Final Results

Greggs PLC 8 March 2002 8 March 2002 GREGGS plc PRELIMINARY RESULTS FOR THE YEAR ENDED 29 DECEMBER 2001 Greggs is the UK's leading retailer specialising in sandwiches, savouries and other bakery products, with a particular focus on takeaway food and catering. It has around 1,150 retail outlets throughout the UK, trading primarily under the Greggs and Bakers Oven brands. • Tenth consecutive year of profit, earnings and dividend growth • Record pre-tax profit of £32.7 million - up 24.2 per cent • Earnings per share up 17.2 per cent to 190.2 pence + • Dividends increased 18.2 per cent to 65.0 pence per share • Sales up 11.4 per cent to £377.6 million • Record like-for-like sales increase of 8.4 per cent - core volume up 5.7 per cent • Excellent progress - continued strong growth in takeaway food • Benefits of strategic investments coming through as planned • Record £38 million investment for future growth planned in 2002 + based on 2000 earnings per share as restated following the adoption of FRS19 Deferred Tax "We have achieved further strong sales progress since the start of the new year and results to date are in line with our budgets, and ahead of the comparable period last year. We are well positioned in a growing market place and, despite continuing cost pressures, I expect the group to achieve satisfactory progress in the current year." - Ian Gregg, Chairman ENQUIRIES: Greggs plc Mike Darrington, Managing Director Malcolm Simpson, Financial Director Tel: 020 7796 4133 on Friday, 8 March only, 0191 281 7721 thereafter Hudson Sandler Keith Hann / Wendy Baker Tel: 020 7796 4133 High resolution images are available for the media to view and download from www.vismedia.co.uk CHAIRMAN'S STATEMENT This has been another year of excellent progress for Greggs. We have achieved our tenth consecutive year of profit and earnings growth, with pre-tax profits rising by 24.2 per cent, following a 22.5 per cent increase in 2000. This has been based on our well-established strategy of investing to develop our products, shops, brands and people, so as to maximise the opportunities created by the strong growth of the takeaway food market. Results Sales for the year grew by 11.4 per cent to £377.6 million, including our best ever like-for-like sales increase of 8.4 per cent. Consumers responded favourably to the roll-out of our new format shops and the continuous improvement of our product range. We also benefited from strong underlying demand for takeaway food, aided by favourable weather throughout the year and high levels of customer traffic on the high street. Operating profit increased by 21.3 per cent to £31.6 million. After interest receivable of £1.1 million (2000: £0.3 million) reflecting our increasing net cash balances, pre-tax profit grew by 24.2 per cent to £32.7 million. Earnings per share grew by 17.2 per cent to 190.2 pence, compared with a prior year base of 162.3 pence which has been restated following our early adoption of the FRS19 accounting standard in respect of deferred tax. Dividend The Board recommends a final dividend of 44.0 pence per share (2000: 39.0 pence), an increase of 12.8 per cent. The interim dividend, paid in October 2001, was increased by 31.3 per cent to 21.0 pence, partly to improve the balance between the interim and final payments, so that the total dividend for the year will be 65.0 pence (2000: 55.0 pence), an increase of 18.2 per cent. This is in line with our long-established progressive dividend policy, which seeks to provide shareholders with increases in their income broadly in line with the underlying growth of earnings per share over the medium term. Subject to the approval of the Annual General Meeting, the final dividend will be paid on 24 May 2002 to shareholders on the register at 19 April 2002. Business highlights Core volumes advanced strongly throughout the year. The Greggs brand continued to perform exceptionally well, with our newer divisions in the south of England again making very pleasing progress. The Managing Director comments on trading and business development in more detail in his report on pages 5 - 10. The Board I announced last year that I intended to retire, and that we had begun work to identify a suitable successor. We have been fortunate to secure the services of Derek Netherton, who has had a distinguished career in investment banking and is a non-executive director of a number of listed companies including Next and Hiscox. He joined the Board as a non-executive director and Chairman Designate on 1 March 2002, and I intend to work with him closely to ensure a smooth hand-over of my responsibilities, prior to my planned retirement in about 12 months' time. Staff The continued strong