Good morning, and welcome to the Greencore Group plc FY '25 Half Year Results and the proposed acquisition of Bakkavor. I'll now hand over to Greencore CEO, Dalton Philips. Please go ahead.
Thanks, Laura. Look, good morning, and thank you for joining us on the call. We know you all have busy schedules, and we've given you such little notice, so we really appreciate you making the time to dial in.
I'm joined today by our Chairman, Leslie Van De Walle; our CFO, Catherine Gubbins; Chief Strategy Officer, Nigel Smith; and Colm Farrell, our Director of Investor Relations. And we're pleased to bring to you 2 positive announcements this morning. Firstly, we've released a strong set of H1 results, which includes an upgrade to our full year guidance.
And secondly, we're announcing today that we've agreed the terms of a recommended acquisition of Bakkavor. We'll use our time this morning to take you through both announcements, and we'll have time for your questions at the end. So before we kick off, let me hand you over to Leslie to say a few words.
Thank you, Dalton, and good morning, everyone. On behalf of the Board of Greencore, thank you, as Dalton said, for being there. At our February Capital Markets Day, I shared my reflections on Greencore journey to date and the confidence and optimism I have for the company's future. And in that context, I'm very excited about the 2 announcements we've made this morning.
First, we've had a really strong set of H1 financial results, which Dalton and Catherine will provide more detail on in a moment. But the message I want to impress upon you today is that Greencore is a business that is really performing, driven by a management team that is consistently delivering.
In fact, we are now expecting full year '25 adjusted operating profit to exceed our pre-pandemic levels of profitability, nearly 18 months ahead of what we had said previously. The Board and I are pleased with this performance, but know there is significant further potential in the business.
It is this continued strength of business and delivery by the management team that has provided us with the opportunity and confidence to execute on the second piece of exciting news we're announcing today. We are so pleased to announce our agreement of terms on the recommended acquisition of Bakkavor Group. This is a great example of the themes we spoke about at our CMD in practice, allocating capital to maximize shareholders' return.
Bakkavor is a great business and has a rich history. I would like to congratulate Agust, Lydur, Simon and Mike on the tremendous job they have done with the business, and I look forward to welcoming and working closely with Agust and Lydur on our Board.
The Board has been very diligent and challenging of management over the past weeks to ensure we have conducted a robust review and develop a clear acquisition plan for our shareholders and indeed for Bakkavor shareholders, who will now form part of our shareholder base on completion. We fully trust the management team to deliver on what they will set out today, building on their track record to date.
I remain truly excited about Greencore future. With that, I will hand back to Dalton.
Thanks, Leslie. So the purpose of today is twofold, which you can see on Page 6. Firstly, regarding our H1 results, and we've continued to drive momentum in the core business, which is evidenced by today's upgrade for this year to the GBP 114 million to GBP 117 million level, bringing us above pre-pandemic levels of profitability, as Leslie just said.
Key within the results is a combination of both top line growth and effective cost management. And it's this strength within our core business that gives us the platform to pursue transformative growth opportunities. We spoke at our February CMD about our ambition to expand the group through M&A, and we're excited that this has crystallized today with our proposed acquisition of Bakkavor.
Bakkavor is an absolutely fantastic business that we've always admired, led by great people, and we see an incredible amount of potential in bringing our 2 businesses together. You can see on the right-hand side of the slide, the 5 key areas that really excite us about this acquisition. Firstly, bringing together 2 highly complementary businesses gives us an unrivaled opportunity to create a real U.K. convenience food champion with an even greater breadth of category range and deeper customer relationships.
Secondly, the combination will unlock at least GBP 80 million of annual cost synergies by the end of the third year following completion, creating a stronger combined business with a solid platform for future growth and innovation.
Thirdly, there is clear value creation for both sets of shareholders with returns above WACC in the first full financial year post completion. Fourthly, the combined business provides enhanced flexibility for capital allocation.
And finally, we're already underway with integration planning, leveraging our Greencore excellence programs. Later in this call, we'll get into the detail on the proposed acquisition. But first, we'll take you through our H1 results.
Continued progress against our commercial, operational and cost agendas remains the absolute focus for our team, and we still believe there is significant further upside to go after. So let's start with the financial results.
Thanks, Dalton. Good morning, everyone, and I just want to echo Dalton's thanks to you all for joining us at such short notice on today's call. I'm going to start by giving you an overview of the key financial results for the half year period on Slide 8. As I think you will see, the group has performed strongly against every key financial metric.
