Preliminary Results
16 March 2021
PRELIMINARY RESULTS FOR THE 53 WEEKS ENDED 2 JANUARY 2021
Greggs is a leading UK food-on-the-go retailer,
with more than 2,000 retail outlets throughout the country
BRINGING OUT THE BEST IN US - WELL POSITIONED FOR GROWTH
· Multi-channel development strategy accelerated: delivery and wholesale channels providing alternative routes to access Greggs products, with delivery contributing an increasing proportion of total sales. Click & Collect rolled out across entire estate and delivery made available from more than 600 shops
· Shop opening pipeline reactivated: demonstrating confidence in long-term growth opportunity.84 new shops opened in 2020, 56 closures (28 net openings); 2,078 shops as at 2 January 2021. P lanning circa 100 net new shops for 2021
· Covid-secure operating model established: shop and supply chain operations adapted to safeguard team members and customers while operating during Covid-19
· Resilience through breadth of shop estate and customer base: variety and reach of shop estate, with relatively modest exposure to workplaces and public transport, in locations accessible to customers who need to be away from the home
· Investment in supply chain and systems: benefits of upgrade programmes to modernise the core business processes and IT systems evident as programmes near completion
· The Greggs Pledge launched: ten sustainability commitments to continue to develop the business in a responsible manner over the next five years and beyond
Full year financial performance
· Total sales were £811.3m* (2019: £1,167.9m)
· Like-for-like sales** in company-managed shops down 36.2% on 2019 level
· Progressive recovery in sales levels through second half of year
· Pre-tax loss £13.7m, including government support for job retention and relief from business rates (2019: £108.3m profit)
· Positive cash position at end of year and additional liquidity available under new £100m revolving credit facility
* 53 weeks ended 2 January 2021 (2019: 52 weeks ended 28 December 2019)
** like-for-like sales in company-managed shops (excluding franchises) with a calendar year's trading history
Current trading
· Positive sales trend, better-than-expected start to 2021 given the extent of lockdown conditions
· Shops in Scotland temporarily closed to walk-in customers for the majority of the year to date
· Company-managed shop like-for-like sales down 28.8% year-on-year in the ten weeks to 13 March 2021
· Outside of Scotland, company-managed shop like-for-like sales in the rest of the UK estate were down 22.4% year-on-year
· Delivery sales particularly strong, at 9.6% of total company-managed shop sales in the first ten weeks of 2021
"Greggs has made a better-than-expected start to 2021 given the extent of lockdown conditions and is well placed to participate in the recovery from the pandemic. It has a clear strategy to extend its digital capabilities and to grow further in new locations, channels and dayparts. These opportunities will benefit all of its stakeholders in the years to come.
"In a year like no other I believe that the Covid crisis has in many ways demonstrated the strength of Greggs. It has shown the resilience of our business model, but most of all the strength of our people who have worked hard throughout to maintain an essential service providing takeaway food to customers unable to work from home, many of whom were themselves key workers. I would like to take this opportunity to thank all of our people, who can be proud of the part we played in our nation's time of need."
- Roger Whiteside OBE, Chief Executive
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ENQUIRIES:
Roger Whiteside, Chief Executive Richard Hutton, Finance Director Tel: 0191 281 7721 |
Wendy Baker / Nick Moore Tel: 020 7796 4133 |
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An audio webcast of the analysts' presentation will be available to download later today at http://corporate.greggs.co.uk/ |
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Chairman's statement
Greggs has risen to the most formidable of challenges in 2020 and, while it has faced setbacks, is recovering well. We have worked hard to do the right thing by our people, communities and other stakeholders, and have been given great support in return. Strategic plans have, if anything, accelerated and as lockdowns ease we are now looking towards growth again with an emerging multi-channel offering. Our colleagues have shown remarkable resilience and tenacity whilst ensuring we have provided the best possible customer service in very difficult conditions. We move into 2021 with optimism and ambition.
