Final Results
Greggs PLC
14 March 2005
14 March 2005
GREGGS plc
PRELIMINARY RESULTS
FOR THE 53 WEEKS ENDED 1 JANUARY 2005
Greggs plc 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 1,250 retail outlets throughout the UK, trading under the
Greggs and Bakers Oven brands.
• Record pre-tax profit of £46.7 million (2003: £40.5 million) - up 15.3
per cent
• Thirteenth consecutive year of profit, earnings and dividend growth
• Earnings per share up 14.8 per cent to 264.7 pence (2003: 230.5 pence)
• Dividends increased 20.0 per cent to 96.0 pence per share (2003: 80.0 pence)
• Like-for-like sales up 5.1 per cent
• Operating margin improved through core growth and effective cost management
• Positive consumer response to Greggs brand relaunch
• Pleasing improvement in Bakers Oven performance and profit contribution
• 56 new shops opened - net addition of 32 to 1,263 after re-sites and closures
• Net cash balances increased to £62.6 million (2003: £36.4 million)
• Like-for-like sales up 5.2 per cent in the year to date
"During 2005 we plan to accelerate both the opening of new shops and the
refurbishment of established outlets. We will be supporting this retail
development with substantial investment in our manufacturing facilities,
including the construction of a new savouries plant in Newcastle upon Tyne.
Selling price inflation is expected to trend upwards as we seek to recover
further substantial increases in wage costs. We also face a significant rise in
energy costs in the second half, following the end of our current long-term
supply agreement. Despite these pressures, I believe that the Group is well
equipped to make further progress during the year."
- Derek Netherton, Chairman
ENQUIRIES:
Greggs plc gcg hudson sandler
Sir Michael Darrington, Managing Director Wendy Baker / James Hill
Malcolm Simpson, Financial Director Tel: 020 7796 4133
Tel: 020 7796 4133 on Monday, 14 March only keithhann.communications
0191 281 7721 thereafter Keith Hann
Tel: 07831 521870
High resolution images are available for the media to view and download from
www.vismedia.co.uk
CHAIRMAN'S STATEMENT
I am pleased to report another year of good progress, based on our proven
business strategy and values. Both our brands achieved healthy like-for-like
sales growth, contributing to improved operating margins, while costs were again
well controlled. This enabled the Group to deliver its thirteenth consecutive
year of profit, earnings and dividend growth.
Results
The 2004 financial year comprised the 53 weeks to 1 January 2005 (2003: 52 weeks
to 27 December 2003). Total Group sales for the period increased by 10.3 per
cent to £504 million (2003: £457 million). Adjusted to a comparable 52 week
basis, the total sales increase would have been 8.4 per cent. Operating profit
grew by 14.0 per cent to £44.7 million (2003: £39.2 million), with a 0.3
percentage point improvement in operating margin reflecting our core volume
growth and effective cost management. This more than offset continuing pressure
from increasing wage costs. Because of shop holiday closures, inclusion of the
53rd week had a small negative impact on operating profit.
After increased net interest receivable of £2.0 million (2003: £1.3 million),
pre-tax profit rose by 15.3 per cent to £46.7 million (2003: £40.5 million).
Basic earnings per share grew by 14.8 per cent to 264.7 pence (2003: 230.5
pence). Net cash in the balance sheet at the year end was £62.6 million,
compared with £36.4 million at the end of 2003.
Dividend
The Board recommends a final dividend of 66.0 pence per share (2003: 54.5
pence). Together with the increased interim dividend of 30.0 pence, paid in
October 2004, this makes a total for the year of 96.0 pence (2003: 80.0 pence),
a rise of 20.0 per cent.
We have increased our dividends to shareholders every year since the company
floated in 1984, and the compound rate of growth over this period has been 18
per cent per annum. The Board is committed to a progressive dividend policy
and, in view of the company's consistently strong cash generation, believes that
it is likely that dividends will grow faster than earnings over the next few
years.
