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Hello, and welcome to the Greencore Group plc Q1 '22 Trading Update. Please note, this conference is being recorded. [Operator Instructions] I will hand over to your host, Jack Gorman, Head of Investor Relations at Greencore to begin today's conference. Thank you.
Thank you, Stefano, and good morning to everyone on the call. My name is Jack Gorman, and I'm Head of Investor Relations at Greencore. I'd like to thank you all for taking the time to join us for our conference call, which relates to our Q1 trading update released this morning, covering the 13 weeks to the 24th of December 2021. I'm joined on the call this morning by our Chair, Gary Kennedy; our CEO, Patrick Coveney; our Deputy CEO, Kevin Moore; and our CFO, Emma Hynes. I would also like to draw your attention to the forward-looking statements that we've included at the end of today's release. Thank you. And with that, I'll pass it over to Gary.
Thanks, Jack, and good morning to everyone, and you're very, very welcome, and thank you for taking time out with us this morning. As Jack has noted already this morning, we released our Q1 trading update for the 13 weeks to the 24th of December 2021 ahead of our AGM that would be held -- also held later this morning. It will be my ninth AGM as chair of the business. And of that period, the last 1 to 2 years, in my opinion, has seen the most change and indeed the most uncertainty in the markets in which we operate. It has been a challenge but we have handled it extremely well throughout. And none of this would have been possible without the commitment of our teams and colleagues who have done and continue to do a fantastic job every day, and I'd like to thank all our colleagues for this. And one of the challenges of the business has been very evident, the impact on family and friends, colleagues, shareholders, suppliers, customers and major stakeholders who sadly passed away to COVID-19 has been much more severe. And to all of those people, I continue to offer my deepest sympathies and note of encouragement in terms of those colleagues who are still recovering from COVID. I'd also like to speak briefly on the CEO succession process. The appointment process is ongoing, and I will provide an update to the market in due course. In the interim, we have a great executive team that are seamlessly managing through the transition, 2 of which, Kevin and Emma, will lead us through the call. And the 3 of us will move to the Q&A at the end of that discussion. I'm encouraged by our progress in Q1, and we remain comfortable with delivering to market expectations for the full year. And with that, I will now hand over to Emma.
Thanks, Gary, and good morning to everyone from me. So I'd like to provide more color on our Q1 performance and strategic development. And while Q1 is not seasonally the most significant quarter for Greencore from a financial perspective, it was nonetheless an important quarter in many respects. So specifically, on our Q1 performance, we had good revenue momentum in the quarter. Revenues were back above pre-COVID levels, driven in particular by strong growth in food to go categories. This, in turn, was driven by recovery in the underlying market as well as by the increase in contribution from new business wins that we've secured over the last 12 to 18 months. Total reported revenue in Q1 was GBP 389 million, an increase of 24.4%. On a pro forma basis, the increase was 26.4% adjusting for currency and the prior year disposal of the group's molasses business. [ Turning ] to this performance versus the equivalent period in Q1 '19, pro forma revenue was 7.5% of both these pre-COVID levels. And to break this out further, revenue in food to go categories totaled GBP 254.3 million in Q1, growing 34.9% on a reported and pro forma basis versus Q1 '21. While revenue in other convenience categories totaled GBP 134.7 million with a pro forma increase of 13.1% year-on-year. Kevin will discuss this in more detail and the commercial update in a few minutes. In what was a busy period commercially for Greencore, we've also been continuing to focus on the recovery of input costs and other inflation with our customers. We've made very good progress in recovery to date in what continues to be a dynamic inflationary environment. And I would also note the impact of supply chain disruption and challenges around labor availability in particular. It is especially challenging given that we're back in growth mode. And our focus now is on managing effectively through these issues as we enter our busier summer period. And again, Kevin will speak to both of these areas later on in the call. Strategically, we also moved forward in a number of important respects during Q1. So firstly, our strategic CapEx program, support new wins is progressing to plan. This program spans 3 of our manufacturing sites and involves our ready meals and our salad businesses, and it will cost approximately GBP 30 million. These wins will begin onboarding in second half of the fiscal year, in particular, the final quarter. And secondly, the return to pre-COVID volumes also enables us to revitalize our excellent