Overview
2020 was not the year that any of us planned for, and has required the Board and Executive team to work together to protect the business and the interests of its many stakeholders. Greggs started the year performing very strongly but temporarily closed the shop estate in March 2020 as a consequence of the Covid outbreak. Greggs sought debt financing to support its short-term liquidity requirements, which was forthcoming from both government and commercial sources due to the financial strength of the business and its significant contribution to the UK economy. Loans from the Bank of England under the CCFF facility were fully repaid by the end of the year and the business finished the year with net cash in the bank.
The Company's trading performance since reopening its shops in the middle of 2020 has been strong in the context of prevailing mobility restrictions. Greggs has a broad base of shops in locations that have remained accessible to customers who rely on us when they need to be away from the home. For those at home we have accelerated our digital offering, with delivery now making a significant contribution to company-managed shop sales.
With lower-than-normal sales levels Greggs made a loss in 2020; the first time in its history as a listed business. Government support has been essential to mitigate the impact of Covid and protect as many jobs as possible through this period. Shareholders have made a significant contribution, forgoing dividends and accepting reduced investment in the business, and there has been terrific support from our employees. The Board has been very focused on balancing the needs of all the Company's stakeholders as it has made decisions this year and I am proud of the manner in which it has done so. We have also balanced the short-term tactical needs of the business with protecting our long-term ambition and adapting our strategy to market changes.
Our people and values
This crisis has, inevitably, put great pressure on the whole Greggs team. The collegiate nature of our people has come to the fore, standing by each other and the communities that we serve. There have been many sacrifices, but we have stayed true to the values that underpin the great culture that exists within Greggs.
From the initial closure period until the half year we maintained full pay for our furloughed colleagues. I am grateful to the management team, who went without their pay award, and to the Executive and my Board colleagues who volunteered reductions in their salaries and fees to protect the business in the most difficult period of 2020.
The communities that we rely on have needed additional support in 2020 and the Greggs Foundation has played a leading role, increasing its investment in the provision of hardship relief grants and offering extra help to hard-hit community organisations. The Trustees of the Greggs Foundation have drawn on its reserves to do so, and this has leveraged additional funding from others who recognise the team's ability to deliver help to the heart of communities.
Our colleagues have proved, once again, what a wonderful team they are. However it has been sad to say goodbye to some as we made reductions in the number employed to reflect the reality of the trading environment and to ensure that Greggs maintains its competitive edge. To them, and to those who continue to provide great service to our customers every day, I would like to say "thank you" on behalf of the Company and its shareholders.
The Board
We have been fortunate to have a period of stability on the Board at a time when experience of the business was of great importance to our stewardship role. The Board has provided its support to the executive, who had to make many difficult decisions, often in areas that have been new to most of us.
Like so many we have adapted to communicating virtually. This has worked well, making it easier to be in regular contact with management. The normal processes by which we listen to the views of employees have been challenged by the inability to meet in person, but we have found virtual forums to be a good alternative under the circumstances.
Risk management has clearly been a critical area for the Board in 2020. In addition to the Covid-related risks the Board scrutinised the Company's developments in digital channels and reviewed its preparedness for the possibility of a 'no deal' exit from the European Union. Further details of the Board's work are included in the governance and committee sections of the annual report.
Greggs supports diversity and inclusion initiatives across the business and on the Board and we expect to see tangible progress during 2021 as we develop our plans to grow as a diverse company that is representative of the communities we serve.
We continue to plan for succession for both Executive and Non-Executive directors. Normally, under the UK Corporate Governance Code, I would have been expected to step down in 2020 but the Board has asked me to remain in place to provide continuity of leadership during a period when we are likely to address CEO succession as Roger Whiteside (62) approaches retirement age. We are grateful to Roger for his willingness to be flexible regarding his retirement date to ensure the best possible succession and transition process.
Dividend
The planned final dividend for 2019 was a casualty of the need to preserve cash in the spring of 2020 and it has not been possible or appropriate to pay any further dividends since. In order to recommence a dividend distribution, the Company will need to return to a level of profitability and cash generation sufficient to support its investment programme whilst maintaining appropriate liquidity.
Looking ahead
Greggs is a business which has proved itself agile and adaptable to operating in times of great uncertainty whilst continuing to make strategic progress. Digital channels are increasingly contributing to the recovery of sales levels and opportunities for estate growth appear to be as good, if not better, than they were a year ago.
