Final Results

Greggs PLC 07 March 2003 7 March 2003 GREGGS plc PRELIMINARY RESULTS FOR THE YEAR ENDED 28 DECEMBER 2002 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 over 1,200 retail outlets throughout the UK, trading under the Greggs and Bakers Oven brands. • Eleventh consecutive year of profit, earnings and dividend growth • Sales exceed £400 million and shop numbers over 1,200 for first time • Record pre-tax profit of £36.7 million - up 12.0 per cent (2001: £32.7 million) • Earnings per share up 8.0 per cent to 205.5 pence (2001: 190.2 pence) • Dividends increased 11.5 per cent to 72.5 pence per share (2001: 65.0 pence) • Like-for-like sales up 6.4 per cent - core volume up 3.6 per cent • Good progress by Greggs brand, now unified across UK • Record £42.1 million invested for future growth (2001: £27.4 million) • First Continental shop opened in February 2003 • Like-for-like sales in current year to date up 5.2 per cent "Greggs is the market leader in a growing sector, with strong brands, proven formats and exceptional people. Despite further cost pressures we believe that the Group is well placed to achieve another year of satisfactory progress in 2003." - Derek Netherton, Chairman ENQUIRIES: Greggs plc Mike Darrington, Managing Director Malcolm Simpson, Financial Director Tel: 020 7796 4133 on Friday, 7 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 free of charge from www.vismedia.co.uk CHAIRMAN'S STATEMENT In my first report as Chairman, it is pleasing to note that continued satisfactory progress during 2002 has made this the Group's eleventh consecutive year of profit, earnings and dividend growth. This success has been based above all on a culture of putting people first that goes right back to Greggs' roots as a family bakery. Attentiveness to the needs of our employees and customers has been the key to almost 40 years of successful expansion which have taken Greggs from a single shop to a nationwide market leader with over 1,200. Results Sales in 2002 increased by 11.9 per cent to £422.6 million. This included like-for-like sales growth of 6.4 per cent, driven by continued strong demand for takeaway food. Operating profit increased by 11.8 per cent to £35.3 million, despite the substantial increase in insurance costs that was experienced across the food and retail sectors, and interest receivable rose by £0.2 million to £1.3 million. Pre-tax profit advanced by 12.0 per cent to £36.7 million. Basic earnings per share were 205.5 pence, a rise of 8.0 per cent, reflecting an increase in the Group's tax charge following the exhaustion of credits relating to prior years. Dividend The Board recommends a final dividend of 49.0 pence per share (2001: 44.0 pence), an increase of 11.4 per cent. Together with the interim dividend of 23.5 pence, paid in October 2002, this makes a total for the year of 72.5 pence (2001: 65.0 pence), a rise of 11.5 per cent. The Board remains committed to a 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 23 May 2003 to shareholders on the register at 18 April 2003. Business highlights The Group traded satisfactorily throughout the year, with like-for-like sales growth slowing as expected in the second half, as we encountered comparison with the exceptionally strong performance achieved in the latter part of 2001. The Greggs brand maintained its good progress, with particularly strong performances in the South East, Midlands and Scotland. A year of record capital investment saw us increase the pace of new shop openings, adding a net 58 stores to give a total of 1,202 at the year end. We also made substantial investments in production facilities to support the growth of our retail operations. Mike Darrington provides a more detailed commentary on these and other trading and business development issues in his report on pages 4 - 9. The Board I succeeded Ian Gregg as Chairman on 2 August 2002, having joined the Board on 1 March. I am delighted that Ian has agreed to remain on the Board as a non-executive director for the time being, providing us with continued access to his unequalled expertise. We are seeking to add to the number of independent non-executive directors on the Board. People I have greatly enjoyed getting to know Greggs and its people, visiting bakeries and shops in many of the divisions since my appointment to the Board. One cannot fail to be impressed by the hard work and commitment that is shown by all our staff, and also by the fact that they take pleasure as well as pride in what they do. The continued growth of the business directly reflects the efforts of all our 17,524 employees and I would like to thank them on behalf of the Board for their contribution to another successful year. Prospects Trading since the start of the new year has been satisfactory, with like-for-like sales in the first nine weeks up 5.2 per cent. Results to date are in line with our budgets, and ahead of the comparable period last year. Since the year end we have opened our first two shops outside the UK, at Leuven and Antwerp in Belgium, and plan a controlled trial of the Greggs format in that country which will involve a small number of additional openings in the months ahead. The main thrust of our expansion will continue to be in