cost efficiency agenda. The excellence programs are executed across the business, most notably in manufacturing, purchasing, engineering and commercial functions. These are a critical element of our planned recovery of profit conversion this year and next. In addition, we're conducting an extensive review of the comp base across the group to ensure we deliver lasting improvements that will also drive the recovery and profit conversion. This is an important step change in how we're looking at the business, and we expect it to be a multiyear initiative. We're in the initial stages of this review, and we're encouraged by the findings and we will share more detail on this in May at our half 1 results. Thirdly, we continue to strengthen our balance sheet and increase the weighted average maturity on our debt to 3.4 years by extending the maturity on our main RCF by 1 year to January 2026. And finally, on our sustainability agenda, we've made good progress in Q1. We're increasing engagement with our suppliers on carbon-intensive ingredients. We are progressing plans to transparently share data on the health and sustainability profile of our products with stakeholders, which is a key FY '22 commitment. And the group has also introduced a new share ownership scheme for all colleagues that provides us with another way to retain and attract the best colleagues in what is a very competitive labor market. With that, I'd like to hand over to Kevin for the Q1 commercial update.
Thanks, Emma, and good morning to everyone. For those who don't know me, I am Kevin Moore, the Group and Chief Commercial Officer and Deputy CEO. [indiscernible] a quick introduction after a 10-year career in grocery retail, I spent 23 years -- time running each of our large business units and became CCO during 2018. And as you all know, took on the role of Deputy CEO last November. It is a pleasure to be with you all. So I'm going to spend a little bit of time updating on both our commercial and operational progress during quarter 1. I'd start by saying we continue to work very well as an executive team, both internally and with our customers in what has been a busy book, I'd characterize as productive start to the year. As you've heard from Emma, we've seen strong revenue growth in quarter 1, which brings us back to pre-COVID levels. This is encouraging and providing confidence that our recovery revenue terms is resilient. There are a couple of elements to this. One, underlying revenue recovery in food to go. This growth has been delivered in three areas. Firstly, the rebound of existing customer core volumes as well as the onboarding of new business wins. Secondly, the emerging impact in the equation [indiscernible]. And lastly, the continued growth in the distribution component of our business, albeit as we previously flagged, at a lower than group average margin level. Second, we've seen strong and resilient performance across our non-food to-go categories during the period, which is also encouraging. As I'm sure you're all aware, all of this is part of a broader growth agenda that we've been pursuing across the business for FY '22 and beyond. As Emma has already touched on, this includes the onboarding of significant new business, both new and existing customers over the last 12 months, and these have been executed successfully and are on plan. We've already announced that we will be supplementing this by a strategic engagement with one particular customer across both the ready meals and salads that we're preparing to onboard later in the year. And we're also excited to be working with Marks & Spencer as it extends its food to go range into the [indiscernible] store network. Going back to quarter 1 in a little more detail, where I'll start with food to go. So in quarter 1, our food to go revenues were running approximately 6% ahead of the equivalent pre-COVID levels in 2019. The underlying like-for-like revenues were approximately 94% of this, meaning that new business wins contributed around about 12%, all of which, as I've said, performed well in the quarter. As a point of reference, in quarter 1 -- sorry, in quarter 4 2021, food to go revenues were 88% on a like-for-like basis with new wins contributing approximately 10% overall. So quarter 1 really is showing continued progress. We talked in November about our challenges in meeting the full extent of our demand. And we told you that we estimated that between 5% and 10% of food to go demand was not being met. And whilst we still face a level of challenge in meeting that demand, this is improving. It is very site specific and is being managed very well by our teams. To that end, we continue to work jointly with our customers and our supplier partners to tighten and manage arranges to maximize our book. When taking the business in aggregate, we estimate approximately 5% of total demand is still currently not being met across the business. So turning to Omicron, the new variant, as you'd expect, had a disruptive impact towards the end of the quarter and also into early January. That made demands for us a little more than [indiscernible]. When it was first identified in late November, as you know, the