Interim Results
Greggs PLC
31 July 2007
31 July 2007
GREGGS plc
INTERIM RESULTS
FOR THE 24 WEEKS ENDED 16 JUNE 2007
Greggs is the UK's leading bakery retailer specialising in sandwiches, savouries
and other baker-fresh food on the go. It has over 1,300 retail outlets
throughout the UK, trading under the Greggs and Bakers Oven brands.
• Record interim diluted earnings per share* of 91.8p (2006: 72.0p): up 27.5%
• Record interim dividend of 46.0p (2006: 38.0p): up 21.0%
• Building on 22 consecutive years of dividend growth
• Sales up 5.2% to £256m (2006: £243m): like-for-like sales up 4.6%
• Operating profit* up 24.5% to £14.2m (2006: £11.4m)
• Pre-tax profit* up 18.3% to £14.8m (2006: £12.5m)
• £7.6m returned to shareholders through share buybacks in 2007 to date
• Realising planned benefits of Bakers Oven restructuring
• Working to create more unified, customer-focused, national Greggs brand
• Extending trials of innovative products and concepts
• Good start to long-term brand-building campaign
"I am pleased to report encouraging results for the first half which restore
operating profit to the record level achieved in 2005.
"Like-for-like sales in the first five weeks of the second half increased by 4.1
per cent, despite the effects of very adverse weather. Comparatives grow
steadily more demanding as the period progresses and we face significant cost
increases in a number of our key ingredients, together with additional central
overheads. Taking these factors together, we believe that our trading
performance for the second half is likely to be closer to that of the comparable
period in 2006.
"Overall, we continue to expect that this will be a year of satisfactory
progress for Greggs, and that the strategic changes we are implementing will
provide us with a strong platform for growth in the medium and longer term."
- Sir Michael Darrington, Managing Director
* Excluding £2.0m pre-tax property profit on bakery site disposals
ENQUIRIES:
Greggs plc Hudson Sandler
Sir Michael Darrington, Managing Director Wendy Baker / Jessica Rouleau
Richard Hutton, Finance Director Tel: 020 7796 4133
Tel: 020 7796 4133 on Tuesday, 31 July only
0191 281 7721 thereafter
High resolution images are available for the media to view and download from
www.vismedia.co.uk
MANAGING DIRECTOR'S INTERIM STATEMENT
I am pleased to report encouraging results for the first half which restore
operating profit to the record level achieved in 2005. Our progress reflects
improved like-for-like sales growth and the benefits of the restructuring of
Bakers Oven completed last year. It is particularly encouraging to be able to
report record earnings per share in a period during which we started to
implement our major strategic change programme. This is creating a stronger,
more unified, national Greggs brand which will begin to deliver benefits in 2008
and enhance the longer term growth potential of the Group.
Results
Group sales for the first half (24 weeks to 16 June 2007) increased by 5.2 per
cent to £255.9 million (2006: £243.1 million), including like-for-like sales
growth of 4.6 per cent. As reported at our AGM in May, like-for-like sales for
the first 18 weeks of the period increased by 4.9 per cent; this slowed to 3.7
per cent in the final six weeks, mainly reflecting the period of exceptionally
wet weather in June. Core volumes over the first half as a whole rose by 0.6 per
cent, after retail selling price inflation of 4.0 per cent.
Operating profit (excluding property gains) grew by 24.5 per cent to £14.2
million (2006: £11.4 million), taking it back to the record level achieved in
2005. An additional £2.0 million net property profit arises from the disposal of
bakery sites in Newcastle upon Tyne, Glasgow and Manchester. This principally
relates to the sale of the redundant Carricks bakery site in Newcastle, formerly
the headquarters of Bakers Oven North, which was announced in December 2006. The
other disposals are linked to our relocation to improved facilities in Scotland
and the North West.
Net finance income reduced by 47.6 per cent to £0.6 million (2006: £1.1 million)
as our programme to return surplus cash to shareholders resulted in lower
average cash balances during the period. Profit before taxation, excluding the
property profit, grew by 18.3 per cent to £14.8 million (2006: £12.5 million),
while diluted earnings per share on the same basis increased by 27.5 per cent to
a record 91.8 pence (2006: 72.0 pence).
