resignations in 2023, driving a further 4.8% decline. Offsetting those declines was a like-for-like increase in volumes and mix, driving a 1.6% increase in revenue and 1.8% increase due to inflation recovery and pricing impacts, with our overall like-for-like revenue growth at 3.4%. There's further detail on revenue growth by category included in the appendix in the presentation. Just moving on then to slide 10, you will see that there has been really good progress made over the last two years in improving the group's profitability and returns.
Gross margin has improved 310 basis points since full year 2022 and is now ahead of full year 2019 levels, supported by volume growth being ahead of the market, margin accretive new product development, and systematic deployment of our operational excellence program. Adjusted operating profit is up 35% since full year 2022, with adjusted operating margin progression of 120 basis points, as the improvement in gross margin was also supported by a continued focus on tight cost control to ensure the business is moving towards being right-sized for the future. On ROIC, we've also made good progress to 11.5%, up 310 basis points when compared with full year 2022, as we continue to focus on driving returns through network optimization and onboarding of new business wins. Despite this positive progress in full year 2024, we are conscious that for certain KPIs, we are still behind full year 2019 levels.
We are on an accelerated journey in returning the group to peak levels of adjusted operating profit, and we will lay out our more medium-term financial targets at the Capital Markets Day, which we are hosting in February. Slide 11 sets out some further detail in respect of our cash flows for the year and our net debt position. There was an overall free cash inflow of GBP 70.1 million for the year, which represents a cash conversion of 45.6%, an improvement of 280 basis points year on year. So, walking through some of the main components of this, you will see that working capital saw an outflow of GBP 8 million due to the timing of certain supplier payments, and maintenance capital expenditure at GBP 26.2 million was broadly flat year on year.
We have exceptional cash flows of £5.3 million, which were predominantly related to the work done so far in our technology transformation program, which we call Making Business Easier, alongside some smaller cash items related to prior year disposals and other property-related matters. Interest and tax combined grew £6 million, and with the other items down to free cash flow broadly in line with expectations. As mentioned in May, we have also made significant progress on our U.K. defined benefit pension funding plans following the latest triennial valuation, and this scheme is now expected to be in a fully funded position by September 2025, at which point annual funding of approximately £10 million from the group would cease. This will obviously support enhanced cash conversion for the group going forward.
Net debt excluding lease liabilities at the end of the period was GBP 148.1 million, a reduction of GBP 4.9 million year on year, and that's following GBP 6.2 million of strategic capital expenditure and GBP 60 million in relation to the share buyback program and purchase of own shares. Moving on to slide 12, I wanted to give you a little bit more context on our capital allocation plans. The group's ambition is to deploy capital to balance long-term growth and shareholder returns through operating profit growth, generating strong free cash flow, and following a disciplined investment and capital allocation approach. As mentioned, our balance sheet position remains strong with our leverage at the lower end of the group's target. This continues to provide us with headroom for wider capital allocation options.
As Dalton and I have both referenced, we are reintroducing the payment of a dividend on a progressive basis, starting with a dividend of GBP 0.02 per share, and we propose that this will grow in line with earnings going forward. In the medium term, our target leverage for the group remains at 1-1.5 times, and our policy post the ongoing payment of a dividend is to continue to prioritize organic investment through capital expenditure, followed then by selective potential M&A that supports our sustainable growth agenda, with a consideration then of the quantum and mechanism for the return of excess cash periodically to shareholders. We have recently completed a GBP 40 million share buyback, and arising from the strong performance of the group and our assessment of available cash, we are also announcing today a further share buyback of GBP 10 million to commence immediately.
I've been in my role now for 10 months, and while I am delighted to be here to take you through these strong financial results, I'm going to take you to the next slide, and as you can imagine, our minds have already turned to 2025 and beyond, and I wanted to take a minute or so to highlight my priorities and key areas of focus as CFO. We are very focused on continuing to drive overall profitability, and while our commercial and operational excellence models are functioning well, I would be bringing increased rigor to right-sizing our overall cost base. Another key priority for me and key lever to making this group more efficient is our Making Business Easier program. This critical systems investment is a key enabler for us to become more streamlined in how we operate as a group.
As we continue to see improvement in the profitability of the group, ensuring we deliver improved cash generation is also key, providing us with critical investment flexibility across Horizon Two and Three. And I also want to ensure that our capital allocation framework is used to deploy available resources in the most earnings-accretive way possible. So that concludes my comments. I'd also like to highlight the technical guidance, which we've included for full year 2025 at the back of the presentation. I'll be back for Q&A, but now I'm going to hand over to Dalton.
Thanks, Catherine. Now, let me turn to the strategic and operating update, and I'll start on page 15 by sharing a general roundup of the year and how we did against our big priorities. Firstly, we've grown ahead of the market at an overall level and also within our key categories. We've delivered strong innovation through our commercial excellence engine. We've step-changed our operational performance by driving out inefficiencies. We've successfully mobilized our new technology program, and although it took us a little longer to get going, we're now fully up and running. We've built solid foundations in sustainability, but still have work to do on our key metrics. Finally, we've stood up a dedicated team to explore longer-term growth options. All in all, I'm really pleased with our performance. So let's dig in a little further below these headline messages.