Subject to the approval of the Annual General Meeting, the final dividend will
be paid on 27 May 2005 to shareholders on the register at 29 April 2005.
Business highlights
Our sustained success in the bakery-related takeaway food market reflects our
clear, specialist focus and further improvements in our products, shops and
service. These have been complemented by successful, national brand marketing
initiatives which are helping us to achieve growing customer awareness of our
consistent quality and value. We also benefited from more favourable weather
patterns over the year as a whole. Mike Darrington provides a more detailed
commentary on these and other trading and business development issues in his
Managing Director's Report on pages 5 - 10.
The Board
Julie Baddeley, 53, joined the Board as an additional Independent Non-Executive
Director on 1 March 2005, and has also become a member of the Board's Audit,
Remuneration and Nominations Committees. Julie is a non-executive director of
Yorkshire Building Society, Computerland UK and the Pension Client Group within
the Government's Department of Work and Pensions. She previously held senior
executive roles at Accenture, Sema Consulting and Woolwich plc, where she was a
main board director responsible for Information Technology and Human Resources.
Her extensive experience in these areas complements the existing strengths and
skills of the Board, and is expected to enable her to make a valuable
contribution to our discussions.
People
The business depends on all our people working together to deliver great
products and excellent customer service each day. Our good results testify once
more to the strength of their individual commitment and the effectiveness of
their teamwork. On behalf of the Board, I would like to express our thanks for
all that they have achieved during the year.
Prospects
During 2005 we plan to accelerate both the opening of new shops and the
refurbishment of established outlets. We will be supporting this retail
development with substantial investment in our manufacturing facilities,
including the construction of a new savouries plant in Newcastle upon Tyne. As
a result, capital expenditure is budgeted to rise to nearly £50 million for the
year.
Trading in the current year has started satisfactorily, with like-for-like sales
in the year to date increasing by 5.2 per cent. Selling price inflation, which
was 2.4 per cent at the end of 2004, is expected to trend upwards as we seek to
recover further substantial increases in wage costs. We also face a significant
rise in energy costs in the second half, following the end of our current
long-term supply agreement. Despite these pressures, I believe that the Group
is well equipped to make further progress during the year.
Derek Netherton, Chairman
14 March 2005
MANAGING DIRECTOR'S REPORT
The growth of Greggs has been based on the quality of our business ingredients.
These include a proven strategy, enjoyable products, strong brands, and a
commitment to giving customers great service and good value. Our most important
ingredient of all is our excellent team of people. Once again they have been a
pleasure to work with over the year, and have delivered results ahead of
expectations.
Trading performance
Our good progress during 2004 reflects the benefits of increasing core volumes
through our established shops, the addition of a net 32 new units, and our
continued focus on controlling costs. After a slow start, like-for-like sales
growth improved during the late spring and summer, when our performance compared
with a period of exceptionally hot weather in 2003. Although progress then
returned to more normal levels, a good consumer response to our marketing
campaigns and generally favourable weather helped us to achieve better than
expected like-for-like sales growth in the final quarter, despite the widely
reported weakness of high street retailing over the Christmas period.
After a like-for-like sales increase of 4.1 per cent in the first half (24
weeks), which included core volume growth of 2.0 per cent, performance improved
in the second half (29 weeks), when we achieved like-for-like sales growth of
6.0 per cent, including a core volume uplift of 3.7 per cent. The like-for-like
sales increase for the year as a whole was 5.1 per cent, including core volume
growth of 2.9 per cent.
Our selling price inflation was 2.1 per cent in the first half and 2.3 per cent
in the second, averaging 2.2 per cent for the year. This again reflected a
continuing programme of product upgrades as well as the recovery of significant
cost increases. The most important of these was in wages, as we responded to
market pressures throughout the retail sector and sought to ensure that our
remuneration would continue to attract and retain high quality people.
Including the benefit of new shop openings in the current and prior year, total
sales rose by 10.3 per cent, comprising increases of 7.5 per cent in the first
half and 12.6 per cent in the second, which this year included the benefit of a
53rd trading week.