If we start with revenue, you can see that we delivered strong revenue of GBP 922 million for the half, representing growth year-on-year of 6.5%, the components of which I will cover in more detail shortly. As you know, adjusted operating profit is an important KPI for us, and we are happy to have delivered a very strong performance year-on-year, delivering a 59.7% increase versus the same period in 2024.
This improvement continues to be driven by volume growth in our customers, our excellence programs and an ongoing focus on cost management. Adjusted earnings per share increased to 6.1p, driven primarily by the increase in operating profit. We had a free cash inflow in the half year of GBP 37.8 million, which represented a strong improvement when you compare it to the free cash outflow last year.
Our free cash flow conversion was 78.6%. And again, I'm going to take you through some more detail on that in a moment. Year-on-year, there was further progress in deleveraging with leverage down to 0.8x versus 1.4x for the same point last year. This puts leverage slightly below the group's target range of 1 to 1.5x, a position which provides further balance sheet strength to execute on the back of our acquisition.
Finally, return on invested capital was 13.1%, representing an increase of 290 basis points from the equivalent first half of 2024. This was primarily driven by an increase in net operating profit after tax and also a slightly lower average invested capital base.
Just moving on then to Slide 9. As I'm sure you will recall, at our Capital Markets Day in February, we laid out a set of medium-term financial targets, and we are pleased to have made strong progress against those targets in the first half of this financial year. We highlighted the importance of ROIC at our Capital Markets Day and at 13.1% for the half year, we continue to make progress towards our medium-term target of 15% and above.
Moving on to revenue. We are pleased with the momentum in our top line and in volume growth in particular, which currently puts us above our medium-term target range of 3% to 5% revenue growth for this 6-month period. On profitability, while adjusted operating profit margin is seasonally lower in the first half, the year-on-year progress that I spoke about shows good momentum towards our target of getting to 7% and above.
In fact, on a last 12-month basis, we are at an operating profit margin of 6.1%. On free cash flow conversion, we are currently in excess of the medium-term target that we had laid out of being at 55% and above. And finally, we have also made good progress on leverage with our leverage, as noted, just below our target range. While we obviously have more to do, our performance in respect of each of these medium-term targets demonstrates our determination and ambition for this business.
If we move over to Slide 10, we have a bit more detail on the breakdown of our revenue performance. As mentioned, our total revenue increased by 6.5%, 2.9% of which was driven by new business wins. Underlying volume growth represented 1% with inflation and pricing impacts then driving another 2.6%. Included in the new business wins is the large ready meals contract, which was onboarded into our Kiveton site towards the end of Q4 2024.
The underlying volume and mix growth is varied by category, but there was good growth in sandwiches, sushi, ready meals, chilled soups and sauces and Yorkshire Puddings with our grocery and salad categories experiencing a slightly more challenging performance than anticipated. When analyzed by segment, our Food to Go category revenue increased to GBP 611 million, representing a 5.6% increase on the prior year, while the Other Convenience category revenue grew to GBP 310 million, representing an increase of 8.1% on the previous year.
Just moving on then to Slide 11. You can see our adjusted operating profit increased to GBP 45.2 million for the first half of the year. This was driven by the following key factors: continued underlying volume growth with customers and the impact of the new business wins that I just referenced. We have also continued to deliver on our commercial and operational excellence agendas, and I know Dalton will take us through some more detail on those shortly.
One of my focus areas since joining has been to ensure the cost base is rightsized and instilling a culture of cost management into the organization. So I'm also pleased with the progress we are making here and the contribution this has made to the outturn.
Finally, there have been inflationary headwinds across cost categories, but we have worked hard to offset these principally through internal measures and ongoing engagement with our customers. In particular, we have seen continued inflation in labor that annualized into this year alongside inflation in dairy and certain protein types.
We are really pleased to be able to upgrade guidance today to a range of GBP 114 million to GBP 117 million. And while we are pleased with the momentum in the first half, our second half is seasonally important to the business, and we are mindful of other headwinds that we are facing into especially related to protein and other raw material inflation.
Moving on to Slide 12 and cash. In the half year, we recorded a free cash inflow of GBP 37.8 million. There was a net working capital inflow of GBP 4.1 million, which was a significant improvement on the prior year.
Again, at our Capital Markets Day, I would have referenced the increased focus we are putting on working capital management, and this improvement was driven by a reduction in inventory, a reduction in our debtor balances, largely by increasing access to invoice discounting facilities and other movements in trade creditor balances due to the timing of certain outflows.
