Final Results
Greggs PLC
10 March 2006
10 March 2006
GREGGS plc
PRELIMINARY RESULTS
FOR THE 52 WEEKS ENDED 31 DECEMBER 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 1,300 retail outlets throughout the UK, trading under the
Greggs and Bakers Oven brands.
• Record pre-tax profit of £50.2 million (2004: £47.8 million) - up 5.0
per cent
• Dividends per share increased 10.4 per cent to 106.0 pence (2004: 96.0
pence)
• Fourteenth consecutive year of profit, earnings and dividend growth
• Like-for-like sales up 4.0 per cent - core volume up 1.0 per cent
• Slower growth in second half reflects increasingly challenging trading
environment
• Significant cost increases in shop wages and shop and bakery energy
• 72 new shops opened - net addition of 56 to 1,319 after re-sites and
closures
• Consistently strong cash flow: net cash balances increased £3.0 million
to £65.6 million
• Like-for-like sales level in first nine weeks of current year
• Further £5 million increase in energy costs expected in 2006
"The trends that emerged during the second half of 2005 have continued in the
current year to date. We are taking action to ameliorate the effects of this
more challenging trading climate by continuing to bear down on costs across the
group as well as finding more cost effective ways of increasing sales. However,
profits in the first nine weeks are materially below the level of last year;
whilst it is much too early to predict the performance of the business for the
year as a whole, we believe that it is unlikely that we will attain the level of
profit achieved in 2005. The business has great fundamental strengths in its
brands, reputation, finances, management and people, and I am sure that these
will continue to stand us in good stead during this testing period."
- Derek Netherton, Chairman
ENQUIRIES:
Greggs plc Hudson Sandler
Sir Michael Darrington, Managing Director Jessica Rouleau / James Hill
Malcolm Simpson, Finance Director Tel: 020 7796 4133
Tel: 020 7796 4133 on Friday, 10 March only keithhann.communications
0191 281 7721 thereafter Keith Hann
Tel: 07831 521870
CHAIRMAN'S STATEMENT
As expected, we made modest progress this year in the face of an increasingly
challenging trading environment and substantial cost pressures in the second
half, particularly in energy. This is the Group's fourteenth consecutive year
of profit, earnings and dividend increases, and our strategy remains focused on
the delivery of continued growth in the longer term.
Results
Group sales for the 52 weeks ended 31 December 2005 increased by 5.8 per cent to
£533 million (2004: £504 million), including like-for-like sales growth of 4.0
per cent. Operating profit rose by 3.0 per cent to £47.1 million (2004: £45.8
million), representing an operating margin of 8.8 per cent (2004: 9.1 per cent).
This reduction reflected the decline in our like-for-like sales growth as the
year progressed, and significant cost increases particularly for shop wages and
shop and bakery energy. Although this year included one fewer trading week than
2004, a more favourable pattern of shop holiday closures over the Christmas
period meant that there was little net effect on profit.
After increased finance income of £3.0 million (2004: £2.0 million) as a result
of higher average cash balances, pre-tax profit improved by 5.0 per cent to
£50.2 million (2004: £47.8 million). Diluted earnings per share rose by 4.2
per cent to 278.9 pence (2004: 267.7 pence). Net cash in the balance sheet at
the year end was £65.6 million (2004: £62.6 million), an increase of £3.0
million.
Dividend
The Board recommends a final dividend of 70.0 pence per share (2004: 66.0
pence), an increase of 6.1 per cent. Together with the interim dividend of 36.0
pence (2004: 30.0 pence), paid in October 2005, this makes a total for the year
of 106.0 pence (2004: 96.0 pence). This is a rise of 10.4 per cent and the
increased dividend is covered 2.6 times by diluted earnings per share.
This is our twenty-first consecutive year of dividend growth since Greggs came
to the stock market in 1984, which reflects the Group's consistently strong cash
generation, and our continued growth in earnings per share.