A year ago we anticipated the publication of 'The Greggs Pledge', our vision of how we will continue to develop the business in a responsible manner. This was delayed by the need to focus on the immediate challenges of 2020 but I am delighted that it has now been launched. It describes our targets for responsible business over the longer term and will be an important part of Greggs' competitive positioning and contribution to society in the years ahead. Our Chief Executive Roger Whiteside outlines the key elements of this in his report.
Greggs is a great business and we are confident for the future.
Ian Durant
Chairman
16 March 2021
Chief Executive's report
In a year like no other I believe that the Covid crisis has in many ways demonstrated the strength of Greggs. It has shown the resilience of our business model, but most of all the strength of our people who have worked hard throughout to maintain an essential service providing takeaway food to customers unable to work from home, many of whom were themselves key workers. I would like to take this opportunity to thank all of our people, who can be proud of the part we played in our nation's time of need.
Greggs began the new year with exceptional momentum following a record-breaking 2019. Strong growth in customer numbers continued into January and February, marred only by our first ever flood at our Welsh bakery and logistics site. This gave us our first taste of crisis management in the year - little did we know then of what was to come.
Safety first
When the Covid crisis began in March we quickly prioritised safety so that we could continue providing an essential service with takeaway food. When the first national lock down was announced the Government's "Stay at Home" safety message proved so strong that we decided that, in common with others in our sector, we should temporarily close our shops, a move that had support from our colleagues and customers. That's when we saw our colleagues across the country pull out all the stops to close down our shops and supply chain safely, and to redistribute our unused food to those who would benefit from it the most, whilst also making sure that we thanked our NHS heroes with free hot drinks and treats. We made many heroes of our own as colleagues worked tirelessly to move the food to local charities from our shops and distribution centres.
Securing our financial position
Having made the decision to close we moved quickly to secure our financial position. We immediately accessed the support that the Government made available in the form of the Coronavirus Job Retention Scheme (CJRS) and topped this up to full pay for our colleagues whilst our shops were closed. Cash preservation was critical and we acted quickly to stop dividend payments to shareholders, pause new shop openings and capital investment projects, begin negotiating rent reductions, and gave up the management pay award alongside directors taking voluntary salary reductions. Meanwhile we successfully accessed the Bank of England's CCFF loan scheme as a temporary source of liquidity whilst commercial borrowing facilities were established.
Restarting our operations and reopening our shops
Closing down our operations and shops took a matter of days, but starting everything back up again took very careful planning by a small, dedicated team who continued working throughout the crisis. A massive exercise to equip our operations to open under Covid-secure conditions saw us begin reopening in June, initially under lockdown conditions, as the country prepared to relax restrictions over the summer. As we restarted our internal distribution service to shops we also took the significant step of moving to a single daily delivery, minimising the number of shops receiving a delivery during opening hours.
Having demonstrated that we could continue serving customers safely in lockdown conditions we were well positioned to remain open when new restrictions returned in the winter. Our sales during the second half correlated with the differing tiers of restriction around the UK and demonstrated that there was demand for our takeaway food and drinks in all conditions from customers unable to work from home.
While we were able to recommence trading across the shop estate in July, customer footfall has been significantly reduced by the restrictions and government support has been vital both in supporting jobs and mitigating business losses. Once we had established the level of demand to be expected under social distancing we took action to reduce the size of our workforce, thereby reducing use of the CJRS only to situations where job impacts were judged to be temporary. Meanwhile we arranged a commercial lending facility to allow us to repay the Bank of England CCFF loan.
Financial results
The Covid crisis of 2020 has resulted in Greggs reporting its first ever loss since flotation of £13.7 million before tax (2019: profit before tax of £108.3 million).
Total sales fell 30.5 per cent to £811.3 million and like-for-like sales in company-managed shops declined by 36.2 per cent.
The actions taken to secure our financial position resulted in a £36.8 million net cash position at the end of 2020 (2019: £91.3 million), despite seeing an overall net cash outflow of £54.5 million in the year. The addition of a new borrowing facility has left us with a robust balance sheet able to withstand further shocks.