Maintenance CapEx for the period was GBP 12.1 million, which was an increase of GBP 2.1 million versus the prior year. While not included in the definition of free cash flow, we also recorded strategic capital expenditure of GBP 6.3 million in the half year versus GBP 2.5 million in the same period in 2024, illustrating our continued focus on investing in inorganic growth and automation opportunities.
Exceptional charges for the year were GBP 5.8 million, an increase of GBP 2.9 million versus last year. These exceptional costs are predominantly as a result of the making business easier transformation program, which kicked off this time last year.
Just going quickly then through some of the other items here. Interest and tax charges were GBP 11.4 million, down GBP 2.9 million compared to last year as a result of lower interest cost on borrowings. Pension funding represented a GBP 6.9 million cash outflow for the year, a GBP 200,000 increase versus the same period in 2024. Lease payments at GBP 6.9 million have decreased by GBP 1.5 million versus last year.
And finally, other cash flow movements resulted in a cash inflow of GBP 3.7 million, which was a slight decrease on last year. Free cash flow conversion was 78.6% over the last 12 months. As highlighted, this was primarily driven by changes in working capital and the timing of certain inflows and outflows. Over the medium term, we still expect cash conversion to be consistently above 55%, but it may not be at this heightened level in future periods.
Moving on to Slide 13 and just touching on our capital allocation framework. I would have noted at the Capital Markets Day that on a go-forward basis, I would give clarity on our capital allocation plans at the half year and full year announcements. Our priority, as you can see here, is still in respect of ensuring funds to invest in organic growth through maintenance and strategic CapEx.
As previously noted, we have recently reinstated the payment of a dividend. And subject to the continued strong financial performance of the group and Board approval, we would propose to continue to pay a progressive dividend in respect of this year-end.
As I think about points 3 and 4 here, we will obviously be discussing our proposed transaction with you shortly and our forecast leverage levels in the context of that. But as a result of this transaction, we are not proposing to return any further capital to shareholders at this time.
Thank you all for your attention. Now I'm going to hand you back to Dalton.
Thanks, Catherine. And now let's turn to our strategic and operating update, and I'll start by reorientating us around our strategic framework, which we discussed in detail at our Capital Markets Day. We have 2 core pillars: strengthen the core, and grow and expand, both underpinned by our Greencore way of winning. These H1 results reflect the progress we've made in terms of strengthening our core, and I'll pick up the grow and expand piece later when I discuss Bakkavor.
I'll start with an update on our key priorities before diving into each area in more detail. Firstly, in commercial excellence, we've continued to grow ahead of the market, driving revenue, mix and margin underpinned by new business wins.
In operational excellence, our Greencore operational excellence program has continued to deliver results while we've also built out our automation capabilities. Across our enablers, we've ramped up our making business easier program, reduced colleague attrition and made progress against our sustainability targets.
All in all, we've had a strong first half, delivering solid results, building the foundation for continued improvement and setting ourselves up to deliver enhanced value in a combined group. Let me now share some color on each of these programs, and I'll start with commercial excellence on Page 17.
We've maintained our volume outperformance versus the wider grocery market. While the market was up 0.2%, Greencore's underlying volume growth was up 0.5%. And when you include new volume onboarded, our actual volume growth was 2.5%, which is a really strong level of outperformance.
Looking forward, we remain confident in maintaining this trajectory as we've landed several new business wins in H1 that will onboard later in the year. One specific example is our expanded channel diversification through the launch of a new Mac & Cheese SKU with Greggs, which is performing extremely well.
In all cases, we've kept a rigorous focus on ROIC across the portfolios, which is our North Star metric. We've seen improved returns at the individual category level and remain on track to have every category covering its cost of capital.
Moving on to operations on Page 18, and our Greencore operational excellence program continues to deliver strong results. In H1, we improved direct labor productivity by 4% and delivered GBP 6 million in annualized savings in indirect labor through a rigorous site benchmarking process.
While we continue to push hard on operational excellence, service and quality remain our #1 priority, and we've continued to deliver in these areas. Service levels remain above 99%, and we're thrilled that every single one of our sites and depots now holds the top grade from our BRC audits.
Alongside core operational excellence, we've doubled down on our automation program, balancing quick wins with building a longer-term road map. For example, we deployed 19 automation projects in H1. Two examples from the slide. At one of our salad factories, the installation of 2 new automated vegetable slicing lines delivered a 50% uplift in throughput. These lines also enabled improved factory workflow, resulting in efficiency gains equivalent to 7 full-time equivalents.