Including the one-off net property profit, pre-tax profit was £16.7 million
(2006: £12.5 million) and diluted earnings per share were 104.0 pence (2006:
72.0 pence).
Cash flow, dividend and share buyback programme
The Group remains strongly cash generative and ended the first half with cash
balances of £26.3 million (2006: £25.5 million). The Board remains committed to
delivering value to shareholders through the return of surplus cash through both
a progressive dividend policy and a continuing share buyback programme.
In accordance with this policy, the Board has declared an increased interim
dividend of 46.0 pence per share (2006: 38.0 pence), a rise of 21.0 per cent.
This is covered 2.0 times by diluted earnings per share excluding the property
profit. The interim dividend will be paid on 1 October 2007 to those
shareholders on the register at the close of business on 7 September 2007.
During the first half of the financial year, the Company purchased for
cancellation 66,172 of its ordinary shares at an average price of £50.80 and a
total cost of £3.4 million. Since the beginning of the second half, it has
purchased a further 85,000 ordinary shares at an average price of £49.70 and a
total cost of £4.3 million. It is the Board's intention to continue buying back
shares in the market when it considers it to be in the interests of our
shareholders to do so.
Trading highlights
We enjoyed positive trading conditions for most of the first half, with improved
footfall on the high street and generally favourable weather. Somewhat slower
growth towards the end of the period reflected the impact of exceptionally high
rainfall in June, at a time when many retailers were also beginning to report
some impact on consumer confidence from rising interest rates. We have benefited
from an increase in the number of our shops trading on Sundays, and from the
extension of our weekday opening hours in appropriate locations.
Greggs brand UK. Like-for-like sales under the Greggs brand in the UK increased
by 4.8 per cent, including core volume growth of 0.4 per cent. We are steadily
progressing the many initiatives arising from our strategic review in 2006,
including the recruitment of additional senior personnel and the redeployment of
some divisional management to create a much more unified and centrally driven
national brand.
We are continuing trials of a number of innovative products and concepts,
seeking to cater for more aspirational demands while retaining our traditional
strengths in classic bakery products that deliver great taste and enjoyment at
competitive prices. These trials are being extended to an increased number of
locations with a view to embarking on their roll-out in 2008. Our Healthier
Options range of wraps, rolls and sandwiches continues to meet the needs of our
customers seeking to reduce their intake of fat, saturated fat and salt, and the
range will be further developed during the second half.
Work has begun with the aim of creating a much more unified product offer
through harmonisation across our divisions, and the application of best practice
nationwide.
We have been encouraged by the early results of the first phase of our £3
million integrated marketing campaign, using national TV and radio, posters and
the internet to build awareness of the Greggs brand. The second phase of this
nationwide campaign, building on the lessons of our initial burst of
advertising, will be launched in September.
All the actions we are taking to increase our customer focus and to build a
stronger and more unified Greggs brand are expected to begin delivering their
real benefits in 2008 and beyond.
Bakers Oven brand. Like-for-like sales under the Bakers Oven brand grew by 3.6
per cent, including core volume growth of 1.5 per cent after selling price
inflation of 2.1 per cent. We are achieving all the expected benefits of the
restructuring of this business announced a year ago, which has delivered
significant cost savings and allowed the Bakers Oven management team to focus on
the development of their profitable operations in the Midlands and South.
Greggs Continental Europe. Our Belgian operations in Antwerp and Leuven have
continued to progress as planned. Since the beginning of the second half, we
have taken the opportunity to purchase a small chain of five shops in Brussels,
enabling us to extend our operations into the capital. These will be
comprehensively refurbished in the Greggs format over the next 12-18 months.
Shop openings and refurbishments
We opened 22 new shops during the first half and closed 17, giving us a net
addition of five outlets making a total of 1,341 at 16 June. The whole of the
net addition was to the Greggs brand in the UK, which comprised 1,170 units at
the end of the first half. Greggs Belgian shop numbers at this date were
unchanged at six though, as noted above, the chain has since been expanded to 11
units through a small acquisition. There was no change to Bakers Oven shop
numbers at 165.
We remain on track to add a net 20-25 new shops to our portfolio over the year
as a whole.