Accelerating our strategic plan
Whilst we cannot escape the short-term financial impact of Covid on our business we have been determined to keep our strategic plan on track. Many of the changes we have been observing in customer behaviour during this crisis are trends that had previously been identified and as a result we saw the opportunity to accelerate our strategic development to emerge stronger in the years ahead.
We launched our Next Generation Greggs programme in January 2020 and it is now clear that the ambition in that strategic plan to increase access to Greggs has become more relevant than ever.
Best customer experience
Digital technology had been identified in our plans as the key opportunity for Greggs to increase market share by increasing customer loyalty, menu choice and multi-channel reach.
Successful trials in 2019 allowed us to move quickly under Covid to roll out new services nationwide including a new Greggs Rewards offer, Greggs click and collect, and delivery with our partners Just Eat. In a matter of months delivery was made available in over 600 shops and in the fourth quarter accounted for 5.5 per cent of company-managed shop sales. Delivery is extending our reach and taking market share and we are planning further roll out in the year ahead.
Similarly, successful trials of our improved Greggs Rewards loyalty scheme in 2019 meant that we were able to accelerate our plans and launch it nationwide in October. Our development team also applied the learnings from earlier trials to launch our new click and collect service making it available to all shops by September. These two new services have been brought together in our new App which is now being piloted ahead of launch in the second quarter of 2021.
Marketing continues to play a key role in driving brand awareness amongst target customer groups and we have invested in a stronger team to compete in digital channels and develop our customer relationship management capabilities as new systems are deployed during 2021.
Our shops
While new digital channels present opportunities to compete for market share our shop network remains key to our growth ambitions providing both convenient access to passing customers as well as nationwide reach for delivery and collection services.
Existing trends towards increased flexible home working and online shopping have seen a material acceleration during this crisis and longer term we expect to see a further shift away from office-dependent catchments and weaker shopping locations. Our experience during this crisis has highlighted that the diversity of our estate means we are not overly dependent on any one location type and downturns in some areas are balanced by improvements in others.
Shops accessed by car have been the strongest performers during the Covid crisis and these location types already formed most of our new shop pipeline. This gave us the confidence to restart our new shop opening programme in the second half and we are targeting a rapid return to previously planned growth levels of circa 100 net new shops for the year ahead.
In addition, new opportunities now exist in previously underrepresented locations such as central London and mass transport hubs where availability and rental levels will now make those locations more accessible. Similarly, relocation opportunities to expand into bigger, better shop space are expected in existing locations that will support our continued drive to improve the quality of the estate and develop new opportunities with additional seating. With a strong pipeline and support from multi-channel development we have raised our target for the UK estate to 3,000 shops.
In 2020 we opened 84 new shops (including 35 franchised units) and closed 56, growing the estate to 2,078 shops as at 2 January 2021, 328 of which are franchised shops operated by our partners. The shop estate is in good condition and refurbishment costs will remain low in the short term while we establish space and equipment requirements for new services in our full range of formats.
Great tasting freshly prepared food
Having started 2020 with the launch of a new award-winning vegan steak bake alongside our first vegan doughnut our product development plans came to an abrupt stop as shops were closed and our teams were put on furlough.
Our ambition to be the nation's favourite brand for food-on-the-go requires us to offer a varied menu suited to all times of the day - breakfast, lunch and dinner. Our strategy remains to add to our existing credentials for freshly prepared, great value, great tasting bakery food by building our reputation for product categories with growing demand in the market. The addition of new digital channels strengthens our ability to test new product areas and avoid some of the maturity costs in gaining customer support for products not already associated with our brand.
Work restarted in the final quarter of last year to plan for new product introductions once customer restrictions are lifted and demand conditions improve. Strategic areas of opportunity include our coffee menu which will be extended this year alongside the rapid roll out of our fully-tested new coffee machine improving speed, quality and range options.
Hot food also remains a key area of focus both for self-selection in our shop fronts and increasingly from behind the counter for delivery. The combination of these two opens the opportunity for development of our offer to compete in later day trading which we tested in trial shops last year and will see further extension.