the UK where we plan to add a further 45 new units, net of closures. We will also make significant further investments in UK manufacturing capacity, to keep pace with our retail expansion. Greggs is the market leader in a growing sector, with strong brands, proven formats and exceptional people. Despite further cost pressures we believe that the Group is well placed to achieve another year of satisfactory progress in 2003. Derek Netherton, Chairman 7 March 2003 MANAGING DIRECTOR'S REPORT This year we passed several important milestones, achieving turnover of over £400 million for the first time and opening our 1,200th shop. We also undertook the preparatory work that permitted the opening of our first shop outside the UK early in 2003. We further refined the strategic mission and vision through which we aim to achieve continued growth in the years ahead. Ian Gregg stepped down as Chairman of the Group in August after a remarkable 38 years of service. Trading performance As the Chairman has noted, the Group made satisfactory progress during the year. We had anticipated from the outset that like-for-like sales growth would slow as the year progressed, given the exceptionally strong performance achieved in the second half of 2001. Our expectations were duly met, with like-for-like sales growth averaging 6.4 per cent over the year as a whole, comprising increases of 7.6 per cent in the first half (24 weeks) and 5.4 per cent in the second half. The weather was more favourable in the first half than the second, but we would consider it fairly average for our business over the year as a whole. Lower levels of consumer traffic on the high street in the run-up to Christmas are also assumed to have contributed to slower like-for-like sales progress in the final weeks of the year, when we achieved growth of just over 4 per cent. Core volumes grew by 4.5 per cent in the first half and 2.9 per cent in the second, making an increase of 3.6 per cent over the year as a whole. Price increases averaging 2.8 per cent over the year were again driven primarily by product upgrades, though we also recovered cost increases in a number of areas including wages and insurance, where our premiums rose by some £1.7 million or 82.0 per cent. Including the benefit of new shop openings in the current and prior year, total sales rose by 13.2 per cent in the first half and 11.0 per cent in the second, making an overall increase of 11.9 per cent for the year. Operating profit grew by 11.8 per cent to £35.3 million, net interest receivable rose by £0.2 million to £1.3 million, and pre-tax profit increased by 12.0 per cent to £36.7 million. Greggs brand The nine Greggs divisions remained the key drivers of Group sales and profits. Like-for-like sales grew by 8.8 per cent in the first half and 6.6 per cent in the second, including core volume uplifts of 6.1 and 4.3 per cent respectively. This produced a like-for-like sales increase of 7.6 per cent for the year, including core volume growth of 5.1 per cent. The Enfield and Twickenham divisions, now combined as Greggs South East, again made particularly pleasing progress, and Greggs of the Midlands also performed strongly. Greggs of Scotland, already our most profitable division, achieved another record result. Greggs of Cumbria, created during the year through the rebranding of our 50 Birketts shops in the Lake District and adjoining counties, responded positively to the adoption of the new fascia. This was the final phase of our programme to create a single and cohesive Greggs brand nationwide. We now have a strong platform for the more unified promotion of the Greggs proposition and brand across the UK, in which we will be assisted by the new advertising agency we appointed during the year. Bakers Oven brand Like-for-like sales in the four Bakers Oven divisions grew by 3.8 per cent in the first half and 1.8 per cent in the second, making a 2.7 per cent increase over the year. Core volume performance remained disappointing, declining by 0.4 per cent in the first half and 1.3 per cent in the second, and so averaging 0.9 per cent for the year. There was a small reduction in Bakers Oven's contribution to Group operating profit. Bakers Oven South continued to make satisfactory progress during the year, but the North and Scotland remained problematic. We have made a number of appointments to strengthen the management in these regions, including the transfer of proven, senior people from the Greggs divisions. Retail profile In the light of their relative performances, we have naturally concentrated our retail development programme on driving the successful Greggs brand, both by extending its geographic reach and by converting existing units to our new and more takeaway-focused shop format. In total we opened 82 new shops during the year and closed 24, giving us a net increase of 58 to 1,202 outlets by 28 December 2002. This was slightly ahead of our target. There were 973 Greggs and 229 Bakers Oven shops at the year end, compared with 905 and 239 respectively twelve months earlier. We completed 58 comprehensive shop refurbishments and 17 minor refits during the year. The combination of new openings and refurbishments gave us a total of 295 new format Greggs stores at