On page 16, you'll remember the three horizon framework that we launched two years ago, and you'll know from our FY 2023 results that we did a really solid job in delivering Horizon One and stabilizing the business. For FY 2024, we turned to Horizon Two, and you'll have seen that we've actually accelerated our delivery on the profit recovery ambitions we had set out when we launched this plan. And while 99% of the organization is still firmly operating within the Horizon Two tramlines, we do have a small team looking at Horizon Three. Let me now show you how we've performed against the total market on page 17. The overall grocery market in volume terms declined by 0.1% in the year, representing stabilization after some years of inflation. We outperformed this market by 60 basis points, with 0.5% volume growth over the same period on a like-for-like basis.
This outperformance was driven by our two key categories of sandwiches and ready meals. Sandwiches outperforming a largely flat market by 170 basis points, with ready meals 100 basis points ahead of its market. There's a lot going on behind the scenes to drive this growth. Certainly, the focus we put into consistent quality, which is complex in a world where there's a lot of human interaction and you're handling some 1.5 million products through the year. I'd also call out the efforts we've put into our innovation engine, both at an EPD and NPD level. So that's existing and new product development, coupled with service levels into our customers, which sat above 99%. And as we look forward, there are some encouraging trends with mobility building and the growth forecast in premium alternatives and the convenience space where we've built a strong foundation.
Turning to page 18, if we look at our in-year returns from a ROIC perspective, you can see we've driven improvements right across our business through focused portfolio plans. We implemented cross-functional teams who've been deployed against each of our nine categories to drive opportunities across commercial operations and our cost base. So our overall profit improvement is not coming from a single category or area. It's a marked step up right across the board. This slide shows the performance of our four biggest categories. In salads, we increased ROIC by 590 basis points, a key driver of this being the smoothing of seasonality peaks by working with a nearby ready meals facility to leverage shared overheads and labor. In sandwiches, we increased ROIC by 380 basis points. From the commercial side, we had a significant new business win with Costa.
Alongside this, our sandwich sites have been really leaning into our operational excellence program. In ready meals, ROIC improved despite the annualization of a business loss. We put a focused effort into rebuilding during the year, and I'm glad to say that we've had a super onboarding of the Aldi ready meals business in September. In ambient sauces, we renewed a key partnership with our largest customer at our Selby site, securing revenue for the long term. Across our other five smaller categories, ROIC increased by 60 basis points. An example would be sushi, where we've been turning around a historically challenged category with the launch of a new format with M&S and a new concept with Aldi. Another less obvious category here is our direct-to-store business, which has turned from being a cost center to now being a real profit driver for us.
So overall, we're encouraged with this level of improvement, which has been necessary in order to have a sustainable and well-invested platform to support future customer growth ambitions. Of course, underpinning these improvements has been our excellence program in commercial and operations, which I'll walk you through now. Starting with commercial on page 19, at a total system level, we drove a gross margin improvement of 350 basis points. This was underpinned by four key components. Starting with volume, as you saw earlier, we grew ahead of the market, and in tandem, we landed a number of new contracts, which will further drive volume forward this year. In price and mix, we've seen one percentage point of revenue growth coming from improved mix. We achieved this in part by launching 421 new innovative and margin-accretive SKUs.
In cost, our procurement team continues to deploy our should-cost model, or what we call Project Delorean, which benchmarks prices of raw materials back to April 2021, looking at all the inflation drivers between then and now. We've also been more cost-efficient by reducing the number of unique ingredients in our products by 5%. This focus on consolidation helps our buying terms, and it has the benefit that the sites convert more profitably as it takes complexity out of our material handling systems. The commercial team have also locked down circa GBP 700 million of revenue secured through 10 long-term contract renewals. Today, about 50% of group revenue is now secured for three plus years, providing us with a solid platform for joint growth with our customers. And finally, this improvement has also been enabled by an optimized commercial org design.
In 2022, we moved from decentralized BUs to a functional structure, and we've now further evolved this so that all key customer relationships are individually managed by our sales directors who are connected right across their customer base, which means that there's now one point of contact for their entire Greencore portfolio. Turning to operational excellence on page 20, we've driven a 0.7% improvement in service levels, achieving an average of 99.2%, which, as we all know, only happens off a really strong operating platform. There are a number of areas underpinning this. Let's start with manufacturing and supply chain excellence. We're now applying a world-class operational excellence program consistently across our business, operating today as one network rather than how we used to do it as a cluster of sites within a BU.
Through a staggering 843 individual projects, so some large, some small, we delivered material savings across the network. A larger example would be labor reduction in our Warrington site. We delivered GBP 750,000 in FY 2024 through a line balancing effort to run more product through our automated lines. This reduces the number of manual tasks and equates to a 25 FTE reduction. A smaller example would be a change in our Brie cheese slicing process in our Bow site to reduce waste, saving GBP 96,000. The point to take is that we're driving this improvement from hundreds of projects going through our ops tracker, some big, some small,
but all contributing to the bottom line. It might seem like hard yards, but that's the reality of being an own-label manufacturer. In automation, we're building our internal team's capabilities and have identified the manual processes where next-gen automation could be most impactful.