The growing trend for greater dietary choice shows no signs of slowing. With two successful new vegan-friendly lines introduced last year we will once again be adding to our existing range, offering vegan-friendly versions of our best-selling lines.
Covid restrictions saw increased demand in supermarkets including our long-term partners Iceland. Sales of our Greggs products for home baking leapt to record levels, introducing new customers to our brand for home consumption and providing a platform for further development including the introduction of vegan products to the range.
Interest in healthier food choices is driving our sector-leading standards in the provision of information to customers to enable them to make informed choices. We have now completed successful trials in preparation for the requirement to move to full labelling of sandwiches made in shops, which is due later this year.
Product improvements will see us make further progress with salt, fat, sugar and calorie targets alongside continued progress in our animal welfare standards. Since 2016 we have removed 20 per cent of the sugar from our pastries, yoghurts, biscuits and cakes and, over the coming four years, will reduce the calories and salt in a third of our products to make sure that they meet or exceed the recommendations of Public Health England. The options for customers will be further increased when we trial custom ordering for sandwiches through digital channels later in the year.
Competitive supply chain
Even before Covid arrived our supply chain teams began 2020 in crisis mode having to cope, in February, with our first ever flood leading to the closure of our bakery and logistics site in Wales. We could not have expected then that we would remain in crisis for the rest of the year and into 2021.
Our teams have been outstanding in managing throughout this period, coping with constantly changing shop closures alongside managing the infection risk seen in food manufacturing sites around the UK.
Our ability to manage the impact of temporary site closures benefited greatly from our major investment programme over recent years in which we both centralised and automated manufacturing, allowing us to build and distribute from stock across the country. In response to the requirement to minimise social contact we also radically changed our distribution operation resulting in improved delivery efficiency which will now benefit the business longer term. As a consequence, we have created additional distribution capacity and are now able to postpone investment at our Birmingham site, which had been scheduled to commence in 2021, for a number of years.
In addition to the tireless work involved in maintaining supplies, our teams continued to make progress on our key strategic projects which will be completed in the year ahead. These include the roll out of new SAP systems to all remaining sites and commissioning of our new automated frozen distribution facility at our Balliol Park distribution centre in Newcastle.
New shop openings, alongside an anticipated return to strong sales growth, will require investment in additional manufacturing capacity beginning with our savoury manufacturing plant at Balliol Park where a £9 million programme of automation is already underway and is planned for completion later this year. Planning will also commence to address our capacity needs looking forward to our next target of 3,000 shops in the years ahead.
First class support teams
As with our supply chain, our investment in recent years to modernise our core business processes and IT systems greatly assisted us in supporting the business as we adapted to working from home, often with skeleton teams when numbers on furlough were at their peak. Our investment in modern office working tools alongside business intelligence reporting has made for efficient remote working. Office working remains at a minimum and we are planning for increased flexible working to remain for the long term once restrictions are lifted.
Accelerated investment in our digital capabilities has been a key focus during 2020 and our IT development teams have been fully engaged in our Next Generation Greggs programme which saw rapid roll out of digital customer channels and a new Greggs Rewards loyalty scheme in the second half of the year. Progress made last year will see us launch a new Greggs App in 2021 followed by new systems to help our shop teams satisfy demand in these new channels, improve the customer experience and offer new service features.
Alongside this work we were also able to maintain progress on SAP deployment in our supply chain at sites in Enfield and Manchester despite Covid constraints and this leaves us well positioned to complete the roll out of this programme in the year ahead.
The Greggs Pledge
Greggs has a proud reputation of giving back. Since John Gregg founded the business in 1939, we have always tried to do the right thing by our people, customers, suppliers and communities. These family values are at the heart of our culture.
Today, Greggs is a company with a national presence, supporting hundreds of suppliers, employing thousands of people, and serving millions of consumers. The way we operate affects a great many people so being a good business is more important than ever.
Following an extensive engagement exercise in 2019 we set out last year to launch the Greggs Pledge in the form of our first full sustainability report. Unfortunately, our launch plan had to be put on hold but our commitment remains undiminished, and the Greggs Pledge was launched in February 2021. The global pandemic has reminded us all of the importance of community, the power of kindness, and the value of collaboration to tackle our biggest problems. Now, we must work together to rebuild our economies and address the complex social and environmental problems that we were already grappling with.