the year end, comprising 30 per cent of the chain, compared with 19 per cent in December 2001. Product profile The well-established trend to takeaway food categories continued to drive our sales across the Group, led by savouries and sandwiches and supported by complementary products such as drinks. Cakes and confectionery products again remained fairly stable as a proportion of our trade, while the traditional bakery staples such as bread and rolls continued to decline. Strategic principles Greggs plc has been built on simple principles: motivating and empowering people to deliver enjoyable, value-for-money products and provide great customer service. Our key strategic principles are outlined in our Mission Statement, and I am pleased to report that we made progress in each of our key target areas during 2002. 'A Great Place to Work'. We want our people to enjoy their work and to derive real satisfaction from what they do. A major employee opinion survey was conducted in February 2002, the results of which were generally positive, and we are working hard on the areas for improvement that it highlighted. All our managers across the Group are committed to building a positive culture that is founded on simple values: being enthusiastic and supportive, open, honest and appreciative, and treating everyone with fairness, consideration and respect. 360degrees feedback is being undertaken to monitor the effectiveness of our approach, beginning with the executive directors and our most senior managers. We aim to create the best possible working conditions for our people, and our new shop formats are designed to improve standards for employees as well as customers. Similarly, we devise improvements in working practices, such as the making of sandwiches, which are designed to make these everyday tasks more enjoyable as well as more efficient. Opportunities for personal development are provided as widely as possible, and all our employees are encouraged to develop their leadership qualities and to use their individual initiative, while adhering to the strict company-wide policies that are necessary to ensure the safe preparation and handling of food. During the year all of our most senior managers benefited from a visit to some businesses in the USA which are considered world leaders in customer service and in the creation of an environment and culture in which people can truly enjoy their work. Although we recognise that much remains to be done, we were pleased to achieve recognition of our efforts to make working at Greggs an enjoyable experience when we featured for the first time in the The Sunday Times 'The 100 best companies to work for in the UK' survey, published in February 2003. 'Enjoyable Experience'. The continuous introduction of new and improved products is an important driver of like-for-like sales growth. Development work is undertaken both by our divisional teams and by the new Group Technical Centre in Balliol Park, Newcastle upon Tyne. Outstanding new products devised at Balliol Park, and launched successfully across the Group in 2002, included a ham and cheese bake and an egg and bacon breakfast savoury for Greggs, and a cheese and onion crumble topped bake for Bakers Oven. In addition, the centre houses one of the world's most advanced laboratories for microbiological testing of products and ingredients, equipped to provide exceptionally rapid results that ensure our attainment of the highest possible standards of food safety. During the year this laboratory became the first such facility in the UK to be audited to ensure compliance with the International Standard ISO 17025. As well as monitoring the sales performance of each and every product line, we also talk directly to our customers and listen to what they have to say. Increasing investment in customer surveys is providing valuable feedback which will ensure that the next generation of products and shops is even more enjoyable and attuned to our customers' changing needs. 'Business Excellence'. Listening to our employees and acting on their suggestions is central to our philosophy. Through effective two-way communication, we will ensure that all our people understand our corporate goals and can make a real contribution to their realisation. This is backed by our commitment to simplifying every area of the business as far as possible. Best practice in products and service standards is increasingly shared across the business, aided by the research and development work undertaken at the Group Technical Centre. In parallel, we are placing ever increasing focus on the development and promotion of our two distinct national brands. Systematic targeting, benchmarking and progress measurement are all being pursued with ever-increasing professionalism, to ensure the attainment of our long term strategic objectives. 'Challenging Targets'. We are striving to achieve a turnover of £1 billion by the end of the current decade. This will require not only the further expansion of our shop base, to over 1,700 shops, but also the achievement of continued like-for-like sales growth through our established outlets. Everything we are doing in the management of the business is designed to ensure that all our people are working together towards these goals. In the longer term, we see potential for at least 2,000 shops under our existing brands in the UK, and have already begun to examine the potential for our products and retail concepts on the Continent. 