Network optimization is the third key unlock for us. Each quarter, we move further towards an integrated Greencore network with one best way of doing things, a huge efficiency unlock. Two examples would be our consolidated soups production and a new group logistics function to apply a centralized approach to warehousing, goods management, and couriers across the network. In labor optimization, we've step-changed the rigor in which we analyze our cost base with an aspiration for the business to work with a total delivered cost flat mindset. This is a significant cultural shift. We applied this principle to our labor structures, and we've started to see the outputs of this work through, for example, our improvements in units per labor hour, and lastly, as you would expect, operations are underpinned by a large number of processes and systems, which we've been streamlining and upgrading.
An example of this is our new CapEx approval workflow, where in this new financial year, we've doubled the number of CapEx projects in the sign-off process, trebled the actual number of sign-offs, and halved the time to that sign-off. Turning to people on page 21, excluding materials, labor is both our biggest cost line and, given our product portfolio, our most important strategic asset. At a headline, we've increased units per labor hour by 6%, a productivity improvement which drives real cash savings. We have to manage this cost line incredibly tightly, and we've focused on five areas that help to move the P&L forward. Firstly, resourcing and retention. Two key KPIs are voluntary labor attrition and absent rates, both big costs for the business.
We've reduced voluntary attrition by almost six percentage points and absence by one percentage point by working with individual sites on local issues and also deploying best practices such as a new starter process. Secondly, talent. Last year, we had 224 apprentices and early career colleagues in the business. These are the young leaders that really drive our business forward day to day, and of course, they're the future leaders for tomorrow. Thirdly, comms and engagement. We run an all-colleague survey to do a temperature check. This year, we had a sustainable engagement score of 81% in line with the high-performance norm for U.K. companies across all sectors and up from 76% on our last survey. We put a real focus into ensuring all colleagues know what's going on across the business. For example, every week, I send out a personal update video to the entire organization. Fourthly, reward.
We've done lots of really positive things here, for example, launching a much-improved parenthood policy supporting our efforts to become a really attractive place to build a career. And fifthly, enabling systems. We're really focused on one best way of doing things, which drives efficiencies and better outcomes. For example, standardizing key admin processes through our new HRIS system. Moving now on to technology on page 22. In FY 2024, we launched our Making Business Easier Technology Transformation Program. We began to execute several key enabler projects, which we hope will give us a repeatable model for deployment. Firstly, as I mentioned, we launched a new HRIS system driving efficiencies in payroll, recruitment, and data management. We delivered this on time and under budget. Secondly, we continue to roll out a common ERP system.
We now have 13 of our 16 sites on the same system, with a plan to transfer the remainder over the next two financial years. We launched new handheld devices for our logistics team, which enables real-time tracking of vehicles and has materially improved service for our customers and, of course, reduced the work of our service desk. Looking forward, we're up and running on 10 out of 41 total initiatives, including end-to-end supply chain planning that drives standardization, improving speed of decision-making, and will make us much more efficient and accurate. We're building a materials management system to enable real-time visibility on operational performance in raw material and packaging management. There's also a large focus on data management, which will improve the way we access and utilize data around the business. For context, this is a business that every week moves thousands of Excel files across the network.
In total, Making Business Easier is a five-year program with an investment profile of circa GBP 10-GBP 15 million a year. This is catch-up on years of underinvestment, and this plan ensures we're utilizing existing technologies and rolling them out incrementally rather than implementing a riskier big bang approach. Now, turning to sustainability on page 23, which is an area of increasing prominence in our commercial conversations and also an area where there are hard P&L savings. We have three main targets: food waste, energy, and water. We had mixed performance in these. In food waste, we over-delivered against our target. However, carbon emissions and water have a long way to go to reach our 2030 targets. Having said that, much of last year was about setting ourselves up for an accelerated catch-up program, and we've had some successes.
Firstly, we now have multi-year sustainability roadmaps in place to drive improvement across the value chain, looking at areas like human rights, healthy sustainable diets, packaging, and, of course, the big five of gas, electricity, diesel, water, and waste, which are the main P&L contributors. Secondly, we've moved to automated metering, giving us real-time insights into our energy consumption. Thirdly, we've built a product dashboard, which gives us a clear view of the health of the products in our portfolio at SKU, channel, and customer-level detail. Fourthly, in FY 2024, we allocated GBP 8 million of CapEx to energy projects, which will support delivery of our Scope 1 and 2 targets. Finally, we've also step-changed our data and reporting capabilities in preparation for CSRD reporting in FY 2026. Before I finish, let me touch briefly on our approach to future growth on page 24.
Part of our ambition for Horizon One and Two has been to create a strong platform for growth in Horizon Three. Part of this growth will come from within our current business. The work we did on tidying up our portfolio has created capacity to grow profitably within our current footprint, and we are starting to see the fruits of that through the improved portfolio returns lens that I showed you earlier. However, in parallel, we're starting to work on our longer-term growth engines. We believe there's a lot of opportunity to go after. The capabilities that we have built and the model that we are creating through Horizon Two have the potential to create value beyond our current portfolio. We've been expansive but disciplined in our thinking.