As the Chairman has noted, inclusion of the 53rd week actually had a small
negative effect on operating profit, which nevertheless rose by 14.0 per cent to
£44.7 million as operating margin benefited from our higher volume throughput.
Including the benefit of increased interest receivable on our growing average
cash balances, pre-tax profit improved by 15.3 per cent to £46.7 million.
Greggs brand UK
The nine Greggs divisions in the UK represent more than 80 per cent of our
retail portfolio and naturally remain the major contributor to Group profits.
Like-for-like sales for the year grew by 4.9 per cent, including core volume
growth of 2.4 per cent. This comprised a like-for-like increase of 3.8 per cent
in the first half and 5.7 per cent in the second, including core volume gains of
1.4 per cent and 3.2 per cent respectively.
The improvement in like-for-like sales performance was assisted by a major brand
re-launch in April, with the introduction of an updated identity designed to
re-emphasise our heritage as a baker. This featured in point of sale material
and in-shop promotions, and was backed by a major media campaign that included
TV advertising in most of our regions, using the slogan 'It's the way we bake it
that makes it'. This is helping us to achieve growing national awareness of
Greggs as the leading brand in the bakery arena, including takeaway food.
All divisions made pleasing progress during the year.
Bakers Oven brand
The four Bakers Oven divisions showed a very good improvement in both their
like-for-like sales performance and their contribution to Group profits.
Like-for-like sales for the year grew by 6.3 per cent, including a core volume
increase of 4.8 per cent. The brand enjoyed a good first half, in which
like-for-like sales grew by 5.0 per cent and core volumes by 3.9 per cent.
Growth accelerated in the second half, which produced a like-for-like sales
increase of 7.2 per cent including a core volume gain of 5.5 per cent. Selling
price inflation over the year was below the Group average at 1.5 per cent,
reflecting our successful initiatives to enhance consumer perceptions of the
brand's value credentials, notably in sandwiches.
The improved performance of Bakers Oven follows the appointment of a new
managing director and a strengthening of the senior team last year. The
management team has taken determined action to drive sales through improvements
in the product offer, service standards and retail environment. It has also
addressed areas of past underperformance, notably through the rationalisation of
the retail chain in Scotland.
We are particularly pleased that this improvement in profitability is broad
based, encompassing all four Bakers Oven divisions.
Greggs Continental Europe
We opened additional shops in Antwerp and Leuven during the year, giving us two
in each city and a total of four in Belgium. We continue to refine and develop
our product range as the learning process continues.
Retail profile
We opened a total of 56 new shops during the year and closed 24, including 10
which were re-sited in better locations. This produced a net increase of 32
shops to a total of 1,263 at the year end. At the beginning of 2005 we had
1,045 units under the Greggs brand in the UK, a net addition of 38; four under
the Greggs fascia in Belgium, a net addition of two; and 214 under the Bakers
Oven brand, a net reduction of eight. We completed 24 comprehensive shop
refurbishments and 8 minor refits during the year.
Further work was undertaken to refine the new Greggs shop format, with the aim
of reinforcing our credentials as a baker, softening some aspects of its
takeaway orientation and reducing the costs of its implementation. Investment
in shop refurbishments was deliberately restrained as this process continued.
Although some work remains to be done, I am pleased to report that the results
of our latest trials have been sufficiently encouraging to permit a significant
acceleration of the refurbishment programme in the current year, when we expect
to refit some 60 shops.
We also plan to increase the pace of new shop openings in 2005, and expect to
add a net 45 shops to our chains during the year. Although these will
predominantly be under the Greggs brand in the UK, we also plan a number of
openings for Bakers Oven and the addition of two further shops in Belgium.
Product profile
Sales growth under both our brands continued to be driven predominantly by the
takeaway food categories of savouries and sandwiches. Savouries showed the
strongest growth, though sandwiches also made good progress, benefiting from the
Greggs brand relaunch and improvements to the Bakers Oven range. Cakes and
confectionery products continued to generate modest like-for-like sales growth.