'Caring for the Community'. One of the founding principles of our business has been a care for the communities in which we operate. We have a long-standing commitment to contributing in areas of deprivation, notably through the Greggs Trust through which we channel the bulk of our charitable contributions, which totalled £379,000 this year. The Greggs Breakfast Clubs which featured in last year's annual report have continued to expand successfully, and now operate in over 40 primary schools. We are determined to remain at the forefront in exercising corporate responsibility not only in the social arena, but also in our care and consideration for the environment. Capital investment Capital expenditure during 2002 was a record £42.1 million, comprising £18.4 million in new shops and refurbishments and £23.7 million in land, buildings and plant including a substantial investment in a freehold site in west London for the further development of our business in the South East. We also invested £3.5 million in a new cold store adjacent to our central savouries unit at Balliol Park. This new facility was completed on schedule and in line with our budget, and has worked successfully to plan since it opened in October 2002. Its provision has enabled us to improve the utilisation of our existing savouries production capacity, increasing efficiency and effecting substantial savings in external storage costs. We are continuing to develop plans for the construction of a second savouries unit to ensure that we have the facilities to meet continuing strong demand for these products. During 2003 we expect to invest around £40.0 million in the business, opening some 45 new shops net of closures, continuing our rolling refurbishment campaign, and adding to our production capacity in Enfield, Birmingham, Leeds, Manchester and Edinburgh. Cash flow and balance sheet The strongly cash generative nature of the Group enabled us to fund our record capital expenditure programme from our own resources, with only a small net cash outflow during the year. At 28 December 2002 we had net cash on the balance sheet of £28.6 million, compared with £30.0 million at the end of 2001. Continental Europe Although Greggs has the potential to expand successfully in the UK for many years to come, we feel that it is important to examine the scope for future growth in other countries. As previously outlined, we have therefore been researching Continental markets for a number of years. During 2002 we decided that our first overseas trial would take place in Belgium, and appointed a local manager who spent some months in the UK familiarising himself with the Greggs culture and operational style. We have undertaken extensive consumer research and trials, and our first two shops opened at Leuven and Antwerp early in 2003, offering a mixture of local specialities and standard Greggs product lines. We will refine and develop our range and concept in the light of continuing consumer feedback, and will open a further one or two shops in Belgium as the first stage of our trial. This is a very closely controlled and low-risk venture, in which we expect to invest some £500,000 of capital in the current year. If the trial proves successful, we will expand our shop base with the aim of developing local production capabilities once we have reached a critical mass of around 20 shops. We expect this business to be profitable in four to five years' time. Ian Gregg Ian Gregg is a very special man, as all who know him inside and outside the business can testify. He joined the family firm on the unexpected death of his father in 1964 and led it up to its flotation 20 years later. During that period he grew the company from a single shop in Gosforth, Newcastle upon Tyne, to a multi-divisional chain with over 300 outlets. From the outset he endowed Greggs with the fundamental principles of putting people first, on which our success has undoubtedly been based. Equally remarkably, given his founding role and his undoubted entrepreneurial skills, Ian readily stepped back from day-to-day management of the business on my appointment in 1984, and has given me exemplary support as a non-executive Chairman. On behalf of everyone in Greggs, I would like to thank him for his unique and outstanding contribution over his 38 years in the chair and look forward to his continued contribution as a non-executive director. People We have written at length in this year's report about the importance we attach to putting people first, notably in my earlier comments on our strategic principles. To those words I would merely like to add that the continued success of the business remains a reflection of the quality of all our people. Once again, I would like to thank everyone for their individual contributions to meeting the expectations of our customers and shareholders. Corporate governance We are committed to continuous improvement and raising of standards. In that context, we continue to strive for good standards of corporate governance. I