U.K. government increased restrictions on mobility and on a phased basis. I'm bringing up two thoughts here. Firstly, we observed that the impact did hit our customers not equally. Sales data we have, that you'd expect, illustrates that travel, high street and city center locations took the highest share of that impact. In fact, food to go penetration rates only actually dipped modestly from circa 40% rates that we were seeing in October and November to around about 35% mid-January. But the second point I would make here is that whilst we recognize this has called a level of temporary disruption, our overall demand prospects remain very positive. For [indiscernible] Greencore, the impact of Omicron have mixed implications. On the one hand, it's been actually quite beneficial in supporting some of the service challenges we faced as demand slowed, but they actually helped our outbound supply position. But there was also the labor availability component here, too. Here, we saw a deterioration as a consequence of the variant, and this did have an impact on the pace of our profit conversion. So moving to our other convenience categories. Pro forma revenue increased by 10.3% in quarter 1 versus the same period last year. This is considerably ahead of previous growth rates, but to some degree, reflects slightly easier year-on-year -- sorry, prior year comparison. However, demand has been strong across all our categories here and specifically prevalent in our ready meal business where we saw little no effect on the Omicron variant on demand. So I'll now move to the topic of inflation. I would reiterate Emma's comments that we are progressing well here with customers as well as our supply partners, but I'll make 4 broad points in relation to inflation. Firstly, inflation is not new to us. Whilst the magnitude is higher than normal, process and frequency of phasing it did not. What we do recognize as different is the size and scale of both the labor challenge and some of the other areas, such as utilities. That said, we're used to seeing inflation, we're used to managing it through with our partners for the entire supply chain. Our core recovery on material and packaging is strong, with a large proportion delivered through our agreed commodity pass-through models. We're also making good progress on both labor recovery and other inflation. These engagements continue to progress well underway, and I'm very positive in that space. We're also using all the levers at our disposal throughout the supply chain to manage this, and as such, we remain confident of recovery during FY '22. So to finish, I will cover labor. Labor availability remains an ongoing challenge for us and for many across our industry and throughout the supply chain. We're clearly not immune to its effects, both indirectly and directly. From a direct perspective, impacted around attracting, recruiting and just as importantly, retaining sufficient number of colleagues to meet both demand now and in the future. The situation was exacerbated by Omicron where we saw absenteeism levels rise approximately 5 percentage points across the group for a [indiscernible] period. Indirectly, labor constraints are having an impact on our supply chain in the wider food system. And these changes are definitely lessening, but they are taking longer to dissipate. We continue to work closely with suppliers, haulage providers and customers to mitigate these to ensure that our strong operational service performance is maintained. So while we recognize the overall U.K. market remains tight for labor, we are solving for this regionally rather than nationally. We do have multiple levers here, both in the short term and the long term. Short term, we have a strong suite of both incentives support, engagement policies, which are working well and gaining traction, helping us win in our local labor markets. We also continue to keep in place those important health and safety features for our teams. Sites continue to operate with face coverings, screening across production lines along with increased hygiene protocols and PPE usage. Longer term for us, this is about the level of pace we provide and push into automation and how we bring that alive to the business. Alongside this, how we plan our network configuration towards more product-centric rather than customer-centric approach to maximize output. We will, of course, continue to monitor and manage these issues over the coming months and respond accordingly. So in summary, with all of that context, it reminded of a number of things for our business. Firstly, that our focus on the importance of ensuring our suite of excellent programs have delivered really hard [indiscernible]. We'll continue to work on being the employer of choice in our chosen localities, and finally, that we need to deliver efficiency and productivity improvements across our overall network as we reemerge from the challenges of the last 24 months. This will form a significant part of both my and the team's focus over the coming months. Happy to discuss any of these topics in more detail in Q&A, but for now, well come back to Emma for outlook then Gary for his closing remarks.