growth of the business has been made possible only by the commitment of our staff to meeting our customers' expectations. Once again I would like to record the thanks of the Board for their hard work in delivering the products and service on which our reputation depends. Prospects We will continue the progressive roll-out of the new Greggs shop format, and intend to achieve a further increase in the pace of shop opening, with a net addition of around 50 units planned in the UK. We also expect to open a pilot shop in mainland Europe. Due to our success in strongly growing volumes in recent years, we need to increase the pace in expansion of our manufacturing capacity in order to be able to meet the demands of future growth. Total capital expenditure is expected to be a record £38 million, with much of this investment designed to deliver its full benefits in the longer term. We have achieved further strong sales progress since the start of the new year, with like-for-like sales in the first nine weeks up by 9.7 per cent. Results to date are in line with our budgets, and ahead of the comparable period last year. We are well positioned in a growing market place and despite continuing cost pressures, notably on flour and insurance, I expect the group to achieve satisfactory progress in the current year. Ian Gregg, Chairman 8 March 2002 MANAGING DIRECTOR'S REPORT Growing sales and profits are the result of our drive towards even better products and ever-higher standards across the group, aided by past investment in facilities such as our group technical centre. We remain committed to this successful strategy and are providing additional resources to raise standards even further and so drive continued growth for the benefit of employees and shareholders alike. Strategic development Our successful development has been based on our strategic focus on continuous improvement in five key areas: products, service, retail environment, brands and people. Product and service excellence. The introduction of new and improved products has made a major contribution to our strong volume growth. This continuing process has been greatly assisted by the research, development and testing facilities provided at our group technical centre in Balliol Park, Newcastle upon Tyne, which opened in April 2000. The work undertaken here is also helping us to extend best practice, including the harmonisation of key products across our regional divisions, and to ensure the highest standards of food safety throughout the group. Customer recognition of the high quality and consistency of our savouries has again helped to drive sales in this product category, underlining the benefits of our investment in the group's central savouries unit, also at Balliol Park. During the year we undertook further capital expenditure on equipment, effectively doubling the capacity of the unit, to keep pace with rapidly increasing demand. Retail environment. The new Greggs format has been extended to 168 locations through new store openings and the progressive refurbishment of existing shops as part our normal refit cycle. Consumers have responded well to the new design, which stands out on the high street, enhances the display and accessibility of our key takeaway food ranges, and optimises the speed of service. The roll-out of the Greggs touch-screen electronic point of sale system has also continued, providing us with even better management information on both sales trends and profitability. Since the catering market has been considerably less buoyant than the takeaway sector on which Greggs focuses, the emphasis in Bakers Oven has been on improving the performance of its existing portfolio of seated catering outlets, rather than on further expansion of the format. Brand awareness. During 2002 we will convert our 50 Birketts shops in Cumbria, Lancashire and southern Scotland to the Greggs fascia, completing the process of nationwide brand harmonisation which began with the successful conversion of our Midlands and Yorkshire divisions in 1999. We believe that significant long term benefits will accrue as we progressively simplify the business, ensure more nationally consistent products, harmonise advertising and point of sale material, and concentrate on building consumer awareness of Greggs as the leading brand in bakery-related takeaway food across the UK. This will be complemented by Bakers Oven, positioned as a premium brand and distinguished from Greggs by the role in its concept of seated catering and in-store baking. The baking of products instore enables us to extend our coverage to regions which could not be supported by deliveries of fresh products from central bakeries. People. We have continued to