Subject to the approval of the Annual General Meeting, the final dividend will
be paid on 25 May 2006 to shareholders on the register at 28 April 2006.
Business highlights
Trading conditions grew more challenging as the year progressed, as growth in
our market place slowed. Increasing pressure on consumer spending, reduced
activity on the high street and increased competition were reflected in our
performance across the country. We have focused on controlling our costs to
cope with this demanding environment, while maintaining our high standards of
product quality, presentation and service. New shop openings exceeded our
target and we have continued to invest in brand advertising and shop
refurbishments designed to increase consumer awareness and appeal. Mike
Darrington provides a fuller commentary on these and other trading and business
development issues in his Managing Director's Report on pages 5 - 9.
The Board
Malcolm Simpson, who reaches the age of 65 in October, has decided to retire as
Finance Director after serving on the Board in that position since 1975. He
will relinquish the finance role with effect from our AGM in May, though he will
remain an Executive Director with continuing responsibility for our important IT
function. I would like to record our appreciation of his exceptionally long,
dedicated and effective service.
Richard Hutton FCA (37), who is currently Deputy Finance Director, is appointed
to the Board as an Executive Director with effect from 13 March 2006, and will
succeed Malcolm as Finance Director in May. Richard qualified as an accountant
with KPMG and gained career experience with Procter & Gamble before joining
Greggs in 1998. He is a Non-Executive Director of Northern Recruitment Group
plc.
We are delighted to welcome Sir Ian Gibson CBE (59) who has agreed to join the
Board as an additional Non-Executive Director with effect from 1 April 2006. Ian
was Chief Executive of Nissan Europe B.V., Senior Vice President of Nissan Motor
Company (Japan), Deputy Chairman of Asda Group and Chairman of BPB plc. Ian is a
Non-Executive Director of Northern Rock plc and of GKN plc. On appointment, Ian
will become a member of the Company's Audit and Remuneration Committees.
People
Perhaps our greatest competitive strength is the cheerfulness and dedication of
our excellent team in our shops and bakeries, and their commitment to delivering
customer satisfaction by providing excellent products and service. Once again I
would like to express the Board's thanks for their hard work during the year.
Prospects
The trends that emerged during the second half of 2005 have continued in the
current year to date. Like-for-like sales in the first nine weeks are level
with last year, and we are facing increases in the order of £5 million in our
energy costs. This includes the full year impact of a new one year electricity
supply agreement covering the majority of our shops, which took effect in autumn
2005; this winter has also brought significantly increased gas and power costs
in our bakeries and some larger retail outlets not covered by our contract. We
believe that it will prove difficult to recover these extra costs through higher
selling prices, given the less buoyant consumer spending climate and increased
competition.
We are taking action to ameliorate the effects of this more challenging trading
climate by continuing to bear down on costs across the group as well as finding
more cost effective ways of increasing sales. However, profits in the first
nine weeks are materially below the level of last year; whilst it is much too
early to predict the performance of the business for the year as a whole, we
believe that it is unlikely that we will attain the level of profit achieved in
2005. The business has great fundamental strengths in its brands, reputation,
finances, management and people, and I am sure that these will continue to stand
us in good stead during this testing period.
Derek Netherton, Chairman
10 March 2006
MANAGING DIRECTOR'S REPORT
We have achieved another record result despite slowing sales growth and
increasing cost pressures in the second half. This is a testimony to the
strength of our proposition and above all to the quality of our excellent team
of people. Their pride and confidence in the business, and their commitment to
providing a friendly and efficient customer service, are our greatest assets for
the future.
Trading performance
As the Chairman has noted, trading conditions grew progressively more difficult
during 2005. These affected our operations under both our brands, and in every
part of the country. After a healthy start, with like-for-like sales growth of
5.8 per cent in the 19 weeks up to our AGM in May, growth slowed in the final
weeks of the first half and remained under pressure for the remainder of the
year. Following the 5.2 per cent uplift reported for the first half, which
included core volume growth of 2.3 per cent, second half like-for-like sales
increased by an underlying 2.0 per cent, increased to 3.0 per cent by the
benefit of additional trading days over the Christmas holiday period. Core
volume in the second half was level with last year. The like-for-like sales
increase for the full 52 weeks was 4.0 per cent, including core volume growth of
1.0 per cent.