Expansive in the sense that we see opportunities to unlock value through our model in new categories, new channels, and in time, potentially new countries. Equally, we've been disciplined with clear guardrails in place to ensure that any investment has a strong strategic fit, has a clear financial value creation case, and is coherent with our sustainability objectives. Finally, we've put in place a small but highly capable team to drive this work. Turning to page 25, and I'd like to highlight the 10 big priorities we'll be driving this year. In commercial, our focus is on, firstly, growing ahead of the market with meaningful cost-effective product innovation. We see opportunities with customers wanting to consolidate manufacturing partners, and our focus is to meet their needs in these growth areas. Building better processes in revenue management and product development to enhance pricing mix and promotional strategies.
Thirdly, expanding our procurement excellence program with a sharper focus on indirect spend. In operations, we're prioritizing the continued rollout of manufacturing and supply chain excellence programs across the network, doubling our efforts in automation, optimizing and rebalancing the network by aligning products with site capabilities. Low-complexity, long-run products will go to automated sites, while bespoke products will stay in sites designed for complexity. For our enablers, we're focusing on three things: standardizing labor structures across sites by benchmarking and adjusting management to labor ratios based on factory size, product type, and complexity. Accelerating our program in technology and sustainability. And building our longer-term growth engine under Horizon Three. Now, turning to the outlook on page 27, and I'm really encouraged by our continued delivery of Horizon Two, resulting in a faster profit recovery through the year.
We've accelerated our commercial and operational excellence agendas with robust plans in place to continue to drive improvements. And so, given all the activities we've talked to you about this morning, the group is confident in delivering FY 2025 Adjusted operating profit within the top half of current market expectations despite the new labor cost headwinds, which we will fully mitigate. So thank you again for your time this morning, and Catherine and I would now be delighted to take any of your questions. I'll walk our way around this way. Patrick.
Morning. Patrick Higgins from Goodbody. A couple of questions on my side. Maybe just starting off on your comment around your ability to offset labor costs into next year. Could you maybe just give us, firstly, a sense of the overall labor inflation that you're facing into next year? I guess what underpins that confidence of your ability to offset? Is it self-help? Is it price? And on price, have you had any conversations with retailers yet in terms of pricing into the year ahead? And if not, maybe you could just remind us of the kind of usual cadence of how you talk to customers and when higher pricing hits shelves. That's my first question.
My second question is just on guidance for next year in terms of the delivery of the profit figure you've set out there. How should we think about the mix between top line and margin and achieving that kind of profit target?
Great. Well, look, I'll kick off on the labor inflation, and Catherine, you might want to pick up on the guidance piece. Look, this is a big hit to the industry. I mean, it's GBP 2.5 billion going across all companies. Within retail, it's GBP 7 billion. It was unexpected. It was unplanned. It wasn't trailed. But it's the world we live in, and so we need to mitigate this. And you've seen a lot of the retailers coming out to the BRC.
I think we all saw that letter that was issued to the BRC saying this is going to result in prices going up because we are a low-margin sector, and there just isn't the ability in the supply chain to absorb that. Having said that, look, before we ever go back to a customer looking to put a price up, we've got to look internally at our own cost base, and we've been very focused on driving costs out. We look at the top of the P&L, at the gross margin line.
That's all the operational excellence work that I talked about: 843 projects just trying to drive costs out of the business. The lighthouses that we've talked about previously in terms of looking at our engineering, looking at our labor planning, looking at our waste, looking at our overall planning processes. So lots of work going on there, and of course, in the procurement side. But ultimately, these prices are going to have to, this is going to flow through the customers. Now, the industry has some experience of this. As you know, Patrick, we've been dealing with 100 million-plus levels of inflation into our P&L over the last few years. The level here, look, it's 7.5 million in a year. It's a big number. It's a big number when it's not planned, but we just get on and deal with it like we've dealt with it before.
Of course, conversations are now starting. We have trackers in place. We have customers that don't have trackers. At the end of the day, this is a negotiation, but I'm confident that we are fully confident that we can drive this through in a combination of increased pricing, but first and foremost, we've got to look at our own cost base. I think we've done a good job there, but we will continue to squeeze our cost base to make sure that when we go to our customers, we're going to them with real integrity, that we've looked inwards first, that I'm confident we can absorb it all.
Yeah. Look, when I think about our full-year guidance and how we're planning on achieving that, I suppose it comes back to a lot of the kind of levers that Dalton has just spoken to us about. If you think about our commercial levers and our operational excellence programs, I mean, for full-year 2025, we're anticipating low- to mid-single-digit revenue growth. So look, that's going to be volume-driven, and it's also us continuing to work with our customers. We've spoken to you at length around premiumization, NPD, EPD, how we're using that to really kind of solidify our relationships and drive our top line. So then, obviously,
we're going to take that, I suppose, top line and essentially continue to drive operational excellence programs across the network to make sure that we're delivering that volume to our customers efficiently. So it's literally relying on those two key pillars of the operation. And also, as Dalton referenced, there are real focus this year on the cost base, probably below the line to really kind of make sure that we're driving further efficiencies out of that.