The Greggs Pledge commits us to ten things that we're doing to help make the world a better place by 2025 - and beyond. We arrived at these pledges by talking with our own people and our external stakeholders, and by considering the issues that are most relevant to our business. Our pledges align with the ambitions of the UN Sustainable Development Goals (SDGs).
We have chosen to concentrate our efforts on the challenges where we think we can make the most difference:
We want to help build stronger, healthier communities.
Even before the pandemic ravaged our economy, far too many people were struggling with poverty and hunger in this country. The Greggs Breakfast Clubs feed around 39,000 children every school day and we will continue to grow the scheme. We are also doing what we can to ensure that perfectly good food doesn't get wasted, but instead gets to people who need it. We recognise that poor nutrition is another issue where we have a role to play and are doing more to guide our customers towards healthier choices.
We want to make our planet safer.
The impacts of unchecked climate change would be catastrophic. We want to make Greggs a carbon neutral, zero waste business. We actively support the BRC's Climate Action Roadmap which aims to make the UK's retail industry net zero, well ahead of the Government's 2050 target. In addition, we are reducing our use of packaging, looking at how we can apply 'circular economy' thinking to our business and working with our suppliers to make efficient use of resources.
We want to be a better business.
The corporate world can be a powerful force for good when it is guided by a moral compass. As well as continuing to support our communities by paying our taxes and providing thousands of fairly-paid jobs, we are redoubling our efforts to make Greggs a great place to work. We are also setting high standards for what we purchase, encouraging our suppliers to raise their game too.
We will give back to the communities that support us and take less from the environment that we all rely on. I want Greggs to play a meaningful role not just in getting Britain back on its feet but in getting us to a better place.
Our separate sustainability report provides a full description of our activities alongside measurable targets we have set ourselves across all these areas.
https://corporate.greggs.co.uk/the-greggs-pledge
Current trading and outlook
Having made good progress through the second half of 2020 we have made a better-than-expected start to 2021 given the extent of lockdown conditions and the particular challenges in Scotland where our shops have been closed to walk-in customers. In the ten weeks to 13 March 2021, company-managed shop like-for-like sales were down 28.8 per cent year-on-year. Outside of Scotland, company-managed shop like-for-like sales in the rest of the UK estate were down 22.4 per cent year-on-year. We have seen an improving trend each week with delivery sales being particularly strong in these conditions, at 9.6 per cent of total company-managed shop sales in the year to date.
Greggs is well placed to participate in the recovery from the pandemic and has demonstrated its resilience and capability to operate under such challenging conditions. With good liquidity and growing digital capabilities Greggs is an attractive proposition that can grow further in new locations, channels and dayparts. These opportunities will benefit all of our stakeholders in the years to come.
Roger Whiteside OBE
Chief Executive
16 March 2021
Financial review
Financially, 2020 was a year of two very different halves. The period to June included an extensive lockdown period, where our shops were closed and we relied on financial support from a number of government-backed schemes. In the second half of the year we took action to reduce this reliance and saw a progressive strengthening of business performance, albeit materially impacted by Covid restrictions, supported by the development of new digital channels. Whilst the outlook remains challenging, we have a strong balance sheet that is supporting our growth ambitions whilst protecting the interests of all of Greggs' stakeholders.
| 2020 £m |
| 2019 £m |
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Revenue | 811.3 |
| 1,167.9 |
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Operating (loss) / profit | (7.0) |
| 114.8 |
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Finance expense | (6.7) |
| (6.5) |
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(Loss) / profit before taxation | (13.7) |
| 108.3 |
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Income tax | 0.7 |
| (21.3) |
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(Loss) / profit after taxation | (13.0) |
| 87.0 |
Actions to ensure liquidity
In March 2020 Greggs' shops were closed in response to the first national lockdown and it was clear that access to additional liquidity would be required in order to support the business through a significant period of closure. Actions were taken to preserve cash, including the furloughing of most employees with support from the Government's Coronavirus Job Retention Scheme (CJRS), cancellation of the previously-declared final dividend for 2019 and halting capital projects.