Taking the year as a whole, the weather was average for our business, and we do
not believe that it had any appreciable effect on our performance. More
important factors appear to have been a general slowing of growth in our market
place, influenced by increasing pressure on consumer spending and reduced
activity on the high street. This has led to reduced demand from both shoppers
and shop workers, while the proliferation of takeaway food outlets in recent
years has created an increasingly competitive trading climate.
Our selling price inflation was 2.9 per cent in the first half and 3.0 per cent
in the second, averaging 3.0 per cent for the year. Although this partly
reflected our continuing programme to upgrade our products, we were able to
recover some of our increased costs in wages and energy, though the major impact
of higher electricity and gas prices came only in the final months of the year.
The environment for ingredient costs was generally benign throughout the year,
though our suppliers are now also coming under pressure from rising energy
prices. We can be certain that energy will be a major inflationary element for
the foreseeable future, with our total costs in this area in 2006 likely to be
some £5 million higher than last year.
Including the benefit of new shop openings in the current and prior year, total
sales rose by 5.8 per cent, comprising increases of 9.1 per cent in the first
half and 3.3 per cent in the second. Operating profit grew by 8.7 per cent in
the first half and 0.7 per cent in the second, making an increase of 3.0 per
cent for the year. Pre-tax profit improved by 5.0 per cent to exceed £50 million
for the first time.
Greggs brand UK
The nine Greggs divisions in the UK account for over 80 per cent of our retail
portfolio and are the main contributor to Group profits. Like-for-like sales
for the year grew by 4.2 per cent, including core volume growth of 1.1 per cent.
In the first half like-for-like sales increased by 5.5 per cent, including
core volume growth of 2.3 per cent, while in the second half like-for-like sales
advanced by 3.1 per cent.
We have trialled several new sales promotion activities to help drive core
growth, and we plan to roll out the more successful of these as the year
progresses.
Bakers Oven brand
The four Bakers Oven divisions grew more slowly than the Greggs brand, with
like-for-like sales for the year increasing by 3.2 per cent, including core
volume growth of 0.5 per cent. After a 3.9 per cent like-for-like uplift in the
first half, including a core volume gain of 2.0 per cent, the second half
produced a like-for-like increase of 2.7 per cent with nearly maintained
volumes. Selling price inflation over the year as a whole was 2.7 per cent,
compared with 3.1 per cent in Greggs.
Bakers Oven's seated catering business makes it more exposed than Greggs to the
effects of reduced consumer activity on the high street, though its management
has enjoyed considerable success in countering these trends by focusing and
simplifying the catering offer and improving products. Although the profit
contribution from the brand was lower than in 2004, when a very significant
improvement was achieved, I believe that the longer term trends in Bakers Oven
are encouraging.
Greggs Continental Europe
We opened a third shop in Antwerp in September 2005 and continue to trade in two
locations in Leuven, giving us a total of five shops in Belgium. Sales trends
are positive and our knowledge of the market place is constantly improving. We
expect to open a further two to three shops in Belgium over the next 12 months.
Retail profile
We opened 72 new shops during the year and closed 16, giving us a net increase
of 56 units to a total of 1,319 at the year end. This exceeded the target of 45
net openings that we set at the beginning of the year.
At 31 December 2005 there were 1,098 units under the Greggs brand in the UK, a
net addition of 53; five under the Greggs fascia in Belgium, an increase of one;
and 216 under the Bakers Oven brand, a net addition of two.