Gary. And then we'll go around to Andrew. No. Oh, doesn't really matter. Sorry.
Gary Martin here from Davy. Just first of all, just congrats on a really, really strong set of results. Just a few questions from my side. Just starting off, I guess, if we look ahead into next year, I mean, you've come on leaps and bounds with regards to just some of the initiatives that were undertaken, 843 projects completed in FY 2024 and 10 out of 41 initiatives kind of knocked on the head. I mean, if we look forward into FY 2025, have we kind of harvested all low-hanging fruit at this point? Will there be a similar kind of quantum of projects underway and initiatives underway? And how does that kind of feed into overall returns and margin progress? That's my first question.
So look, we need to continue this level of activity. When I think about what we're doing, we're moving into one network, Gary, and one network allows us to benchmark to a much greater level. So these 843 projects, that level of intensity is just going to continue. And I think we call them internally rats and mice we go after. So Warrington's a big project at 750,000, but cutting the Brie ends saves us 96,000. It's those sorts of things. So lots of projects there. There's a real opportunity too on our headcount across our sites. So we have different levels of headcount across our sites, and we want to be much more standardized in how we look at our structures.
That's a big opportunity. And then there's a big opportunity in indirect procurement. It's an area that we haven't really shone a light on. Yeah. We're obviously buying energy on a consolidated level. But when you get into the detail, there's a lot more going on, and we don't have standardized processes. And I think it's an area that Catherine's got a lot of experience in and is really working with the procurement team on. So this level of activity is going to have to continue. I think that's the reality of own-label manufacturing.
Thanks, next caller there. And then if we just maybe think about maybe I think it was on slide 18 that you talk about price improvements just across the different verticals and different core categories. I mean, how does the recent implications of the U.K. budget change your kind of calculus on how you kind of view some of the what we'll call maybe less core categories? Is there some flexibility there to potentially rationalize or consolidate further? Thanks.
So I have some thoughts on this, Catherine, me too. Look, when we set out a couple of years ago, we said everybody's going to have to cover the cost of capital. And if they're not, decisions are going to be made. We made a decision with Trilby. We made a decision with our soups manufacturing site consolidating that. Actually, you can see from the numbers there, the ROIC really stepped on. So I would not anticipate in this financial year any further consolidation at the network level. What we will do, though, is we will drive much harder this movement of product around the network.
So we, for example, haven't been leveraging our ready meals network to the extent we should be. We make certain products in certain places, but actually, it's more a symptom of customer and geography, whereas now we're looking at where do the economics make best sense. We work with customers, and we say we want to move production from this site to that site. It's better for you as a customer. We can improve the productivity of that product, which obviously flows through into better margin for them. So I think there's a lot more going on, but overall, we're comfortable with the portfolio as it stands today.
Yeah, no, absolutely. I mean, I think over the last number of years, the group has looked at the performance of the business in the context of those categories. And when you look at the returns that the individual categories have been delivering, we can see really strong improvement across the board. And I think, more importantly, we've figured out the levers that we can pull to really try and work on that on a go-forward basis. So, I don't see the NIC issue as potentially changing our view on our category composition.
That's very helpful.
Andrew.
morning, guys. It's Andrew from Peel Hunt. Yeah, firstly, well done. Really good set of numbers. I wondered if I could ask a first question on volume. Obviously, there's a bit of acceleration from the first half to the second. I just wanted to understand maybe what you're anticipating for next year if the exit rate is a good point of extrapolation. Next is on contracts. You mentioned there's some good renewals going in there, and I know that they're helping with the gross margin. I just wondered if the nature of those contracts is changing at all, whether it be pass-throughs or longer durations, and what your sort of anticipation is on that direction of travel, what you'd like to see.
And lastly, if I can be greedy and ask on your slide 15, one of the few ticks you didn't meet was attraction and sustainability. I wondered, what are the drivers for your customers in that area? What do they care about and are looking for? Is it carbon intensity? Is it products in particular? What's the sort of main focus for you in that area and your customers on the sustainability p oint? Those are my three.
So in terms of volume, it's going to be low single digits. That's the reality. But I mean, the market's flat. So this incremental volume that we're picking up from new customers, the costs, etc., it's going to be low single digits. And if you want to add to that, Catherine, that.
Yeah, no, look, I mean, we have seen we closed out 2024 strongly, and we have seen that volume momentum in that space continuing into 2025, which is relatively low.
It's more the continuation of the second half rather than the first.
Yeah.
In terms of contracts, the change really happened over the last sort of two years with the trackers, where a lot more has gone into the trackers. A lot more labor's gone into the trackers. A lot more energy's gone into the trackers. And there hasn't been sort of any material change in the last half. We're definitely seeing the sense that retailers are wanting to do more with less strategic partners. And I think you're seeing that right across the supply chain. And it makes sense. And we're sort of dialing into that. Fresh is much more long-term in terms of the contract length.