During the first half we gave priority to refreshing a significant proportion of
the Greggs chain, comprising some 350 shops. This has involved softening the
somewhat strident colours of our previous takeaway-orientated design, using a
palette more in keeping with our bakery image. At a relatively low cost per
unit, this has created a significantly more attractive shopping environment for
our customers.
In addition to this major programme of improvements, we completed 12
comprehensive shop refurbishments and nine minor refits during the period under
review.
Capital investment
There was a substantial increase in our capital expenditure during the first
half to £20.5 million (2006: £13.5 million). This principally reflected the main
phase of construction of our new Glasgow bakery, which is scheduled for
completion in September and will be commissioned in the latter part of the year.
We also increased our expenditure on shop refurbishment. As previously
announced, we expect total capital expenditure for the year to be £39 million,
compared with £30 million in 2006.
People, the community and the environment
This is a time of considerable change for everyone in Greggs, as we implement
the programme arising from our strategic review. All these initiatives are
intended to deliver benefits over the next two to three years rather than
immediately, and it is a particular credit to our staff that they have delivered
improved results against this background.
We remain committed to playing an active and positive role in the communities
where we operate, through the continuing work of the Greggs Trust and Greggs
Breakfast Clubs, and long-established fund-raising efforts such as our regional
fun runs for children's cancer charities. Following our successful first
participation in the BBC's Children in Need appeal in 2006, our staff are
already making plans for a significantly increased fund-raising effort in the
current year.
Business efficiency and environmental awareness go hand in hand in our
continuing initiatives to make the most effective use of energy and to reduce
our carbon emissions in our production facilities and shops, as well as
increasing recycling and reducing the amount of food waste sent to landfill.
Outlook
Like-for-like sales in the first five weeks of the second half increased by 4.1
per cent, despite the effects of very adverse weather including a number of shop
closures due to flooding. Operating profit for these five weeks was ahead of the
comparable period in the previous year.
While this is an encouraging start, it should be noted that it compares with a
period of negligible like-for-like growth last year, and that comparatives will
grow steadily more demanding as the second half progresses. In addition, we face
significant cost increases in a number of our key ingredients, including flour,
dairy products and other fats, together with additional central overheads as we
strengthen the senior team charged with building and leading the more unified,
national Greggs brand. We shall be seeking to recover these higher costs in a
climate where consumer confidence has been dampened by rising interest rates.
Finally, we will incur some short term commissioning and double running costs in
Scotland as our new Glasgow bakery comes on stream.
Taking these factors together, we believe that our trading performance for the
second half is likely to be closer to that of the comparable period in 2006.
Overall, we continue to expect that this will be a year of satisfactory progress
for Greggs, and that the strategic changes we are implementing will provide us
with a strong platform for growth in the medium and longer term.
Sir Michael Darrington
Managing Director
31 July 2007
Consolidated income statement
For the 24 weeks ended 16 June 2007
24 weeks
24 weeks ended 16 June 2007 ended 52 weeks ended 30 December 2006
17 June
2006
Excluding Excluding Bakers
Property Property Bakers Oven Oven
disposals disposals Total restructuring restructuring Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 255,878 - 255,878 243,135 550,849 - 550,849
Cost of sales (97,048) 1,960 (95,088) (94,058) (209,455) (68) (209,523)
Gross profit 158,830 1,960 160,790 149,077 341,394 (68) 341,326
Distribution and (126,189) - (126,189) (120,241) (262,917) (2,947) (265,864)
selling costs
Administrative (18,414) - (18,414) (17,405) (36,232) (483) (36,715)
expenses
Operating profit 14,227 1,960 16,187 11,431 42,245 (3,498) 38,747