Work has continued to refine and develop the new Greggs shop format, so as to
reinforce our bakery heritage and reduce the cost of refits. I am pleased to
report that we have made significant progress in this area, reflected in an
acceleration of our refurbishment programme during 2005, when we completed 34
comprehensive shop refurbishments and 15 minor refits.
We plan to add approximately 35 new shops to our portfolio in 2006, net of
closures. These will be predominantly under the Greggs brand in the UK.
Product profile
Takeaway food categories continued to outperform other product groups under both
our brands. Although they are now a small proportion of our sales, we were
encouraged that our marketing focus on re-emphasising our bakery credentials
helped to generate modest growth in sales of bread and rolls in the second half,
for the first time in many years. During 2005 we have significantly
strengthened our capability in the area of category management, in terms of both
people and processes, allied to the substantial resources and facilities at our
Group Technical Centre in Newcastle upon Tyne. We expect to see increasing
benefit from our initiatives in both product development and range optimisation
during 2006 and beyond. One important example of this will be the expansion and
improvement of our healthier-eating range.
Capital investment
Capital expenditure during the year totalled £41.7 million, a substantial
increase on the £25.0 million we invested in 2004, but below our previous budget
of £47.0 million. The main components of our expenditure were £18.2 million
(2004: £13.4 million) on new shops and refurbishments, £18.4 million (2004:
£8.3 million) on land, buildings and plant, and £5.1 million (2004: £3.3
million) on vehicles.
The construction of our second central savouries unit at Balliol Park, Newcastle
upon Tyne, is progressing on schedule and on budget. We expect to commission
this major new plant, which has involved a total investment of £13 million,
during the current year, providing additional capacity for the future growth of
the business, enhanced efficiencies and improved working conditions for our
staff. We have nearly completed a new production and distribution facility for
Bakers Oven at Balliol Park to replace the Carricks bakery in the city.
During 2006 we plan to invest £40 million in the business, with major projects
including the relocation of our Rutherglen bakery in Glasgow to a new site at
nearby Cambuslang, where we will construct a new plant delivering improved
productivity and with the capacity to serve more shops in Scotland as our
expansion continues.
Cash flow and balance sheet
The business is consistently and strongly cash generative, and this has
permitted us to increase dividends to shareholders by a total of 32.5 per cent
over the last two years while maintaining an exceptionally strong balance sheet.
We have also made an additional contribution of £4.0 million to our main
pension scheme, notwithstanding which we have a deficit of £9.7 million measured
under IAS 19 at 31 December 2005.
Net cash at the year end totalled £65.6 million, an increase of £3.0 million
during the year, though our average cash balances were substantially higher than
in 2004. We are currently considering plans for the use of our surplus cash.
The community and the environment
Caring for the community is one of the most important of our values, which make
Greggs such a special place to work. In May 2005 we passed an important
milestone with the opening of our 100th Greggs Breakfast Club, and 113 of these
now operate in primary schools in disadvantaged areas across the country,
providing free, healthy breakfasts to children. Other charitable initiatives
during the year included raising over £310,000 for children's cancer charities
through regional fun runs, which attracted over 11,000 participants. Over
£150,000 was distributed by our divisional charity committees, which receive
around a third of their funding from employees' Give As You Earn donations,
which are matched pound for pound by the Greggs Trust. The Trust remains our
principal channel for the distribution of the Group's charitable donations,
which last year totalled £609,000 (2004: £615,000), in line with our commitment
as a founder member of the 'Per Cent' Club. We also remain an active supporter
of Business in the Community.
As well as working to improve the lives of people in the communities where we
operate, we aim to adopt a responsible approach to the environment. We continue
to comply with all relevant legislation and regulations, and conduct regular
environmental audits of all our operations. During 2005 we have paid particular
attention to our SEBA (Save Energy Be Aware) initiative in all shops and
factories, designed to reduce energy consumption. We have also introduced a
waste management initiative designed to reduce the amount of food waste
generated by our shops and bakeries, and to examine alternatives to landfill for
its disposal. Efforts have continued to maximise the recycling of packaging and
other appropriate materials, and we are working on a further initiative to
reduce the use of packaging at source.