So you're talking three-ish years on a contract length, three to five on a fresh contract. On ambient, it's still a lot more transactional. Many of the ambient contracts might just be a year. And that, again, is an industry fact. And so, but interesting enough, you speak with the retailers, and they go, "Oh, no, no. We'd like to have longer-term ambient contracts. We'd like to have longer-term partnerships." But it's just slow filtering through. And in terms of sustainability, look, it just wasn't on the menu two years ago. Last year, it started to come in. I mean, commercial teams from our customers were running one track. Sustainability teams were running another track. And we were really struggling in between. Yeah, the sustainability teams, it's all about Scope 3. What are you doing? The commercial teams, it's all about margin. And so that's starting to converge now.
And I think the conversations, I mean, the only conversations only really work when commercial and the sustainability teams within our customers are aligned because you've got one who's trying to do one thing and another who's trying to do totally different. But I think there's more alignment. But for us, when I go back to the big five, so gas, electricity, diesel, water, waste, those are big Scope 1 and 2 for us, which are our customers' Scope 3. We've got to really go after that. And I think if we can demonstrate that, I think those are where the conversations are at the moment. Clive
Yeah, thank you. Two areas of M&A. Firstly, what's the capacity utilization or spare capacity within your network at the moment? And how would you characterize capacity across your product set at a wider industry? i.e., is there overcapacity elsewhere? And then secondly, on costs going forward, because it's not just really, it's really the first half of next year where a lot of stuff hits you, which means it goes into 2026. But it's also not just NIC. You've got the National Living Wage, the Employment Bill, and EPR all coming in in April 2025. That's a heck of a lot of stuff that you're going to absorb and pass on. So if it's GBP 7 million for NIC, it's a hell of a lot more elsewhere. So just wondered if you could contextualize that further.
Yeah, look, I'll start on that, and Catherine, I know you'll come in on that. So in terms of capacity, I think in terms of the ready meal, sorry, let's start with sandwiches, sandwiches at a sort of gross level across the sector, I think it's fairly well in balance.
We didn't have a particularly good summer, so we didn't really top out at 100% a couple of days early on in the summer, but that was it, and I think that's probably the same for the industry. Seems to be a good level of balance there. I think we're all trying to eke out more OEE, and automation is clearly a part of that, where automation not just takes cost out, but it can increase capacity. So I think in our principal market of sandwiches, it feels fairly balanced at the moment. Ready meals, as you'll know, is a complex market with six players all around 15% market share. There was additional capacity laid down. In fact, we were party to that. We laid down additional capacity in Kiveton in 2022. It's still excess capacity there.
When we look at our plants, we still have some additional capacity in Kiveton. Kiveton now runs at about 70%, which is a strong improvement from where it had been. As you know, it had been a real drag. So it's at 70%, and the team have done an incredible job there. We could definitely take. Once you start going into third shifts and stuff, you can turn on more capacity. But it feels that the ready meals market now feels a little bit more stable, and certainly, we've had a fantastic year. I think salads is a complex one. Massive overcapacity in the winter. It's all put tight in the summer. So I think at the moment, we're not in a bad place as an industry. I think there's a good level. Maybe ready meals would be the one that I would call out on.
In cost, well, I'll answer Catherine, but yeah, the £7.5 million of NICs is just the aperitif. You get National Living Wage, and you're into a multiple of that. So there is a lot of cost, which is why we have to really strangle the center of the P&L to take those costs out.
Yeah. Look, I suppose from my perspective, I'll just reference the point that Dalton made already. We have a good muscle built. We've had good experience over the last number of years of identifying, mitigating, and engaging with our customers around dealing with these, particularly the labor and the raw mat and pack increases coming through. I suppose the 6.7% on National Living Wage, we had anticipated that. It was a little bit higher than we had thought about, but I suppose we had built a specific plan around that.
Absolutely, the National Insurance was new. As Dalton has referenced, we are in the process of building a plan to deal with that. Look, I mean, the muscle around how we run the operation, really driving efficiencies in how we plan and run all of our lines. I know we keep saying it, but it really is targeted at looking at our cost base and just trying to minimize it and make the place as efficient as possible. I think the most pleasing thing for us, when we look back on full year 2024, you can see that in the results, is that has really started to show up in the numbers. I guess the challenge for us is just making sure that we continue to do that into next year.
But the whole consumer confidence piece of it is going to flow through, Clive. You wrote about it this morning in terms of the BRC numbers that came out. So it's going to flow through. It has to because it's just not the capacity in the sector to absorb it. Andrew.
Thanks. Andy Wade from Jefferies. Three from me, if that's okay. The first one on automation, something you've flagged a couple of times there. Obviously, we're aware of the cost of automation coming down and the cost of the people going up. But is there a big enough runway for you guys to use automation given sort of how picky or specific the jobs that people do and the flexibility that you need from one run to the next? So just interested on that one.