At one of our ready meal sites, a new automated cheese dispenser will deliver GBP 300,000 in annualized labor savings without requiring redundancies. It also has further potential for savings with other ingredients. Looking ahead, we're progressing a detailed site level road map that we believe can deliver a 10% saving in direct labor over time.
Now turning our enablers on Page 19 and starting with our making business easier transformation program, which is most definitely up and running now with early initiatives already delivering value in FY '25. Two examples: we launched an AI tool for autonomous negotiation of indirect spend in January. It's very early days, but initial trials show an average 6% saving per contract. This is a real game changer.
It manages spend within set guardrails and frees up resources in the procurement team. We'll roll it out more widely across indirect spend later this year. We also launched a new internally built CapEx approval tool that improves transparency and streamlines the process. So far, we've doubled the number of approvals in half the time while improving rigor in our spend evaluation.
Of course, there's much more to go after. As we said before, we're approaching change incrementally over the 5-year program to set ourselves up for long-term success. That said, I feel we're putting in place strong foundations that will, in time, deliver material benefits. Let me also provide a quick update on our key other enablers, people and sustainability.
I've previously spoken about attrition as a key KPI. Encouragingly, we've improved it by 400 basis points so far in the year and are currently within our full year target range. In sustainability, we've made progress on food waste. And in energy and water usage, we've achieved absolute reductions even whilst growing volume by 2.5%.
Let me close this section with our outlook statement on Page 20. We've made strong progress against our medium-term financial targets with a particular focus on returns. We're encouraged by our volume momentum, which will be further supported by new business wins.
Our operational excellence agenda continues to deliver, including automation progress. And finally, the strength of our underlying performance means we now expect FY '25 adjusted operating profit to be in the range of GBP 114 million to GBP 117 million, ahead of previous guidance.
So now let's turn to the proposed acquisition of Bakkavor. I believe our performance in H1 and indeed, the progress we've made over the past few years does demonstrate that we have both the team and the ambition to deliver the benefits of an enlarged group. We strongly believe that combining with Bakkavor, an incredibly well-managed and high-performing business in its own right, will create transformational value for both sets of shareholders.
To frame the conversation, I'll take you through the strategic, and Catherine will take you through the financial rationale. Turning to Slide 22, and there are 5 key reasons why we're so excited by this deal. Firstly, it presents an unrivaled opportunity to create a true U.K. convenience food champion. These are 2 outstanding businesses with complementary offerings across categories and customers. Bringing them together unlocks huge potential to expand the joint offering, accelerate innovation and strengthen internal capabilities.
Secondly, the deal provides a platform to drive substantial cost synergies, at least GBP 80 million to be delivered by the end of the third year following completion, helping to build a more efficient, high-performing combined business.
Thirdly, there's a compelling value creation case. The deal aligns fully with our financial discipline, driving ROIC above WACC and delivering earnings accretion from year 1. Fourthly, it offers strategic flexibility with the ability to deleverage quickly back to our medium-term target of 1 to 1.5x and provides optionality around future capital allocation.
And finally, we have the right leadership in place to make it a success, a management team with deep sector experience and strong relationships with every major U.K. retailer, supported by a Board with integration expertise across both businesses. Before I move on, I want to draw attention to the strategic framework at the bottom of this slide. I think it explains helpfully why we're so excited about this deal.
At Greencore, we've long been interested in a potential combination with Bakkavor. Beyond the complementarity and synergy potential, it's a business we respect deeply and one that's been expertly led by Agust and more recently by Mike. And for a deal of this magnitude, timing is everything and the timing is now right. We've talked today about the work we've done to strengthen our core, a transformation that's changed our business fundamentally in recent years and given us the platform to now grow and expand.
Bakkavor is the ideal partner on both fronts. They have a strong core of their own, and they open up growth opportunities across new categories. From a personal perspective, the Greencore I joined in 2022 was a very different business to the one we are today. This management team, and I'm talking about our top 100 leaders, has absolutely transformed our trajectory.
We're now guiding back above pre-pandemic profitability levels for this year, 18 months ahead of our original plan. And I'm very confident that we, together with the many strong leaders from Bakkavor, can bring that same rigor and discipline to delivering for the combined group.