People
Our super team of people are critical to the business, and we have always been
committed to treating them with fairness, consideration and respect. By
treating our staff well, we believe we will ensure that they in turn will treat
our customers well, which is one of the most important keys to business success.
I am grateful to all our 18,833 employees for the hard work they have done to
produce another record result for the Group, in an increasingly testing trading
climate. I would also like to take this opportunity to record our appreciation
of the particular contribution of Steve Smith, a member of our senior executive
team who retired during the year after 27 years with Greggs, including 13 as
managing director of our South West division.
The future
As the Chairman has noted, 2006 looks set to be the most challenging year the
Group has faced for some considerable time. We are doing all we can to continue
driving the business forward without compromising our core values, or our
commitment to excellent products and service. I am sure that these provide us
with the firmest of foundations for the future, as we continue our drive to
deliver long term growth as Europe's finest bakery-related retailer.
Sir Michael Darrington
Managing Director
10 March 2006
Greggs plc
Consolidated income statement
for the 52 weeks ended 31 December 2005
(2004: 53 weeks ended 1 January 2005)
2005 2004
£'000 £'000
Revenue 533,435 504,186
Cost of sales (203,346) (192,860)
_______ _______
Gross profit 330,089 311,326
Distribution and selling costs (247,188) (229,510)
Administrative expenses (35,758) (36,053)
_______ _______
Operating profit 47,143 45,763
Finance income 3,106 2,003
Finance expenses (90) (15)
_______ _______
Profit before tax 50,159 47,751
Income tax (16,085) (15,474)
_______ _______
Profit for the year attributable to equity holders of the 34,074 32,277
parent
====== ======
Basic earnings per share 282.1p 270.5p
Diluted earnings per share 278.9p 267.7p
Greggs plc
Consolidated statement of recognised income and expense
for the 52 weeks ended 31 December 2005
(2004: 53 weeks ended 1 January 2005)
2005 2004
£'000 £'000
Actuarial losses on defined benefit pension plans (2,345) (903)
Tax on items taken directly to equity 704 271
________ ________
Net expense recognised directly in equity (1,641) (632)
Profit for the financial year 34,074 32,277
________ ________
Total recognised income and expense for the financial year
attributable to equity holders of the parent 32,433 31,645
======= =======
Greggs plc
Consolidated balance sheet
at 31 December 2005 (2004: 1 January 2005)
2005 2004
£'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 180,826 163,832
Current assets
Inventories 7,713 7,283
Trade and other receivables 15,861 13,949
Cash and cash equivalents 65,602 62,601
________ ________
89,176 83,833
________ ________
Total assets 270,002 247,665
________ ________
LIABILITIES
Current liabilities
Trade and other payables (58,686) (59,204)
Current tax liabilities (8,086) (7,685)
________ ________
(66,772) (66,889)
Non-current liabilities
Defined benefit pension liability (9,730) (11,052)
Other payables (98) (105)
Deferred tax liability (11,927) (12,463)
________ ________
(21,755) (23,620)
________ ________
Total liabilities (88,527) (90,509)
________ ________
Net assets 181,475 157,156
======= =======
EQUITY
Capital and reserves
Issued capital 2,439 2,428
Share premium account 13,440 12,217
Retained earnings 165,596 142,511
________ ________
Total equity attributable to equity holders of the parent 181,475 157,156
======= =======
Greggs plc
Consolidated statement of cash flows
for the 52 weeks ended 31 December 2005
(2004: 53 weeks ended 1 January 2005)
2005 2004
£'000 £'000
Cash flows from operating activities
Profit for the financial year 34,074 32,277
Depreciation 22,038 21,003
Loss on sale of property, plant and equipment 484 358
Release of government grants (7) (7)
Share based payment expenses 557 124
Finance income (3,106) (2,003)
Finance expenses 90 15
Income tax expense 16,085 15,474