In April 2020 the Company established its eligibility to draw on the Bank of England's Coronavirus Corporate Financing Facility (CCFF) and issued £150 million of commercial paper to ensure that it maintained a strong financial position in the face of what was then an uncertain period of closure. In December 2020 the Company put in place a £100 million revolving credit facility with a syndicate of commercial banks. This gave us confidence to redeem the CCFF commercial paper and, along with a net cash balance at the end of the year, has put us in a strong financial position going into 2021.
Sales
Total Group sales for the 53 weeks ended 2 January 2021 were £811.3 million (2019: £1,167.9 million). The reduction in sales year-on-year reflects the closure of the Greggs shop estate for most of the second quarter of 2020 due to the national lockdown in response to the coronavirus pandemic. Sales in the second half of the year were also significantly lower than normal as a result of social distancing measures and further restrictions that limited the number of customers out of home.
Reporting 'like-for-like' sales (sales in company-managed shops with more than one calendar year's trading history) is a key alternative performance measure for Greggs as it shows underlying estate sales performance excluding the impact of new shop openings and of closures. The table below shows the monthly like-for-like sales level in the second half of 2020 as a proportion of that in the same period of 2019:
| Jul* | Aug | Sep | Oct | Nov | Dec |
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Company-managed like-for-like sales as percentage of 2019 level | 64.9% | 68.0% | 76.1% | 80.1% | 76.7% | 85.7% |
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* The full estate reopened on 2 July
Looking forward to 2021 there will be periods where the Greggs estate was closed in the comparative period of 2020. In order to show a consistent measure of sales recovery versus pre-Covid levels we intend to report the level of like-for-like sales achieved in that period of 2021 versus the 2019 level.
An important feature of the improving trend in like-for-like sales from company-managed shops has been the contribution of delivery services, which were rolled out nationally across the second half of 2020. In the fourth quarter of the year delivery represented 5.5 per cent of company-managed shop sales, supplied by 600 of our shops that now provide delivery services to catchments served by Just Eat. We expect this to increase to around 800 shops in 2021. Delivery channel transactions typically have a much higher average transaction value (ATV) than those from walk-in customers. Whilst the percentage margin from a delivery transaction is slightly lower than the walk-in equivalent there is a benefit from the incremental delivery transactions and their higher ATV.
Loss for the year
The loss before tax in 2020 was £13.7 million (2019: £108.3 million profit), with a loss of £65.2 million in the first half followed by a £51.5 million profit in the second half of the year. The loss for the year included a £0.5 million profit from property disposals (2019: £0.7 million) and a £0.8 million charge in respect of exceptional items (2019: £5.9 million charge).
The exceptional charge of £0.8 million relates to redundancy costs and costs arising from transfer of operations associated with our multi-year programme of investment in our supply chain and has been separately identified in the interests of consistency with the treatment adopted in previous years. The programme is now largely complete and it is unlikely that any remaining costs will be sufficiently material to be separately classified.
The result for 2020 reflects a number of factors that have not been classified as exceptional but are described below because of their materiality:
· The three-month closure of the Company's shop estate in the first half of the year resulted in stocks of some food and drink items being unusable within the business. These were donated to good causes wherever possible but the total charge for write-offs and stock provisions was £9.0 million.
· Asset impairment charges and onerous shop operating costs have been recognised as a result of the challenging trading environment. The acceleration of the closure of 38 shops crystallised impairment charges amounting to £5.4 million and we have provided for £2.5 million in onerous costs directly linked to these leases, for example rates, service charges and insurance. A further £8.6 million charge was made for the impairment of 87 shops which continue to trade but are unlikely to recover the full carrying value of their assets.
· Incremental costs of £9.3 million were incurred to put in place additional protective measures across the business, including a proactive virus-testing programme at our manufacturing and logistics sites. Heading into 2021 we are incurring monthly costs of around £1 million in respect of additional cleaning, protective workwear and testing.
· The Company relied on support for employment from the CJRS; this totalled £87 million in 2020. By the end of the year the rate of CJRS support had reduced to c.£200k per week and related to the protection of employment for team members who were shielding or unable to work because of lockdown restrictions.