Finance income 561 - 561 1,065 1,579 - 1,579
Finance expenses (5) - (5) (3) (87) - (87)
Profit before tax 14,783 1,960 16,743 12,493 43,737 (3,498) 40,239
Income tax (4,835) (640) (5,475) (3,998) (14,227) 1,049 (13,178)
Profit for the period
attributable to 9,948 1,320 11,268 8,495 29,510 (2,449) 27,061
equity holders of
the parent
Basic earnings per 104.9p 72.4p 241.2p
share
Diluted earning per 104.0p 72.0p 239.9p
share
Consolidated statement of recognised income and expense
For the 24 weeks ended 16 June 2007
24 weeks ended 24 weeks ended 52 weeks ended
16 June 2007 17 June 2006 30 December
2006
£'000 £'000 £'000
Actuarial gains on defined benefit pension plans 2,817 1,323 2,741
Tax on items taken directly to equity (845) (397) (822)
Net income recognised directly in equity 1,972 926 1,919
Profit for the period 11,268 8,495 27,061
Total recognised income and expense for the period 13,240 9,421 28,980
attributable to equity holders of the parent
Consolidated balance sheet
As at 16 June 2007
16 June 2007 17 June 2006 30 December 2006
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 189,583 183,289 184,325
Defined benefit pension asset 934 - -
190,517 183,289 184,325
Current assets
Inventories 8,467 7,913 8,429
Trade and other receivables 19,424 22,085 16,026
Cash and cash equivalents 26,319 25,496 19,585
Asset held for sale - - 275
54,210 55,494 44,315
Total assets 244,727 238,783 228,640
LIABILITIES
Current liabilities
Trade and other payables (75,708) (72,231) (61,295)
Current tax liabilities (6,092) (4,794) (5,467)
(81,800) (77,025) (66,762)
Non-current liabilities
Defined benefit pension - (8,911) (1,883)
liability
Other payables (88) (98) (90)
Deferred tax liability (15,859) (12,713) (15,014)
(15,947) (21,722) (16,987)
Total liabilities (97,747) (98,747) (83,749)
Net assets 146,980 140,036 144,891
EQUITY
Capital and reserves
Issued capital 2,219 2,289 2,232
Share premium account 13,533 13,471 13,533
Capital redemption reserve 220 150 207
Retained earnings 131,008 124,126 128,919
Total equity attributable to
equity holders of the parent 146,980 140,036 144,891
Consolidated statement of cash flows
For the 24 weeks ended 16 June 2007
24 weeks ended 24 weeks ended 52 weeks ended 30
16 June 2007 17 June 2006 December 2006
£'000 £'000 £'000
Operating activities
Cash generated from operating activities (see below) 36,026 29,892 66,185
Income tax paid (4,850) (6,901) (13,600)
Net cash inflow from operating activities 31,176 22,991 52,585
Cash flows from investing activities
Acquisition of property, plant and equipment (20,522) (13,545) (30,023)
Proceeds from sale of property, plant and equipment 6,875 511 1,599
Government grant received 200 - -
Interest received 557 1,065 1,579
Net cash outflow from investing activities (12,890) (11,969) (26,845)
Cash flows from financing activities
Defined benefit pension scheme special contribution - - (5,500)
Interest paid (5) (3) (74)
Proceeds from issue of share capital - 31 93
Sale of own shares 218 1,443 1,809
Purchase of own shares - (16,437) (16,436)
Shares purchased and cancelled (3,395) (28,183) (39,544)
Dividends paid (8,370) (7,979) (12,105)
Net cash outflow from financing activities (11,552) (51,128) (71,757)
Net increase/ (decrease) in cash and cash 6,734 (40,106) (46,017)
equivalents
Cash and cash equivalents at the start of the period 19,585 65,602 65,602
Cash and cash equivalents at the end of the period 26,319 25,496 19,585
Cash flow statement - cash generated from operations
24 weeks ended 24 weeks ended 52 weeks ended
16 June 2007 17 June 2006 30 December 2006
£'000 £'000 £'000
Profit for the period 11,268 8,495 27,061
Depreciation 11,022 10,674 23,884
(Profit) / loss on sale of property, plant and equipment (1,875) (103) 753
Release of government grants (2) (4) (8)
Share based payment expenses 396 265 687
Finance income (561) (1,065) (1,579)
Finance expenses 5 3 87
Income tax expense 5,475 3,998 13,178
Increase in inventories (38) (200) (716)
Increase in debtors (3,398) (6,224) (165)
Increase in creditors 13,534 13,549 2,609
Movement in pension liability 200 504 394
Cash from operating activities 36,026 29,892 66,185
Notes
1. Basis of preparation
The interim financial information has been prepared on the basis of the
accounting policies adopted in the Company's statutory accounts for the 52 weeks
ended 30 December 2006, as revised for the implementation of specified new or
amended endorsed standards or interpretations.