Second one on, you mentioned a couple of times about retailers and customers wanting to consolidate their manufacturing partners. Interested how that plays into your Horizon 3 aspirations and whether that is potentially a boon for you as you look to expand channels and categories and so on? And then the last one, the Making Business Easier, exceptional GBP 10- GBP 15 million that you've guided. Just give us what the nature of that is.
Okay. Thanks, Andy. Look, I'll have a crack at the first two. In terms of automation, is the runway big enough? It absolutely is, Andy. And if you think about the process down a line and you've seen them, so the denesting, and that's getting products onto the belt. In some cases, that's still manual denesting. In other cases, we've got automation, but we don't have automation everywhere. So number one is denesting. Depositors.
So in some cases, we're still depositing by hand because we haven't found depositors that can deposit and hold the texture right. So that's number two. Number three is the Multiponds. So still a lot of opportunity in Multiponds. For example, chicken and bacon. In some cases, we're doing it through a Multipond. In other cases, we're still doing it manually. Then you go further down the line. So rolling. So for example, sushi rolling, some of it's still done manually. Some of it's done through automation. Wrapping is all done manually. So all wrapping of wraps. And remember, alternative sandwiches now are about 20% of the category. That's all done by hand. The packing of wraps is done by hand. In fact, most of the skillet packing is done by hand. And all the packaging into boxes postline on our food to go is done by hand. Okay.
These are areas where automation can play a real role. I think the team over the years have done a good job, but we've got 42 projects in place. We've got GBP 8 million. That's 20% of our total capital this year is targeted on automation projects. That's really before you get into next gen. I think next gen automation will be how do you build some of these sandwiches where the dexterity of the robots that isn't there today is there in the future. That next gen, I mean, a BLT is made by hand, and we can't see a way of it not being made by hand. If Elon came and spent a day with us, he'd probably say, "You're clowns. There is a way of doing this.
We haven't figured it out yet." So there's a lot of opportunity in automation. There's a big runway ahead on existing processes with incremental improvements. The challenge is there's sort of four key suppliers we work with, the Millitec and the Proseal. And it's how do we bring them on the journey or how do we find incremental OEMs that can help us? Well, in terms of Horizon 3, so all the retailers are saying, "Andy, do more with existing customers or with existing supplier partners." And they come to us, and they're always like, "I won't say the categories at the moment, but there's two that we are always being asked, can we get into?" Actually, when we run it through our strategic lens of Horizon 3, does it make strategic sense? Does it make financial sense?
And does it have a sustainability angle to it that's consistent with what we're trying to do? These two categories, we've said no. But I expect more of that going on in the future where customers are saying, "Look, we would just prefer to work with somebody like us." Now, look, we're not the only game in town, but with high technical standards, high service levels, a high degree of welfare through the supply chain. I think that's where we're looking in. And the Horizon 3 team are looking at all those areas. And as and when we find the right targets, we will absolutely bolt them onto the business.
Yeah. Look, and I'll pick up on your question around Making Business Easier. So look, that's a pretty significant program that was launched by the group at the start of 2024. It's a broad program that is looking to invest in our ERP systems and business processes across the group. Our estimate, I suppose, at this point is going to last for another five years. I suppose the best way for me to explain to someone what we're hoping to achieve out of this program is to explain the problem statement that we're trying to fix. Dalton referenced we don't have a standard ERP across all of our 16 sites or in our back office. We've one ERP for 13 and three individual ERPs for the remaining three sites. We don't have a standard chart of accounts. We don't have a standard workforce management or a time and attendance system.
We're a business that has thousands of SKUs, thousands of raw materials, 16 manufacturing sites, and lots of different customers that we're trying to produce all of those SKUs for. And we also don't have kind of a standard set of rules or governance process around how we manage our data. I mean, one of the best anecdotes I heard recently was Co-op, a really important customer for us. I think we have about 10-15 ways of recognizing them as a customer in our system. So if you think about that as a problem statement, I mean, sometimes I tell people about the issues that we have, and I sense a bit of concern around our ability to access data.
We absolutely have all the data that we need, but you can imagine with those constraints how hard it is and how many people we need to get that information to allow us to run the business on a week-to-week basis. So when we make this investment, we're really confident that the organization is just going to be better set up to run in a much more efficient way.
Specifically, that GBP 15 million exception, what is that?
That is, I suppose it's broad, to be honest. We envisage that the overall cost of the program for the next five years could be within GBP 50 million to GBP 80 million. So I suppose for full year 2025, we're giving a little bit of guidance that if the total spend is GBP 20 million, possibly GBP 10 million to GBP 15 million of that could be treated as exceptional.
We have external partners helping us with the program, running it, and deploying the individual initiatives, and that would also include costs of people within our own business that we've taken out of their day jobs and have been allocated fully to Making Business Easier to make sure that the program is a success.
Okay. So in that 10-15, there's external consultants that you've got across the board, and then it's the teams that you've got working on making workflows and executing projects. Is there redundancy costs in there as well?
No. There's no redundancy cost in there, and there'll be cost to the various systems and plug-in applications, etc., different systems that we purchase over the period to improve the system, essentially. That cost will go in there as well.