Turning to Slide 23. You can see the scope that the combined group will have, which is much greater than the sum of the parts. Firstly, we'll have a substantial footprint across the U.K., which gives us the ability to apply operational excellence at a national scale and build a truly world-class manufacturing network. For example, our discussions with automation OEMs fundamentally changes when we bring this kind of volume.
Secondly, we'll have a comprehensive and diverse customer base. Both groups today have deep relationships with the major U.K. retailers, but across different categories. This deal provides an opportunity to increase the breadth and strength of those relationships. We will be well placed in an environment where customers are increasingly looking to do more with fewer suppliers.
And finally, we'll be a GBP 4 billion TAM revenue business. And that strong footprint will make us better, better for customers, better for consumers, better for colleagues and, ultimately, better for shareholders.
Turning now to Slide 24, which shows the complementary nature of our 2 businesses. At Greencore, our highest volume products are in food for now, such as sandwiches and sushi. Bakkavor has a different profile with a stronger focus on food for later products such as ready meals, desserts, pizza and bread. This contrast brings real benefits for the combined group, smoothing seasonality, unlocking more eating occasions and enabling us to offer a comprehensive convenience food range that spans breakfast through the lunch, dinner and dessert.
Turning to Slide 25 and the enhanced scale and reach of the combined group brings material benefits for our customers and their shoppers. First, we'll have the ability to form stronger, more focused customer-dedicated teams. Second, a larger entity will enable us to step up our innovation, technical capabilities and sustainability programs, becoming truly world-class in these areas.
We know that innovation is a core competitive advantage for our customers, and this combination will significantly enhance our ability to deliver in this space. And finally, our increased scale will enable us to manage costs more efficiently in an inflationary environment, which remains critically important for our customers.
Slide 26 outlines the substantial cost synergy opportunity available to us. We've identified at least GBP 80 million of synergies from combining the 2 businesses. The vast majority of these synergies come from the combined group being a better business than the 2 good businesses that we are separately today.
These synergies will come from 4 areas: approximately 45% from organizational efficiencies and removal of duplicative central management functions, 25% from adoption of shared best practice across the combined group's operational excellence and distribution programs, 25% from leveraging enhanced economies of scale and spend across both direct and indirect procurement, and the remaining 5% from the rationalization of the combined group's operations footprint.
In terms of phasing, we deliver on a run rate basis, 50% of synergies in year 1, 85% of synergies in year 2 and 100% synergy delivery in year 3. We also anticipate one-off costs of approximately GBP 90 million to realize these synergies, the phasing of which is broadly in line with the run rate synergy realization. And I have a very high degree of confidence in our ability to deliver this for the following reasons: Firstly, the level of complementarity between the 2 businesses gives us a clear line of sight to the opportunities.
And secondly, and crucially, Greencore is a business that's learned how to deliver on complex programs like this as it will be an extension of the work we've been doing over the past 3 years, developing a functional organizational structure, interrogating cost bases with rigor, challenging the status quo and embedding best practices across our commercial and operations functions.
I feel we've built a strong muscle here and with a disciplined, thoughtful approach to integration, which I'll touch on next, we see these synergies as eminently achievable. Of course, the delivery of our ambitions for the combined group will hinge on our approach to integration outlined on Slide 27. This will require thoughtful planning and close management.
Let me highlight the principles guiding our approach. First, in what we will do? We'll have a relentless focus on the delivery of synergies. We'll combine both the strength of both teams, ensuring we retain and empower the top talent across both businesses. We'll manage the integration process with minimal disruption to colleagues, customers and suppliers. And finally, maintaining momentum in our core operations will remain a nonnegotiable. So that was the what.
Let's look at how we will do it. We'll start early. We've already initiated a disciplined integration planning process that will include joint representation from both companies. This includes the establishment of an integration management office and a clear milestone-based plan covering day 1 after completion, day 100 and beyond.
I'll close here on the strategic rationale. It's fair to say we're hugely excited by the opportunity, not just because of what it enables for the future, but because there's a clear pathway to delivering real value for all our stakeholders.
Now I'll hand over to Catherine, who will take you through the financial rationale.
Thanks, Dalton. Before I start, I'll just reiterate how incredibly exciting this transformative acquisition is for Greencore. And from my perspective, this acquisition reinforces our Capital Markets Day message in respect of our plan to allocate capital in a highly disciplined way to ensure that we maximize shareholder value.
Let me start by recapping some of the key deal terms of the transaction on Slide 28. Just starting with consideration. For each Bakkavor share consideration is comprised of 85p in cash, 0.604 newly issued Greencore shares and 1 contingent value right related to the potential U.S. sales proceeds. That contingent value right is on any value exceeding 9x EBITDA from any sale of the U.S. business.