Thanks, Kevin. So bringing all of this together with some brief comments that I took. And the key message here is that we remain comfortable with market expectations for FY '22. Now this assumes no material resumption of mobility restrictions or lockdowns arising from increasing COVID-19 infection rates in the U.K., the uncertainty regarding the duration and impact of COVID-19 variants on our trading environment, particularly in food to go, continues to make it more difficult to predict FY '22 performance. We're progressing well on inflation recovery and are working through the supply chain and labor challenges being felt across the industry at present. And on phasing, profitability will be heavily weighted towards the seasonally important second half of the year. And finally, we also remain focused on further deleveraging this year and on recommencing value returned to shareholders in FY '22.
Thanks, Emma. So let me conclude with some just some final remarks. Firstly, just to remind you that we will be hosting our AGM later this morning. I would also just draw your attention to the fact that we had another RNS announcement this morning, which talked about an initiative called Be Part of Something Better, which is a share ownership scheme. So we announced there that we are giving approximately GBP 250 worth of shares -- of Greencore shares to all 12,000 of our colleagues. And I think there's a read across not only in terms of the labor challenges that we experienced, but this is something that we've been designing for a couple of years now, which is part of our ongoing commitment to that broader colleague engagement. To reiterate, when you draw a line through what Kevin and Emma have updated this morning, like our key focus is to drive the economic model through effective profit and cash conversion across the business. We remain optimistic and confident on our future prospects. And finally, a reminder that our next Capital Markets update will be our half 1 results, which would be released on 24th of May of this year. And with that, I'll turn back to the operator who will organize the questions and answers, and we'd be delighted to take your input. Thank you.
[Operator Instructions] The first question comes from the line of Jason Molins from Goodbody.
3 questions, if you don't mind. Firstly, in terms of the food to go and the encouraging performance there. Kevin, you gave some detail now on the underlying performance. Just wondering how that's tracking against the overall industry? Second question is really on the convenience food categories, which has been again, an excellent performance there. But just wondering if you can pick out, I know you mentioned ready meals, but maybe just give a bit of context there. And also with the changes going on in some of your competitors, has this led to market share gains in the period? And then the sort of final question, Kevin, if you don't mind having stepped into the role of Deputy CEO, just wondering if you can give a better color on what you're doing on a day-to-day basis to drive performance in the group? And perhaps given your position and closeness with the customer set, maybe elaborate on some of the opportunities that you see?
Thanks, Jason. Kevin?
Thanks, Jason. So I'll take those in order. So if I start with food to go, what I would say is that we're really encouraged by the level of recovery. Now clearly, Jason, as you know, the portfolio of customers we've got cover a variety of different channels, whether that be coffee, travel, grocery retail. And what I'd say is not all of those particular channels are made equal. So we are seeing a level of progress in some of those channels that are ahead of others. But what I would say when you take that in the round, the level of food to go process in aggregate for us is slightly ahead of the market overall when you take the broader context of that particular area. So I'd say we're encouraged by that. If I move on to the part -- the question on convenience, what I would say is, again, similarly, we obviously operate with a variety of different customers. 1 of the 2 of those customers are trading particularly well in particular ethnicities, in the ethnicities that we're exposed to, particularly Italian. We're also seeing a level of progress in particular elements of those ranges, i.e., we're seeing a bit of an uptake and a bit of a level of progression in the premium ranges in that particular area. And I think it's well documented that some of our capacities in that space are in a position that both operationally and from a service perspective are more challenged. And I think there's been a level of benefit for us in that regard as well. So that's what I'd say from a convenience perspective. With regard to the rest of our convenience operating areas, whether that be our ambient business or whether that be soup and sauce or whether it be our bakery business, again, they continue to trade well, not as well as ready meals, but again, they're in positive territory, which I think is very encouraging. The final thing that I'd say in terms of where am I spending my time, I'd say that actually, this is about as Emma touched on in her commentary, it's really about kind of how we get back to driving overall process efficiency. We've been through a very turbulent 2 years where the single biggest priority has been keeping our people safe. And as a consequence of that, that remains in place. But as a program of efficiency, we've been obviously focused on getting our volume back and now it's about driving efficiency. So it's the rigor into the daily and weekly meetings that we hold, the monthly reviews where we look at performance and actually quite pleasingly doing that alongside Emma and with the broader and wider senior teams, that's where I've been spending my time. I've also been spending time, as you'd expect, talking to customers, understanding how they're emerging from this particular period. Obviously talking to customers about inflation and also our suppliers in terms of working that through from an entire supply chain perspective. So a fairly busy period, but as I said at the beginning of my particular statement, very, very progressive as well. So that's how I'd answer the question.