The traditional bakery staples of bread and rolls continued their long term
decline as a proportion of our sales, though we believe that their quality and
their presence in our shops is an important contributor both to the success of
our sandwich ranges and to positive consumer perceptions of our entire offer.
Enjoyability and customer choice remain key criteria in our approach to product
development. We have continued to widen the 'Lifestyle Choice' range of
healthier-eating sandwiches and wraps, and are seeing a gradual and progressive
improvement in sales.
Strategic principles
We attach great importance to the Mission, Vision and Values statement set out
in our annual report, and have continued to make progress in all key areas.
'A Great Place to Work'. Greggs began as a small family bakery and we have
always striven to maintain the ethos of a caring business that puts its people
first. By treating our people correctly, we aim to ensure that they will treat
customers well and help us to deliver good results for the benefit of all our
stakeholders. We have borne a substantial increase in our wage bill to ensure
that we can continue to recruit and retain high quality staff, particularly in
our shops. We are also seeking to improve the working environment for all our
people through investment in improved staff facilities in our shops and
bakeries, and the progressive upgrading of our offices. During the year we
undertook an extensive consultation exercise to develop a new statement of our
culture, in words with which everyone in the Group can identify. This
underlines our commitment to treating all our people in a friendly and informal
way. While we are committed to hard work and achievement, we also want everyone
to know that they matter and to enjoy what they do.
'Enjoyable Experience'. Our business is all about producing tasty fresh food
for daily purchase. Customers will only return to us day after day if we
provide them with something that gives them real pleasure and satisfaction. The
consistent focus of our investment in product development is therefore on making
everything we sell even more enjoyable. We are aided in this by the substantial
resources available in our state-of-the-art Group Technical Centre in Newcastle
upon Tyne, where our technologists and chefs are also applying themselves to the
reduction of salt and fat in our products, in line with Government guidelines.
We are strongly committed to the principle of customer choice, and lower fat
alternatives to a number of our key lines are currently under trial. The
facilities at the Group Technical Centre for the rapid microbiological testing
of ingredients and products are also helping us to ensure the highest standards
of food safety.
'Business Excellence'. We are determined to achieve continuous improvement in
every area of our business, by simplifying what we do and ensuring that all our
people understand our corporate objectives and how they can help to realise
them. Great emphasis is placed on effective two-way communication with everyone
in the Group, and on continuously raising standards through the sharing of best
practice. The adoption of EFQM total quality management standards has helped us
in the process of systematically targeting, benchmarking and measuring progress,
by facilitating self-assessment and the identification of critical areas for
improvement.
'Challenging Targets'. Our growth has always been based on setting and
attaining stretching targets. Since 1998 we have had a published goal of
expanding the Group to achieve sales of £1 billion through 1,700 shops by 2010.
As I noted last year, our planned growth has been constrained by our search for
the right formula to permit us to drive expansion of the Bakers Oven chain.
Latterly we had also slowed the Greggs shop opening programme as we focused on
refining and developing its new concept. I am pleased that we are now in a
position to accelerate our retail expansion and look forward to making more
rapid progress towards our targets in the current year and beyond. In the
longer term, I remain confident that there is significant further potential for
the Group, with scope for at least 2,000 shops under our existing brands in the
UK and additional opportunities on the Continent.
'Caring for the Community'. We remain strongly committed to making a
contribution to the communities where we operate, particularly in areas of
social deprivation. The Greggs Breakfast Clubs in selected primary schools have
proved of real value in improving pupils' attendance and concentration in the
morning, as well as encouraging family involvement in their children's schools.
We have expanded the Clubs to 82 locations and expect to have 120 in operation
by the end of 2005. Their development has been aided by the recruitment of a
new Community Initiatives Manager, who also works closely with Greggs Trust.
The Trust is our principal channel for the distribution of the Group's
charitable donations, which last year totalled £615,000 (2003: £420,000), in
line with our commitment as a founder member of the Per Cent Club. We gave
£100,000 to the DEC appeal after the horrific Asian tsunami and I am pleased to
report that this Group donation has been more than matched by the fund-raising
efforts of our staff. We also remain an active supporter of Business in the
Community.