This results in an implied value of GBP 1.2 billion for Bakkavor equity and GBP 1.5 billion enterprise value. Bakkavor shareholders will be entitled to receive the full year '24 final dividend of 4.8p declared and any future ordinary course dividends declared provided the completion date extends beyond January 2026.
From a financing perspective, we have secured GBP 825 million of new loan facilities to fund the cash portion of the acquisition consideration and relevant deal expenses, which includes a 5-year GBP 400 million term loan, a 3-year GBP 250 million term loan and a short-term circa GBP 175 million term loan. The pricing varies across the different term loans, but the blended rate for these facilities is approximately 5.7%. Alongside this, our existing RCF remains available.
Separately, we will issue 360 million of new Greencore shares to finance the remaining equity of the deal. We're also pleased to have the support and irrevocable undertakings from the 2 top Bakkavor shareholders, Agust and Lydur Gudmundsson, and LongRange Capital, alongside the support of some of Greencore's top shareholders, Oasis, Rubric and Polaris.
Moving on to Slide 29. As Dalton mentioned, we are satisfied that this transaction will deliver significant benefits for the combined group's shareholders. On returns, this deal is expected to exceed Greencore's weighted average cost of capital in the first full financial year post completion. Similarly, with respect to earnings per share, we expect the deal to be accretive in the first full financial year post completion.
As you know, at our Capital Markets Day in February, we laid out a set of organic financial targets. We remain confident of delivering on those targets for the combined group over the medium term. In particular, our medium-term ROIC target for the combined group will be 15% and above. As previously noted, return on invested capital is our North Star KPI and is the key lens through which we view every investment decision.
Beyond that, we will target 3% to 5% revenue growth, but not at the expense of returns. We will drive an adjusted operating profit margin target of 7% and above, free cash flow conversion above 55%, and we are confident of returning our leverage to within the target range of 1 to 1.5x over that period.
Just moving on then to Slide 30 and leverage. When I spoke about our targets at the Capital Markets Day, I reiterated that our leverage target was 1 to 1.5x, but that we would go above that range where there was a significant value creation opportunity, but also where we had line of sight for leverage to drop back to our target range in a timely manner. This deal is a really good illustration of this in practice.
Our aim is to rapidly delever back to our target range of 1 to 1.5x net debt to EBITDA. At deal close, we expect leverage to be in the range of 2.5x, but intend to rapidly delever and be below 1.5x within 2 years post completion. This will be achieved through increased free cash flow from the combined group, including synergy benefits and also the proceeds from the sale of [indiscernible] China business, if not already completed pre-close.
Our focus is to delever rapidly, which then provides the ongoing financial flexibility to deploy capital through a range of options to enhance value for shareholders in the future.
Finally, on Page 31, I'll just speak to our timetable and next steps. We currently expect completion of the transaction to occur early in the calendar year 2026, subject to required approvals. Regulatory approvals will be required in the U.K. and the U.S. and approvals from both Greencore and Bakkavor shareholders will also be required. We will require CMA approval in the U.K. As you can imagine, we've been doing a lot of analysis on this, and we look forward to engaging with the CMA and are confident in our approach to securing Phase 1 CMA approval.
In terms of next steps for our shareholders, the scheme document and Greencore shareholder circular will be considered in the coming weeks. Both Greencore and Bakkavor shareholder meetings are expected to be held in early July.
Now just let me hand back to Dalton to close and move on to Q&A.
Thanks, Catherine, and I'll keep the summary brief. First, we're really pleased to be reporting a strong set of H1 results today. The business has real momentum, and we're encouraged by the opportunities ahead, which is why we now expect our full year operating profit to be in the range of GBP 114 million to GBP 117 million, ahead of our previous guidance.
Second, that solid foundation gives us the platform to deliver on our growth ambitions, namely our recommended combination with Bakkavor. We've laid out both the strategic and financial rationale for the deal, which we believe presents a compelling value case. This is a combination that will create something greater than the sum of its parts, commercially, operationally and financially.
And this brings us to the end of our presentation. I do hope that despite this being a call versus in-person, you've got a sense of just how excited we are about the future. Thanks again for your time. And now I'll hand it back to you, Laura, to open the line up for questions.
[Operator Instructions] We will now take our first question from Patrick Higgins of Goodbody.