2. Status of financial information
The interim information for the 24 weeks ended 16 June 2007 and 17 June 2006 has
not been audited or reviewed by the auditors.
The comparative figures for the 52 weeks ended 30 December 2006 are not the
Company's statutory accounts for that financial year. Those accounts have been
reported on by the Company's auditors and delivered to the Registrar of
Companies. The report of the auditors was unqualified, did not include a
reference to any matters to which the auditors drew attention by way of emphasis
without qualifying their report and did not contain a statement under section
237(2) or (3) of the Companies Act 1985.
3. Dividends
The following tables analyse dividends when paid and the year to which they
relate:
Dividend declared 24 weeks ended 24 weeks ended 52 weeks ended
16 June 2007 17 June 2006 30 December 2006
Pence per share Pence per share Pence per share
2005 final dividend - 70.0p 70.0p
2006 interim dividend - - 38.0p
2006 final dividend 78.0p - -
78.0p 70.0p 108.0p
24 weeks ended 24 weeks ended 52 weeks ended
16 June 2007 17 June 2006 30 December 2006
£'000 £'000 £'000
Total dividend payable
2005 final dividend - 8,013 8,013
2006 interim dividend - - 4,092
2006 final dividend 8,386 - -
Total dividend paid in period 8,386 8,013 12,105
Dividend proposed at period end and not
included as a liability in the accounts
2006 interim dividend (38.0p per share) - 4,085 -
2006 final dividend (78.0p per share) - - 8,706
2007 interim dividend (46.0p per share) 4,880 - -
4,880 4,085 8,706
The proposed interim dividend in respect of 2007 of 46.0p per share will be paid
on 1 October 2007 to shareholders on the register at close of business on 7
September 2007.
4. Share capital and reserves
Reconciliation of movement in capital and reserves attributable to equity
shareholders
Share capital Share premium Capital Retained Total
redemption earnings
reserve
£'000 £'000 £'000 £'000 £'000
At 31 December 2006 2,232 13,533 207 128,919 144,891
Total recognised income
and expense - - - 13,240 13,240
Shares purchased and
cancelled (13) - 13 (3,395) (3,395)
Sale of own shares - - - 218 218
Share based payments - - - 396 396
Equity dividends - - - (8,370) (8,370)
At 16 June 2007 2,219 13,533 220 131,008 146,980
5. Earnings per share
Adjusted earnings per share figures have been calculated for the 24 weeks ended
16 June 2007 which exclude the effect of the property disposals. These have been
calculated by dividing profit attributable to ordinary shareholders excluding
property disposals by the relevant weighted average number of shares.
Profit attributable to ordinary shareholders
24 weeks
ended
24 weeks ended 16 June 2007 17 June 52 weeks ended 30 December 2006
2006
Excluding Excluding
Property Property Bakers Oven Bakers
disposals disposals Total restructuring Oven Total
restructuring
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Profit for the period
attributable to equity 9,948 1,320 11,268 8,495 29,510 (2,449) 27,061
holders of the parent
Basic earnings per 92.6p 12.3p 104.9p 72.4p 263.0p (21.8)p 241.2p
share
Diluted earning per 91.8p 12.2p 104.0p 72.0p 261.6p (21.7)p 239.9p
share
The number of ordinary shares in issue at 16 June 2007 was 11,095,391 (17 June
2006: 11,443,869, 30 December 2006: 11,161,563). The weighted average number of
ordinary shares outstanding during the period was 10,741,124 (24 weeks ended 17
June 2006: 11,733,251, 52 weeks ended 30 December 2006: 11,220,493).
6. Defined benefit pension scheme
The valuation of the defined benefit pension scheme for the purposes of IAS19 as
at 30 December 2006 has been updated as at 16 June 2007 and the movements have
been reflected in this interim statement.
7. Interim report
The interim report is being posted to all shareholders and copies are available
on application to the Company Secretary, Greggs plc, Fernwood House, Clayton
Road, Jesmond, Newcastle upon Tyne, NE2 1TL. It will also be available on the
Company's website, www.greggs.plc.uk.
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