What the implementation cost effectively consists of, right?
Exactly. Yeah.
Okay. All right. Thank you.
Thanks so much. Thanks.
Thanks. Morning. Matthew Webb from Investec. Just a question on your approach to returning surplus capital to shareholders. Your dividend payout ratio this year is very low. Appreciate it's the first year you're resuming that, but you've also guided that you're expecting dividends to grow in line with earnings, which would obviously suggest that that payout ratio will remain low. I infer from that that share buybacks will probably continue to be the default option for the majority of any capital that's being returned to shareholders. And I just wanted to ask how you ensure that that is creating value. Do you trust the market to not overvalue your shares?
Do you continue going, "Well, all the time it's earnings enhancing," or do you have a particular share price in mind that you think is either a fair value for the company or the point beyond which you would be concerned that maybe that wasn't the right approach?
Yeah. Look, I think at this point, obviously, from our perspective, the group hasn't paid a dividend for five years. So we're obviously happy that we're in a position to reintroduce the dividend. I was happy that reintroducing at a relatively low level and indicating that we're going to grow that over the next number of years, that that's a good position for us at this point in time. I think you'll recall in May, we announced GBP 50 million returned to shareholders.
And we've decided, I suppose, on the basis that GBP 40 million of that buyback has been completed, we've decided to extend that by GBP 10 million at this point in time. We'll obviously be considering this and giving you a little bit more detail on our plans going forward, particularly, I suppose, as we think about Horizon 3 and our overall cash available to the group and our capital allocation framework. I think it's probably at the Capital Markets Day at the start of February that we'll probably give you some greater clarity on our plans going forward.
Thank you.
Thanks, Matthew. We'll go to the phone for questions.
Thank you. And ladies and gentlemen, to ask a question over the telephone, please signal by pressing star one. That is star one for your questions. And we do have a question from Damian Mcneela of Deutsche Numis. Please go ahead.
Hi, morning, everybody. Thanks for taking the questions. First one for me, I think for you, please, Catherine. Could you provide a breakdown of the gross profit margin contribution, I guess, either by sort of reduction in COGS, volume uplift, productivity, if possible, please? Then for you, Dalton, I think in your comments, you indicated that you'd succeeded in driving growth through innovation. I was just wondering whether you could quantify the amount of growth that was delivered by innovation last year, please. And then just a clarification question on slide 18 on the ROIC. If we add all of those up by the relative contribution, should we get back to the group number of 260 basis points improvement in ROIC, or is there something else that we need to consider to get back to that 260 improvement, please?
Thanks, Damien. Sorry to not have you with us today, but we know you couldn't be here.
Yeah. Look, I suppose with regard to the gross margin, I think we've indicated the contribution that the revenue growth has made. So we've looked at like-for-like revenue growth of 3.4%. And I suppose if you look at gross margin, closing out at 33, even 0.2% up from 29.7%, I think probably the most significant contribution to that step on during the year has probably been from the operational excellence side of the house. To be honest, Damien, I don't have the exact breakdown in numbers with me at the moment, but I think that's probably a fairly significant impact from revenue growth, but I suppose the vast majority of that coming through then from operational excellence programs and management of the cost lines in that regard.
To do the ROIC?
Sorry, I'm probably going to need Damien to repeat the ROIC question.
Okay. Well, in terms of should we? Well, Damien, if you look at the incremental ROIC improvements, should that get us back to pre-pandemic levels of ROIC?
No. No, I was just saying that sort of I think you've reported a 260 basis points improvement this year. And I was just wondering if we've sort of apportioned those. Is there something else? Do the numbers on slide 17 allow us to get back to that 260 basis points, or is there something else we need to consider?
No, I don't think so. I mean, I know that the change in the tax rate is impacting when we look at the ROIC levels that we are achieving now versus what we had in 2019. I know that's absolutely something that's impacting that from a like-for-like perspective. But other than that, no, I wouldn't see anything else impacting.
And Damien, in terms of innovation, look, you saw the 1.6% on the bridge in terms of volume growth through like-for-like. I think that the mix is driving about one percentage point. And really, that's through, well, a number of different areas, but clearly the EPD and the NPD piece of that, like over 400 new products, is driving that and probably getting as much from EPD. So EPD, we think like Tesco's new Lasagna, brilliant EPD. Morrisons Cafe range, brilliant EPD. Aldi's Al Forno Lasagna, brilliant EPD. As much as new product development, which could be poke bowls or the new sushi packs for Aldi or some of the sauces we're doing for Tesco, which are totally out of the box, or obviously Kitchen Deli for Sainsbury's.
So I think we've got the EPD and the NPD engines running pretty well in balance at the moment. At any one time, there's about 500 projects on the pad, whether it's EPD or NPD. I mean, we've already now, with a number of customers, done Christmas 2025, which is a staggering thought that they got done at Halloween for one particular customer. That's how far people are thinking ahead.
Okay. Very clear. Thank you.
Thanks, Damien. Okay. I think what we'll do is we'll call it an end because I know you all have busy lives. Thank you so much for being here today. We really appreciate it. And thank you for your questions.