A couple of questions, please, if that's okay. Firstly, maybe could you just give us a bit more color on how your kind of conversations with your key customers or kind of support you've got from customers have been like? And on the cost synergies, is there an element of these synergies that you might have to share with your customers?
Is that baked into your expectations? And I guess a kind of follow-on question from that on the revenue side, I think you kind of touched on this through the presentation, but what's the scope for revenue synergies from the combination and kind of exceeding the 3% to 5% midterm targets that you've outlined?
Yes. Look, thanks, Patrick. And we have been obviously speaking to our customers who are very interested in this combination. And I think the key position we've been talking to our customers about is that the fact that this really does bring a huge amount of new value. These are 2 very good businesses coming together and doing something really quite special.
And you think from a customer point of view, the innovation levels, I mean, the combined business will be launching 1,000 new products a year. When you bring these 2 teams together and you bring the strength of both teams, the level of innovation can then materially step up. You think about mission solutions, and that's everything that customers are talking to us about today. They want solutions for those key missions, and we'll be able to move into a whole new area of mission solution.
You think about school holiday survival, date night in, stock up for the weekend ahead, all of that. Think about the dayparts. We now do breakfast, lunch. We do -- we'll do the appetite of the main course of the dessert, the whole combination. And I think that's what customers want. Today, they want to do more with fewer bigger key strategic partners. And so I think they're excited by the innovation.
I think there's definitely this idea about how can we amplify and reinvigorate categories. So you think about the work we've done in terms of the meal deal and you think about -- it was a somewhat commoditized category and the premium meal deal, the work that we brought in there now and the excitement in that category. And I think as we come together and we share our best practices with what Mike and his team are doing in Bakkavor, I think it really becomes quite compelling.
The last thing I'd just say on customers as well is just being able to leverage our scale with our supply base. So I'm not talking just about cost. Obviously, cost is very important, but I'm talking about added value. You think about the scale we can bring now to better agricultural practices to reduce Scope 3, for example, and that's something our customers are really pushing for. In terms of cost synergies, look, the vast majority of the synergies are about us being a better business in how we operate.
So to your question about what will our customers be seeking for from those cost synergies, we will be investing more back into their businesses in terms of those dedicated teams because, of course, we're going to have very material and meaningful dedicated teams for each of our core customers. That's obviously a result of the combination. So the synergies that we're bringing here are being unlocked by this combination.
And so we intend that you can plug at least that GBP 80 million of synergies into your model because there are synergies. In the same way, we wouldn't be asking our customers to support the one-off costs to enable those synergies. There are synergies and we'll be keeping them.
Finally, just in terms of scope for revenue synergies, look, we have not put any of that into our model. But clearly, when you bring these 2 businesses together and you go after the level of innovation that we're talking about in a combined venture, we feel confident that we can continue to grow. And clearly, those targets that Catherine has laid out, we feel confident of those.
Yes. No, absolutely. Look, I think we feel that, that 3% to 5% revenue growth target through the cycle is still a reasonable target for us...
We will now move on to our next question from Karel Zoete of Kepler Cheuvreux.
I have one on the deal and one on the operations. I think one of the feelings of the Capital Markets Day was that on systems and ERP Greencore, lots of work to do, whereas Bakkavor, I think, comes across as a bit more advanced. Now looking at the synergy capture and supply chain, et cetera, does it mean you probably, on the systems side, will more move towards the Bakkavor platform?
And the other question is on margins in the second half of the year, the high season. If I look to the guidance, you're more or less guiding for a slightly lower margin at the midpoint for the second half of the year. Is that due to the cost inflation? Or is there something else we should take into account?
Yes. Thanks, Karel. Look, I'll just pick up the systems and Catherine will come back on the margins. Look, we are both running big programs with a combined budget of about GBP 100 million across both programs. And we obviously do see opportunities there. Actually, I think that in reality, there's very little overlap between what we're doing and what they're doing. And I think that brings the complementarity of the programs.
We're very much around functionality around an ERP, and they're spending a lot of time actually on the enterprise. So their vision program is much more around the enterprise. So -- and as I said, ours is the functionality. So I think we'll be able to bring both together nicely. They have some functionality that is really impressive. For example, we don't have a product life cycle tool.
We're really interested in what they're doing. That's on our work plan in any case. They've got Redzone, which is a performance managing tracker for operational excellence. We don't have that. So there's functionality they have that we're interested in, but there's also functionality we're developing. So I think it's going to be very complementary at this stage.