Our commitment to corporate social responsibility extends to ensuring proper
care for the environment, and we have continued to pursue a range of initiatives
to reduce our environmental impact by promoting efficient energy utilisation,
maximising the recycling of packaging and minimising waste.
Capital investment
Capital expenditure during the year totalled £25.0 million, compared with our
original budget of £34 million and actual expenditure of £32.4 million in the
prior year. This reduction principally reflected a lower number of shop
refurbishments than we had originally expected. In total we spent £13.6 million
(2003: £14.3 million) on new shops and refurbishments, £8.1 million (2003:
£13.8 million) on land, buildings and plant, and £3.3 million (2003: £4.3
million) on vehicles. Expenditure on major bakery projects was at a lower level
than in 2003, though we completed extensions of our facilities in Leeds and
Edinburgh.
During 2005 we expect a major increase in capital expenditure to nearly £50
million. This reflects the acceleration of our shop refurbishment and opening
programmes, together with increased investment in our manufacturing and
distribution facilities to support the growth of our retail chains. The largest
such project is the construction of a second central savouries facility at
Balliol Park, Newcastle upon Tyne, close to the original factory we opened in
1998 and employing the same, proven technologies and processes. This will
involve a total investment of £13 million over the next two years, and will
enable us to meet growing demand for our successful savouries ranges under both
the Greggs and Bakers Oven brands.
Cash flow and balance sheet
Our strong operating cash flow combined with lower than expected capital
expenditure resulted in an increase in net cash on the balance sheet to £62.6
million at the year end. This compared with £36.4 million in December 2003, and
£46.7 million at the end of our first half in June 2004.
People
We have an excellent team, which it is a real privilege to lead. I am glad to
report that our genuine commitment to our people is fully matched by their
commitment to doing an excellent job. Thus once again it is a great pleasure to
be able to thank all our 18,240 employees for their individual contributions to
another record result for the Group.
I am also delighted to welcome the 335 additional staff we were able to recruit
through our continued expansion in 2004, and look forward to the creation of a
further 650 jobs in the current year.
The future
As the Chairman has noted, the Group faces significant pressures from rising
wage and energy costs during 2005. The challenge to us as managers is to absorb
these increases while accelerating our shop refurbishment and opening programmes
and continuing to enhance our products, service and marketing. I am confident
that we have the right team in place to handle all these issues successfully,
and to deliver a year of further progress towards our strategic targets and our
vision of being Europe's finest bakery-related retailer.
Sir Michael Darrington
Managing Director
14 March 2005
Greggs plc
Group Profit and Loss Account
for the 53 weeks ended 1 January 2005
2004 2003
£'000 £'000
Turnover 504,186 456,978
Cost of sales (193,009) (175,284)
_______ _______
Gross profit 311,177 281,694
Distribution and selling costs (228,891) (209,559)
Administrative expenses (37,572) (32,968)
_______ _______
Operating profit 44,714 39,167
Net interest receivable and other income 1,988 1,305
_______ _______
Profit on ordinary activities before taxation 46,702 40,472
Taxation on profit on ordinary activities (15,115) (13,235)
_______ _______
Profit on ordinary activities after taxation 31,587 27,237
Dividends paid and proposed (11,524) (9,476)
_______ _______
Retained profit for the financial year 20,063 17,761
====== ======
Basic earnings per share 264.7p 230.5p
Diluted earnings per share 262.0p 227.6p
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
2004 2004 2003 2003
£'000 £'000 £'000 £'000
Profit for the financial year 31,587 27,237
Dividends (11,524) (9,476)
_______ _______
20,063 17,761
Retained profit for the financial year
New share capital