The next question comes from the line of Martin Deboo from Jefferies.
Martin Deboo, Jefferies. Question, I think, inevitably is on inflation. You may have given this on the call, [indiscernible] [ crack ] was on the line, but can you just confirm what rate of inflation you're seeing in your raw materials basket on the one hand, and wages on the other? I think you said in December that raw mats inflation was high single digit, low double digit. Can you sort of confirm that or give us a new figure? And I guess, Kevin, for you, can you just -- I know it's a question that gets asked a lot, but given the material this year, can you just recap in as much detail as you can sort of consistent with commercial confidentiality, what you can pass -- what is sort of formula pricing can be passed through and what can't? And I guess that's going to vary across food to go and others. So the sort of composite question is just around inflation risk.
Thanks, Martin. The first part of that, maybe Emma will take, and then the second part was directed to Kevin. So can you take that?
Yes. Thanks, Martin. Look, I don't think we've seen an enormous change in terms of those percentages of inflation that we talked about in November. There's clearly volatility. It continues to be dynamic. The energy inflation has been particularly volatile, which I think has been well documented through sort of pre-Christmas period. And since then, what we are focused on is our labor ramp up actually and making sure that we have got a plan in place for every one of our operating sites to get to the headcount we would need to for summer peak. So actually, rather than looking at it more broadly as what does labor inflation look like across the group, we're saying, well, what do we need to do in terms of the incentives and timing of onboarding people to make sure that our headcount is ramping up in line with the expected demand and even trying to do that ahead of when volume comes in to make sure that we have what we need to deliver some more volumes.
Martin, if I take the second part of that. I would say that with what I can share, I'd say, a fairly large proportion of our material and packaging on commodity pass-through models. There is less that is on a passive model from labor and less again on what there is as a pass-through model on overheads. But what I would say is that we're also taking the opportunity to reflect on that and think about that in the future and how that may apply going forward. So that, in simple terms, is what I'd say, Martin, for that.
And Kevin, just a quick supplementary. Is utilities counted as overhead? Just so I understand what you meant by that.
Yes, it is. Yes.
Okay. It's part of overhead.
But we do plan to recover all inflation.
The next question comes from the line of Darren Shirley from Shore Capital.
It's the older shorter, fatter one, Clive Black. A couple of questions, if I may. Firstly, I just wonder if the issues around labor that you touched on Emma, are leading you to fundamentally or materially reappraise your automation strategy and maybe give us an indication what automation is delivered for you to date? And then Kevin made an interesting comment in his very good talk around focus on product versus customer in the production process. I just wonder if you could elucidate a little bit more on that for us, please?
Thanks, Clive. Emma?