feel, however, that the ever-increasing bureaucracy and the proportion of Board time associated with this area is beginning to adversely impact on the time that can actually be devoted to the running of businesses in the interests of shareholders. It is a matter of sensible balance. Outlook As the Chairman has noted, we have made a positive start to the current year. The outlook for ingredient costs is benign, though we anticipate a further £1.8 million increase in our insurance costs. Greggs has always focused on achieving long term growth by building a simple business that strives to be the best in its field. Application of these principles has enabled us to attain market leadership in the growing market for bakery-related takeaway food in the UK, with a potent national brand, and will help us towards our ambitious targets for further growth in the years ahead. Mike Darrington, Managing Director 7 March 2003 Greggs plc Group Profit and Loss Account for the 52 weeks ended 28 December 2002 2002 2001 £'000 £'000 Turnover 422,600 377,556 Cost of sales (163,406) (147,468) _______ _______ Gross profit 259,194 230,088 Distribution and selling costs (192,790) (172,711) Administrative expenses (31,070) (25,780) _______ _______ Operating profit 35,334 31,597 Net interest receivable and other income 1,332 1,145 _______ _______ Profit on ordinary activities before taxation 36,666 32,742 Taxation on profit on ordinary activities (11,980) (9,933) _______ _______ Profit on ordinary activities after taxation 24,686 22,809 Dividends paid and proposed (8,570) (7,663) _______ _______ Retained profit for the financial year 16,116 15,146 ====== ====== Basic earnings per share 205.5p 190.2p Diluted earnings per share 202.0p 187.7p The Group's operating profit for both the current and preceding financial year derives from continuing operations. There are no recognised gains or losses during the current and previous year other than the profit for the year. Greggs plc Reconciliation of movement in consolidated shareholders' funds 2002 2001 £'000 £'000 Profit for the financial year 24,686 22,809 Dividends (8,570) (7,663) _______ _______ Retained profit for the financial year 16,116 15,146 New share capital - nominal value 4 3 - share premium 291 236 _______ _______ Net addition to shareholders' funds 16,411 15,385 Opening shareholders' funds 103,554 88,169 _______ _______ Closing shareholders' funds 119,965 103,554 ====== ====== Greggs plc Group Balance Sheet at 28 December 2002 28 December 29 December 2002 2001 £'000 £'000 £'000 £'000 Fixed assets Tangible assets 148,184 124,123 Investments 3,561 3,563 _______ _______ 151,745 127,686 Current assets Stocks 6,330 6,275 Debtors 11,740 12,406 Cash at bank and in hand 28,635 30,027 _______ _______ 46,705 48,708 Creditors: amounts falling due within one year (64,943) (60,762) _______ _______ Net current liabilities (18,238) (12,054) _______ _______ Total assets less current liabilities 133,507 115,632 Creditors: amounts falling due after more than one year (119) (109) Provisions for liabilities and charges Deferred tax (13,423) (11,969) _______ _______ 119,965 103,554 ====== ====== Capital and reserves Called up share capital 2,404 2,400 Share premium account 10,085 9,794 Profit and loss account 107,476 91,360 _______ _______ Equity shareholders' funds 119,965 103,554 ====== ====== Greggs plc Group Cash Flow Statement for the 52 weeks ended 28 December 2002 2002 2001 £'000 £'000 £'000 £'000 Net cash inflow from continuing operating activities 55,555 50,418 Returns on investments and servicing of finance Interest received 1,361 1,354 Interest paid (29) (209) _______ _______ Net cash inflow from returns on investments and servicing of finance 1,332 1,145 Taxation paid (9,474) (6,005) Capital expenditure and financial investments Purchase of tangible fixed assets (42,143) (27,385) Disposal of tangible fixed assets 1,009 1,888 Disposal of investments 2 - _______ _______ Net cash outflow for capital expenditure and financial investments (41,132) (25,497) Equity dividends paid (7,968) (7,067) Financing Issue of ordinary share capital 295 239 Redemption of loan notes - (42) Loan repayments - (2,039) _______ _______ Net cash inflow / (outflow) from financing 295 (1,842) _______ _______ Net (decrease) / increase in cash in the period (1,392) 11,152 ====== ====== Greggs plc Reconciliation of operating profit to net cash inflow from operating activities 2002 2001 £'000 £'000 £'000 £'000 Operating profit 35,334 31,597 Depreciation charges 16,813 14,907 Loss / (profit) on disposal of fixed assets 260 (248) Release of government grants (7) (24) Increase in stocks (55) (639) Decrease / (increase) in debtors 666 (513) Increase in creditors 2,544 5,338 _______ _______ Net increase in working capital 3,155 4,186 _______ _______ Net cash inflow from continuing operating activities 55,555 50,418 ======= ====== NOTE: The financial information set out above does not constitute the Company's statutory accounts for the years ended 28 December 2002 or 29 December 2001. Statutory accounts for 2001 have been delivered to the Registrar of Companies, whereas those for 2002 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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