- nominal value 6 18
- share premium 680 1,452
Purchase of own shares into the Employee Benefit Trust (941) (1,485)
Sale of own shares from the Employee Benefit Trust 3,200 -
_______ _______
23,008 17,746
Net addition to shareholders' funds
Opening shareholders' funds - as previously stated 139,196 119,965
Prior year adjustment (5,046) (3,561)
_______ _______
Opening shareholders' funds - as restated 134,150 116,404
_______ _______
Closing shareholders' funds 157,158 134,150
======= =======
Greggs plc
Group Balance Sheet at 1 January 2005
1 January 27 December
2005 2003
As restated
£'000 £'000 £'000 £'000
Fixed assets
Tangible assets 163,110 160,704
Investments - -
_______ _______
163,110 160,704
Current assets
Stocks 7,283 7,126
Debtors 13,949 13,037
Cash at bank and in hand 62,601 36,358
_______ _______
83,833 56,521
Creditors: amounts falling due within one year (74,811) (68,558)
_______ _______
Net current assets / (liabilities) 9,022 (12,037)
_______ _______
Total assets less current liabilities 172,132 148,667
Creditors: amounts falling due after more than one year (105) (112)
Provisions for liabilities and charges
Deferred tax (14,869) (14,405)
_______ _______
157,158 134,150
====== ======
Capital and reserves
Called up share capital 2,428 2,422
Share premium account 12,217 11,537
Profit and loss account 142,513 120,191
_______ _______
Equity shareholders' funds 157,158 134,150
====== ======
Greggs plc
Group Cash Flow Statement for the 53 weeks ended 1 January 2005
2004 2003
As restated
£'000 £'000 £'000 £'000
Net cash inflow from continuing operating activities 69,261 57,722
Returns on investments and servicing of finance
Interest received 2,003 1,313
Interest paid (15) (8)
_______ _______
Net cash inflow from returns on investments and servicing of 1,988 1,305
finance
Taxation paid (14,150) (10,908)
Capital expenditure and financial investments
Purchase of tangible fixed assets (25,090) (32,361)
Disposal of tangible fixed assets 1,348 787
_______ _______
Net cash outflow from capital expenditure and financial (23,742) (31,574)
investments
Equity dividends paid (10,059) (8,807)
_______ _______
Net cash inflow before financing 23,298 7,738
Financing
Issue of ordinary share capital 686 1,470
Disposal / (purchase) of investments 2,259 (1,485)
_______ _______
Net cash inflow / (outflow) from financing 2,945 (15)
_______ _______
Net increase in cash in the period 26,243 7,723
====== ======
Greggs plc
Reconciliation of operating profit to net cash inflow from operating activities
2004 2003
£'000 £'000 £'000 £'000
Reconciliation of operating profit to net cash inflow from
operating activities
Operating profit 44,714 39,167
Depreciation charges 20,978 18,985
Loss on disposal of fixed assets 358 69
Release of government grants (7) (7)
Increase in stocks (157) (796)
Increase in debtors (912) (1,297)
Increase in creditors 4,287 1,601
_______ _______
Net decrease / (increase) in working capital 3,218 (492)
_______ _______
Net cash inflow from continuing operating activities 69,261 57,722
====== ======
NOTE:
1. Urgent Issues Task Force Abstract 38 Accounting for ESOP Trusts
has been adopted for the first time resulting in a restatement of the 2003
accounts. The Abstract requires that the Company's own shares held by the
Greggs Employee Benefit Trust are deducted from shareholders' funds until they
vest unconditionally with employees. Prior to the adoption of UITF 38 these
shares were recognised as fixed asset investments. As a result, investments and
shareholders funds as at 27 December 2003 have each been reduced by £5,046,000
and during 2004 the purchase and sale of own shares held in the Employee Benefit
Trust have been recognised as movements in shareholders funds.
2. The financial information set out above does not constitute the
Company's statutory accounts for the years ended 1 January 2005 or 27 December
2003. Statutory accounts for 2003 have been delivered to the Registrar of
Companies, whereas those for 2004 will be delivered following the Company's
Annual General Meeting. The auditors have reported on these 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 D
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