Thanks, Clive. Look, in terms of automation, as you know, we've been talking about it for a while since before COVID when -- if you go all the way back to how people thought about the impact on the labor market rising costs due to national living wage and probably lower workforce availability following Brexit. So we've been working on automation for a while, developing our own bespoke solutions and actually wrote a number of those out last year in our food to go business in particular. We're continuing to work on that. So we're looking at innovation all the time. And continuing to develop further. But it's very much in line specific tasks that we're trying to solve for rather than end-to-end automation in that space because it's quite complex and challenging to do an end-to-end in line. But the other things we're doing actually is looking at existing solutions in the market and seeing how we can deploy them. And we will have done that with multihead weighers where we can looking at how we're measuring protein out on to our production lines and things like that. So look, we have seen benefits come from that in terms of reducing the number of heads that we need in the production lines, and there's definitely more to do. But it takes time to develop solutions, particularly when it's bespoke and to try them and to roll them out. So in the near term, our focus is on -- is also on making sure that we are retaining all of the people we have and that we have got the right offering in place, the right incentives and all of the hygiene factors in place to attract people. And actually, the new share scheme that we've referenced is an important part of the whole offering.
And Clive, question on network configuration. What I say is traditionally, as you'll know, we would have a very customer-centric operating model, whereby, obviously, customers would be in particular locations. It would be how we engage with them and it would be kind of how we'd set ourselves accordingly. But I think in a world of constrained capacity, in terms of our ability to get volume out because of all the challenges that we've talked to in the statement, we're just looking at that differently. And what that means is moving volume around to maximize output, reduce levels of changeover and drive efficiency is something that I think is both the right for us to do, we're doing it in conjunction with the customers and we're doing to make sure we maximize the output. And I would say that whilst we've made progress on that, we've got more to do, and we'll continue to do more of it as we look and we react to kind of driving that efficiency for them across the group.
Yes. And Clive, just as a follow-up for me. And that I think the automation and the network side of things, like they are really important components of the message that we were [indiscernible] the three of us did in terms of reinvigoration of our excellence programs, which are very much focused on aspects of the operations but also commercial. And the idea there is around capacity optimization, utilization process, reengineering and more importantly, output optimization. So that will all read across those.
The next question comes from Doriana Russo from HSBC.
I've got a few, if you don't mind. Firstly, I'd like to ask you a little bit about recent trading. There was some mentioning that perhaps the insurgence of Omicron might have impacted the demand of food to go. Can you give us a sense of how this is trending in the last few weeks, please? .Secondly, in terms of the way food to go revenues are the component behind it, I reckon that the part, which is distribution only, is it higher or lower vis-Ã -vis prepandemic? And is that going to mean that the overall profitability of the food to go business may actually change in the medium term? And my last question is on the new business, which has been onboarded in the past quarter or so. Are you in line with trying to optimize the supply chain behind serving these new customers? And therefore, when do you think those new clients will be able to deliver sort of an operating profit or profitability level, which is in line with what you would expect in the first place?
Thanks very much. The Omicron and the new business, Kevin will deal with. And in terms of the split on FTG and factor to manufacture, Emma, will take.
Yes, I'll take recent trading. So if I take even looking at today's volume, what I would say is the noise and small level of dilution that we saw from Omicron, in essence, has gone. So I would say we've moved back into a period of standard trading yet, which is extremely encouraging. And whilst as I said in the statement, the end part of December and the early part of January was a little more volatile and a little bit more difficult to forecast, I'd say we're back into a period now of normal trade on that side.
Yes. Yes, it's been encouraging for us the last week or so to see that week-on-week demand is starting to come back up as restrictions are released. And Doriana, looking in terms of mix really, we would say now there is a slightly higher component of revenue that is third-party distribution. So that's underlying growth in the part of the business. And then as we've onboarded the new business, there's a higher proportion of distribution revenue in that. But ultimately, we are a food to go business. We think about this as an enabler, and it's something supports our manufacturing business rather than being a stand-alone business in itself.
And then if I pick up Doriana, the final point on new business. I can just reiterate what we said in the statement, which is, first and foremost, we're really encouraged with how that landed. I think we've done a really nice job in that space. Clearly, the role that we have for both the customer for ourselves now is to settle into the network and they drive efficiency on top of that, which is our model. And I'd say that we're encouraged by the progress so far.