benefit from progressive strengthening of our management team both in the centre and in each of our divisions, and by the increasing sophistication that this brings to our work in understanding consumers' changing needs and tastes, and ensuring that we respond to these effectively. Trading performance We made strong sales progress throughout the year, with the second half proving even stronger than the first. Like-for-like sales grew by 6.9 per cent in the first half (24 weeks) and by 9.6 per cent in the second half, giving us an 8.4 per cent uplift for the year as a whole. Within this, core volumes advanced by 4.3 per cent in the first half and 6.7 per cent in the second, making an annual increase of 5.7 per cent. Implied inflation of 2.7 per cent over the year remained primarily a function of product upgrades, though we also recovered some substantial increases in ingredient costs, most notably of flour in the second half. Including the benefit of new selling space, total sales grew by 9.1 per cent in the first half and 13.1 per cent in the second, making 11.4 per cent for the year as a whole. As the Chairman has noted, the weather was favourable for our business throughout the year, with relatively few instances of the extreme conditions that tend to deter daily purchasers of our products. Strong retail demand overall also ensured high levels of activity on the high streets where we operate, with a late surge of Christmas shoppers contributing to a stronger than expected performance in the final weeks of the year. Underlying these external factors is the steadily increasing strength of our brands and proposition as we have continued to improve our products, shops and service, reflected in growing consumer awareness of the quality and value that we offer. These are the key drivers of the sustained real sales growth we have achieved over the last nine years, with like-for-like sales increasing by 15.8 per cent over the last two years alone. This strong sales growth has enabled us to increase pre-tax profits by a very satisfactory 24.2 per cent to £32.7 million. This has been achieved despite significant increases in our cost base as we have invested in people and facilities to enable us to drive the business even more strongly in the future. Greggs. Like-for-like sales in the nine Greggs divisions, including Birketts, grew by 8.5 per cent in the first half and 11.3 per cent in the second, making a 10.1 per cent increase for the year. Within this, core volumes advanced by 6.3 per cent in the first half and 8.9 per cent in the second, to give an annual increase of 7.8 per cent. All divisions made progress, with Greggs of Twickenham continuing to perform exceptionally well and Greggs of Enfield also making strong progress. During 2002 we plan to integrate these two businesses into a single South East division, which will enable us to develop our operations in southern England even more effectively in the future. The Midlands and Gosforth divisions again made pleasing progress, while our operations in the North West achieved a very good result after a somewhat disappointing year in 2001. Scotland remained our most profitable division. The performance of this business has been transformed over the last 20 years under the leadership of its Managing Director, Ken Middleton, who retired from this role at the end of 2001, and I would like to record our appreciation of his outstanding contribution to Greggs. Bakers Oven. Like-for-like sales in the four Bakers Oven divisions grew by 2.6 per cent in the first half and 4.7 per cent in the second, making a 3.8 per cent increase over the year. Core volume performance improved in the latter part of the year but remained disappointing overall at -0.1 per cent, comprising a 1.1 per cent decline in the first half and a 0.6 per cent increase in the second half. The weaker performance of Bakers Oven compared with Greggs can be partly explained by its exposure to the catering market and its correspondingly smaller involvement in the buoyant takeaway market. There remain significant regional variations in performance, however, with the Midlands division making solid progress and the South improving, while Scotland and the North have continued to underperform. We have made management changes designed to address these issues. Overall profits showed a small improvement over the previous year despite the loss of Bakers Oven's largest and most profitable unit with the closure of the Millennium Dome. Product profile Continuing a long established pattern, the major takeaway food categories of sandwiches and savouries continued to show the strongest growth, along with associated product areas such as soft drinks. Cakes and confectionery