Increase in inventories (430) (157)
Increase in debtors (1,912) (912)
(Decrease) / increase in creditors (517) 4,287
Increase / (decrease) in pension liability 333 (198)
________ ________
Cash from operating activities 67,689 70,261
Interest paid (90) (15)
Income tax paid (14,625) (14,150)
________ ________
Net cash inflow from operating activities 52,974 56,096
Cash flows from investing activities
Acquisition of property, plant and equipment (41,687) (25,090)
Proceeds from sale of property, plant and equipment 2,171 1,348
Interest received 3,106 2,003
________ ________
Net cash outflow from investing activities (36,410) (21,739)
Cash flows from financing activities
Proceeds from issue of share capital 1,234 686
Sale of own shares 3,695 3,200
Purchase of own shares (2,173) (941)
Dividends paid (12,319) (10,059)
Defined benefit pension scheme special contribution (4,000) (1,000)
________ ________
Net cash outflow from financing activities (13,563) (8,114)
________ ________
Net increase in cash and cash equivalents 3,001 26,243
Cash and cash equivalents at the start of the year 62,601 36,358
________ ________
Cash and cash equivalents at the end of the year 65,602 62,601
======= =======
Greggs plc
NOTES:
1. Status of financial information
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2005 or 1 January 2005.
Statutory accounts for 2004, which were prepared under UK GAAP, have been
delivered to the Registrar of Companies. The auditors have reported on the 2004
accounts; their report was unqualified and did not contain a statement under
section 237(2) or (3) of the Companies Act 1985. The statutory accounts for
2005, which are being prepared under accounting standards adopted by the EU,
will be finalised on the basis of the financial information presented by the
directors in this preliminary announcement and will be delivered to the
Registrar of Companies in due course.
2. Dividends
The following tables analyse dividends when paid and the year to which they
relate:
2005 2004
Per share Per share
pence pence
2003 final dividend - 54.5p
2004 interim dividend - 30.0p
2004 final dividend 66.0p -
2005 interim dividend 36.0p -
________ ________
102.0p 84.5p
======= =======
The proposed final dividend in respect of 2005 amounts to 70.0 pence per share
(£8,536,000). This proposed dividend is subject to approval at the Annual
General Meeting and has not been included as a liability in these accounts.
2005 2004
£'000 £'000
2003 final dividend - 6,457
2004 interim dividend - 3,602
2004 final dividend 7,959 -
2005 interim dividend 4,360 -
________ ________
12,319 10,059
======= =======
3. Reconciliation of movement in capital and reserves
2005 2004
Issued Share premium Retained Total Total
capital earnings
£'000 £'000 £'000 £'000 £'000
Balance at 1 January 2005 2,428 12,217 142,511 157,156 132,356
Shares issued in the year 11 1,223 - 1,234 686
Total recognised income and expense - - 32,433 32,433 31,645
Purchase of own shares - - (2,173) (2,173) (941)
Sale of own shares - - 3,695 3,695 3,200
Share based payments - - 557 557 124
Dividends - - (12,319) (12,319) (10,059)
Tax items taken directly to reserves - - 892 892 145
________ ________ ________ ________ ________
Balance at 31 December 2005 2,439 13,440 165,596 181,475 157,156
======= ======= ======= ======= =======
4. Earnings per share
Basic earnings per share
The calculation of basic earning per share at 31 December 2005 was based on
profit attributable to ordinary shareholders of £34,074,000 (2004: £32,277,000)
and a weighted average number of ordinary shares outstanding during the year
ended 31 December 2005 of 12,080,526 (2004: 11,931,728).
Diluted earning per share
The calculation of diluted earnings per share at 31 December 2005 was based on
profit attributable to ordinary shareholders of £34,074,000 (2004: £32,277,000)
and a weighted average number of ordinary shares outstanding during the year
ended 31 December 2005 of 12,215,800 (2004: 12,055,134).
This information is provided by RNS
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