Yes. And look, when we think about driving efficiency, as Gary and Kevin will have referenced about that efficiency right through our manufacturing network. So it's not really focused on new business and new customers. Clearly, there's a ramp-up as we onboard new business, but we're focused on our excellence initiatives right across the business.
The next question comes from the line of Roland French from Davy.
So I think I've got 3 questions, if I could. So maybe just firstly, for you, Kevin. You've called out labor absenteeism. Clearly, there's an impact there in terms kind of churn rates. But just wanted to dial in specifically what you're seeing around productivity. So effectively trying to calibrate what the impact of that absenteeism is on the line effectively. That would be helpful. And then secondly, I think, Kevin, you said, and Emma, you said it more recently, that you're confident on inflation recovery in FY '22. Just in terms of how we should think about that, is that a run rate basis as you exit FY '23, that kind of contribution gross margins should be back to where they were? So just trying to, I guess, link that inflationary comment with margin. And then -- and maybe just the third question, dialing into the process around labor recovery. So I think my understanding before was that it's largely been a negotiation, i.e., it doesn't have an explicit mechanism, but that certain contracts were including certain recoveries around labor. So maybe could you give us a little bit of an update on that, whether that's just certain contracts have a statutory wage mechanism or whether that has expanded in terms of the agreement there? And I'll leave it that.
Thanks, and thanks for the question. So 1 on 3 of those, Kevin will take and Emma will take the inflation recovery section.
So I was going to start with absenteeism. The first thing I'd say on labor and absenteeism is it's manifested itself in Greencore in a very localized way. There are certain locations where the level of impact has been relatively minimal, and then in certain locations where it's been higher. And as a consequence of that, I think one of the things that Greencore benefits from is having a network. It allows us to move volume around, to think about how we maximize output as a consequence of that. And then I think what I'd also say is that where that's been the case, we've been able to be flexible in being able to find more labor through -- whether it be agency labor or actually thinking about ranging more specifically in that site. So in essence, the devil in the detail and the detail of those localities and how local teams are managing that. And then we're supplementing that from a central perspective with our team as well. So I'd say I'm encouraged by that. Clearly, these things happen all the time, maybe not to the level that we're seeing it now, but we're managing that very well.
And Roland, when we think about how it impacts in the site, the level of absenteeism, the challenge is the uncertainty and expecting to have a certain number of people. And when that falls away in either your manufacturing site or your distribution business, it can have consequences on one for the other, whether you've made product and you're challenged on distributing it or whether it is a challenge in the supply chain where you don't get one of the ingredients you were planning to use. So it's that level of disruption that we're managing every day actually. In terms of the overall inflation recovery and timing and run rate, I mean, it is linked to things like labor inflation recovery and utility recovery. Materials and packaging it's more difficult for us to have a mechanism to recover them. I wouldn't say we have it everywhere we would have a profit to agreed recovery but it's more routine to have your material and packaging in a commodity price tracker and that's pretty standard, where we have our newer, more recently renewed contracts with a component of labor recovery but utility is not something that would typically be in contract. And given the level of inflation there, we're seeking to recover that. As we look at labor in order to have confidence around ramp-up, we are agreeing with our customers. We have strong partnerships in place. And we are agreeing with them upfront, the types of initiatives that we're looking at and when we onboard to give confidence around our ability to supply into the summer. So what I'd say is that's all tied into the inflation recovery conversations. We need a joint agreement on what we're doing and how we're planning as we move forward. There's some lag on recovery, but we would seek to recover everything in year. So that to us is timing of delivery. And our view is that we need to recover inflation and cover that in price that would take longer to negotiation.
Roland just coming back to the final point on labor recovery itself. I'd say at a standard level, we are focused on within our models, getting kind of given wage levels and those kind of recovered broadly, that's how I think about it. And then where we're having to invest in rates in certain locations to obviously deliver labor levels, that's where generally the negotiations are [indiscernible]. And I'd say as -- as I said in my statement, we remain very encouraged by the progress we're making in that space.