products, many of which are purchased to complement a savoury takeaway snack, remained fairly stable as a proportion of our trade, while bread and rolls continued their long decline. Retail profile We opened 67 new shops during the year and closed 28, giving us a net increase of 39 to 1,144 outlets by 29 December 2001, slightly ahead of our target. There were 905 Greggs and 239 Bakers Oven shops at the year end, compared with 858 and 247 respectively twelve months earlier. We completed 64 comprehensive shop refurbishments and 31 minor refits during the year. Capital investment Capital expenditure of £27.4 million was £6 million higher than in the previous year but below our original £30 million budget. The bulk of investment continued to be directed to the expansion and improvement of our retail estate, though we naturally require further investment in our production facilities to keep pace with the strength of volume growth. These will result in a further planned increase in capital expenditure to some £38 million in the current year, during which we intend to open some 50 new stores, net of closures. Cash flow and balance sheet The group remains strongly cash generative and we ended the year with a substantially increased net cash position of £30.0 million, compared with £18.9 million in 2000. This was despite a £1.5 million increase in dividend payments as well as higher capital expenditure. We remain strongly placed to fund all our future investment plans from our own resources. Employees One of the most striking characteristics of our staff is their unfailing cheerfulness - an attitude they have maintained despite the significant increases in sales per shop that we have achieved over the last few years. I am particularly grateful for their proven ability to deal with ever-increasing customer numbers without compromising our standards, whether in service across the counter or in food handling and preparation. We remain absolutely committed to promoting a caring and considerate culture in which people are treated properly, can enjoy their work, and are given the greatest possible opportunity to realise their potential through skills training and internal promotion. Greggs in the community The Greggs Breakfast Clubs which will feature on the front cover of this year's annual report are a growing phenomenon, currently operating in over 20 selected primary schools in the North and Midlands. They are designed to get children off to a better start by providing them with free breakfasts for which we provide all the food, including fresh bread from our shops, together with the necessary equipment. This initiative is just one example of our long-standing commitment to putting something back into the communities where we operate. The group is a member of the 'Per Cent' Club and made charitable donations of £327,000 this year, the bulk of which is directed through the Greggs Trust, dedicated to alleviating the effects of poverty and social deprivation within our trading areas. In addition to our central contributions, our divisions are active in support of good causes within their trading areas, such as the major annual fun run sponsored by Greggs of Gosforth in aid of children's cancer research and which has raised well over £2 million since its inception in 1983. Outlook We are the largest specialist operator in the UK addressing the fast-growing market for bakery-related takeaway food. We have significant scope for further expansion within our home market, with a target of reaching over 1,700 units by the end of the present decade, and ultimate scope for at least 2,000 UK shops. In addition, we continue to research the potential for our brands within mainland Europe, and expect a pilot shop to be trading there later this year. Our focus has always been on achieving long-term growth by making our business progressively better. This will remain so as we continue to develop returns from our investment in even more enjoyable products, more attractive shops and better service, and increasingly concentrate our resources behind the harmonisation and promotion of strong national brands. Mike Darrington, Managing Director 8 March 2002 Greggs plc Group Profit and Loss Account for the 52 weeks ended 29 December 2001 2001 2000 £'000 £'000 As restated* Turnover 377,556 339,008 Cost of Sales (147,468) (131,197) _______ _______ Gross Profit 230,088 207,811 Distribution and selling costs (172,711) (158,327) Administrative expenses (25,780) (23,440) _______ _______ Operating profit 31,597 26,044 Net interest receivable and other income 1,145 312 _______ _______ Profit on ordinary activities before taxation 32,742 26,356 Taxation on profit on ordinary activities (9,933) (6,964) _______ _______ Profit on ordinary activities after taxation 22,809 19,392 Dividends paid and proposed (7,663) (6,422) _______ _______ Retained profit for the financial year 15,146 12,970 ====== ====== Basic earnings per share 190.2p 162.3p Diluted earnings per share 187.7p 161.0p * as restated following the adoption of FRS19 Deferred Tax The Group's operating profit for both the current and preceding financial period derives from continuing operations. There are no recognised gains or losses during the current and previous period other than the profit for the period. Greggs plc Reconciliation of movement in consolidated shareholders' funds 2001 2000 2000 £'000 £'000 £'000 As restated As restated Profit for the financial year - as previously stated 22,809 22,131 - prior year adjustment (note 1) - (2,739) _______ _______ 22,809 19,392 Dividends (7,663) (6,422) _______ _______ Retained profit for the financial year 15,146 12,970 New share capital - nominal value 3 9 - share premium 236 407 _______ _______ Net addition to shareholders' funds 15,385 13,386 Opening shareholders' funds - as previously stated 80,896 - prior year adjustment (note 1) (6,113) _______ 88,169 74,783 _______ _______ Closing shareholders' funds 103,554 88,169 ====== ====== Greggs plc Group Balance Sheet at 29 December 2001 29 December 30 December 2001 2000 As restated £'000 £'000 £'000 £'000 Fixed assets Tangible assets 124,123 113,285 Investments 3,563 3,563 _______ _______ 127,686 116,848 Current assets Stocks 6,275 5,636 Debtors 12,406 11,893 Cash at bank and in hand 30,027 20,015 _______ _______ 48,708 37,544 Creditors: amounts falling due within one year (60,762) (55,227) _______ _______ Net current liabilities (12,054) (17,683) _______ _______ Total assets less current liabilities 115,632 99,165 Creditors: amounts falling due after more than one year (109) (133) Provisions for liabilities and charges Deferred tax (11,969) (10,863) _______ _______ 103,554 88,169 ====== ====== Capital and reserves Called up share capital 2,400 2,397 Share premium account 9,794 9,558 Profit and loss account 91,360 76,214 _______ _______ Equity shareholders' funds 103,554 88,169 ====== ====== Greggs plc Group Cash Flow Statement for the 52 weeks ended 29 December 2001 2001 2000 £'000 £'000 £'000 £'000 Net cash inflow from continuing operating activities 50,418 43,431 Returns on investments and servicing of finance Interest received 1,354 622 Interest paid (209) (301) Interest element of finance lease payments - (9) _______ _______ Net cash inflow from returns on investments and servicing of finance 1,145 312 Taxation paid (6,005) (5,604) Capital expenditure and financial investments Purchase of tangible fixed assets (27,385) (21,397) Disposal of tangible fixed assets 1,888 2,514 Purchase of investments - (2,133) _______ _______ Net cash outflow for capital expenditure and financial investments (25,497) (21,016) Equity dividends paid (7,067) (5,593) Financing Issue of ordinary share capital 239 416 Redemption of loan notes (42) (32) Capital element of finance lease payments - (40) Loan repayments (2,039) (1,913) Government grants received - 22 _______ _______ Net cash outflow from financing (1,842) (1,547) _______ _______ Net increase in cash in the period 11,152 9,983 ====== ====== Reconciliation of operating profit to net cash inflow from operating activities 2001 2000 £'000 £'000 £'000 £'000 Operating profit 31,597 26,044 Depreciation charges 14,907 14,162 (Profit) / loss on disposal of fixed assets (248) 222 Release of government grants (24) (46) (Increase) / decrease in stocks (639) 347 Increase in debtors (513) (2,142) Increase in creditors 5,338 4,844 _______ _______ Net increase in working capital 4,186 3,049 _______ _______ Net cash inflow from continuing operating activities 50,418 43,431 ====== ====== NOTE: 1. Financial Reporting Standard 19 'Deferred tax' has been adopted for the first time resulting in a restatement of the 2000 accounts. A further £8,852,000 has been included as a provision at 30 December 2000 and a charge of £2,739,000 has been included within the tax charge for that year. The movement in deferred tax in the current year of £1,106,000 has been charged to results for the year and included within the current tax charge. 2. The financial information set out above does not constitute the Company's statutory accounts for the years ended 29 December 2001 or 30 December 2000. Statutory accounts for 2000 have been delivered to the Registrar of Companies, whereas those for 2001 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain a statement under Section 237(2) or (4) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange

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