Yes. Karel, look, I think absolutely, our guidance indicates that we anticipate that we will be level with our H2 in the prior year or slightly ahead. And look, I think the first thing to say there is we had a very strong performance last year, but you're absolutely right. There are some headwinds out there in respect of inflation that we're experiencing. There's been a very significant recent uptick in protein inflation, in particular, with beef and chicken.
And in general, we're seeing some slight uptick in inflation across certain cost categories. And obviously, I referenced the ongoing labor inflation and the impact of national insurance. So look, I think where we stand at this point in time, if we deliver the second half of the financial year that's consistent with last year, that will be a strong result from our perspective.
We currently have no questions coming through. [Operator Instructions] We will now take our next question from Tania Maciver of RBC CM.
Just one on the results. You mentioned some new contract wins in the first half. Can you elaborate a little bit more on those and what areas they might be in and if you're taking market share from others or if that's new product development, et cetera? And then just on the transaction, do you expect CapEx to continue sort of at this -- at the combined level of both companies? Or do you expect that to sort of come down a little bit? Is it just 1 plus 1 is your expected CapEx going forward?
And then just in terms of your -- of the dividend on the combined entity, do you have any insight into what that might look like? And then finally, are there any areas of concern, in particular, in relation to combined market share with respect to the CMA in terms of being too high?
Yes. Look, thanks, Tania. Look, I'll take a couple of those, and Catherine will take a couple. Some really good business wins, definitely taking some share on the Food to Go side, which we're encouraged by. I think that increased that new volume should bring us about 150 basis points of volume growth into next year. It's in sandwiches and sushi predominantly, and a little bit of salad. So we're encouraged by that.
In terms of what's about to land from new business wins, look, I don't think it would be fair to the customers to say that I'll wait for their launch programs. But look, there's a lot of innovation going on and comfortable with where we are in terms of the portfolio. Look, let me just pick up the CMA approval piece. Look, there are material benefits to customers from this transaction.
All that innovation that I talked about earlier, Tania, the technical expertise, the sustainability initiatives that we'll be able to bring together as a combined business and, obviously, the benefits we'll bring through the supply chain. So there is definitely material benefits for our customers and by default for their consumers. So we've looked at this in a lot of detail. And as Catherine said, we have real confidence in closing at Phase 1 without any material impacts.
I think the key consideration is just how complementary the businesses are in so many ways across categories, within categories, across dayparts, dining occasions and dining formats. It's complementary, and we're confident in our position on the regulatory approvals. But look, clearly, we recognize that CMA will develop its own perspective, but we expect the deal to close before the end of Q1 '26, subject to that regulatory approval and, of course, shareholder approval.
Thanks, Dalton. Tania, I'll just pick up on 2 of your points. I suppose the first one in relation to CapEx. We currently have a spend envelope per annum of about GBP 40 million to GBP 50 million and back of are about GBP 70 million. I think at this point in time, we wouldn't see -- we wouldn't forecast any significant change to those run rates. But obviously, as we move into integration, obviously, that's something that we'll be looking at in detail, but no forecasted amendments to that spend at this point.
I suppose when we think about dividends, I referenced there the capital allocation framework that we set out at our Capital Markets Day. And I think we think that's a very reasonable and ambitious way to approach the allocation of capital. As you know, we recently reinstated our own dividend. And I think from a principal perspective, we understand the importance of having a clear dividend program in place. I think other than that, it's probably a little bit early to be giving any guidance around the specific capital allocation framework or plans that we would have for the combined group.
Okay. That's great. Just on the supply chain benefits, could you just give an example or a little bit more detail on how you think you might achieve some of those?
Yes. Look, that's us coming together. That's both direct and indirect. So if you think about the direct side, the direct purchasing, Tania, will be about GBP 2 billion. The indirect purchasing will be about GBP 600 million to GBP 700 million. So you're talking about a cost base of GBP 2.7 billion. And when we come together, there's going to be opportunities in where we source from, both, as I said, on the direct and indirect.
And look, there'll be duplication as well in many of those indirect spends. So I think it will be broad across the piece. And on a GBP 2.7 billion revenue base or cost base, look, I think these are eminently achievable.
There are no further questions in the queue. I will hand back to Dalton.
Thanks, Laura. And look, thank you, everybody. I know you had to jump on this at very short notice. We appreciate your time, your questions. And look, we're around to pick up any specific questions or feedback you want to share. We'll close the call there.
Thanks, everyone.
Thank you very much.
Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.