The next question comes from the line of Nicola Mallard from [indiscernible].
Just a couple from me as well. Just on the price recovery, obviously, that means that prices are rising on shelf, one assumes. Are you seeing a full pass-through by your customers of what you're passing on to them? Is there an element of product engineering going on where perhaps the price increase and it isn't just absolute price increases in as much? But what impact is it having on demand? Are you seeing anything yet, and particularly I suppose if there's more to come? Is that a factor in terms of how willing the customers will be to continue to move the price? And then the second one, just on your share ownership program, I mean, it looks to be about GBP 3 million of investment. Did you buy those shares in the market or are they new issues?
Thanks, Nicola. Kevin, you do the first one and Emma, second.
I'd start by saying that we're seeing a level of movement in retail pricing. That's -- I mean, very much in the public domain. So we're seeing a certain number of SKUs across our categories whether that be food-to-go or general convenience start to move. I also bring to everyone's attention that it's also very evident that we're seeing the levels of promotional activity change. However, what I'd also say interestingly is that at this point, we're not really seeing an impact on demand, and I think that's really encouraging for us overall. So that's kind of how I'd cover that, Nicola. And then in terms of is it manifesting itself in terms of changes to specification, I'd say what's happening is we're considering that with the retailer, but in the main, that's not happening. We are thinking about supply, and we're all thinking about ingredient on where we get that volume from. But in terms of overall specification, I'd say not in the main. I'd say broadly, this is genuinely about spending understanding of these movements in the market and then, of course, passing them through.
And Nicola, in relation to the share ownership scheme that will not be a new issue of shares, that' s shares purchased in the market.
The final question comes from the line of Damian McNeela from Numis.
Just a couple for me, please. Firstly, when we start to think about network optimization, firstly, what's the customer reaction been to that? Are they largely supportive of that move? And then I know you indicated that we'll get some more details. But just broadly, when we think about the margin profile of Greencore will network optimization sort of represent a step change above historic margin levels? Or should we expect that to sort of support recovery back to prior levels? And then the last question is on new business opportunities. I mean, clearly, the industry has been through a pretty challenging couple of years. What does the pipeline for new business look like for Greencore at the minute?
So 1 of 3, Kevin will talk and your second question, Emma, will address.
In terms of network optimization, the first thing I'd say on that is that in anything that we do within our factories, we'd engage with customers. So one, they're fully inclusive. And two, and that big priority really is one of output maximization. So I said, they've been extremely supportive with everything that we've been attempting to do in that space. And as far as I'm concerned, I couldn't ask for any more support. So yes, I'll be very encouraged by what they've been doing with.
And look, when we think about sort of overall margin profile, I mean, what we're focused on now having onboarded all of the new business and the incremental business coming in this year is rebuild profit and margin in the coming years. So I think it's a multiyear program for us. And yes, sorry, a multiyear program for us, and the focus is to get back to pre-COVID operation margins in time.
And if I just point on new business opportunities, Damian. I'd make 3 points. I think the first one is that our relationships with our customers have actually been enhanced, I think, during the last 2 years. Whilst it's been extremely difficult period, I think what is brought together is a much better level of collaboration and engagement. So that's the first thing I'd say. And whilst there's definitely been tension, I'd say it's been really encouraging from that perspective. Second, I'd say we are being encouraged to do more. That happens on a day-by-day, week-by-week basis. But the final point I'd make is our focus is on our immediate recovery for now. And actually, our priority is lending what we've got. We've also got a series of new opportunities in the pipeline, whether that be with the strategic -- the work we're doing on ready meals or salads or whether that be the work that we're doing with Marks & Spencer on cost. They're the gig in town and they're the ones that we're going to focus on the near term. Are there any other questions? I think we probably need to cut at this stage.
We have no more questions on the line.
Excellent. Well, thank you again for everybody taking time on and participate in and it's been very enjoyable Q&A and look forward to updating you for [indiscernible].
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