· In the fourth quarter of the year the Company entered into a collective consultation with union and employee representatives with the aim of reducing employment costs to reflect lower-than-normalbusiness activity levels. The consultation process minimised the number of job losses but, unfortunately, still resulted in 820 redundancies. The one-off cost of these redundancies was £10.2 million and has lowered ongoing annual employment costs by £14.4 million.
· A business rates holiday for retail, hospitality and leisure businesses provided relief totalling £18.8 million over the period April to December 2020. The sector-wide support is currently due to continue until June 2021.
Overall wage cost inflation was 3.5 per cent in 2020. A pay increase for staff was implemented but the planned increase for managers was cancelled and, for five months of the year, all directors took a voluntary reduction in salaries and fees in order to protect the cash position of the business. Looking forward the impact of National Living Wage increases will be less significant than has been the case in recent years and, consequently, overall wage and salary inflation is expected to be around 2.3 per cent in 2021.
The rate of food, packaging and energy cost inflation eased in the second half of 2020 as the demand for commodities weakened. In the year ahead we expect overall cost inflation in these areas to be in the range of one to two per cent.
Greggs has continued to pay its shop rents through the pandemic but we have moved the basis of payment to 'monthly in advance'. This change in the basis of payment has not had a material impact on the valuation of lease liabilities. We have been in discussions with the landlords of our shops to negotiate rent reductions; these discussions are continuing and in a weak rental market we expect to continue to receive better terms from landlords in return for the relative security that comes with Greggs' strong covenant.
Financing charges
The net financing expense of £6.7 million in the year (2019: £6.5 million) comprised £6.5 million in respect of the IFRS 16 interest charge on lease liabilities and £0.8 million interest expense on borrowings under the Company's financing facilities. This was offset by interest received and foreign exchange gains and losses totalling £0.6 million.
In the year ahead the interest expense on borrowings will reflect the arrangement and commitment fees for the Company's revolving credit facility. This is expected to amount to a £1.0 million charge if the facility remains undrawn.
Taxation
The Company has a simple corporate structure, carries out its business entirely in the UK and all taxes are paid there. We aim to act with integrity and transparency in respect of our taxation obligations.
The Group's overall effective tax rate on losses in 2020 was 5.2 per cent (2019: 19.7 per cent rate on profit). The effective rate on losses in the year reflects the impact of a largely fixed level of disallowed expenses for taxation purposes relative to the level of loss for the year together with the revaluation of deferred tax balances.
The introduction of super-deduction capital allowances in the recent UK Budget and the revaluation of deferred tax will affect the Group's effective rate of taxation over the next two years. We expect the effective rate for 2021 to be around 19.0 per cent and the effective rate for 2022 to be around 17.0 per cent. Going forward the effective rate is expected to be around 1.5 per cent above the headline corporation tax rate; this is principally because of disallowed expenditure such as depreciation on non-tax-deductible qualifying properties and costs of acquisition of new shops.
Earnings per share and dividend
The diluted loss per share was 11.8 pence (2019: 85.0 pence earnings per share).
Faced with the need to preserve cash during the initial period of lockdown in quarter two 2020 the Board cancelled payment of the previously-declared final dividend for 2019. No interim dividend was declared or paid in 2020 and the Board is not recommending a final dividend in respect of the year.
As trading conditions and profitability improve the Board expects to recommence a dividend distribution. In order to do so the Company must first establish a sufficiently strong net cash position to protect forward liquidity in the case of further interruptions to trading. It is anticipated that a progressive dividend policy will again be adopted once trading conditions and business performance have stabilised.
Balance sheet
Capital expenditure
We invested a total of £58.7 million (2019: £86.0 million) in capital expenditure during 2020. The year started with an ambitious programme of investment activity designed to grow our shop numbers and create supply chain capacity for future expansion. In quarter two, in order to protect liquidity, we stopped almost all capital expenditure with the exception of the work on our new automated cold store at Balliol Park in Newcastle upon Tyne.
As our shops reopened in the middle of 2020 and we became more confident of sustainable trading levels we selectively recommenced capital works. Capital expenditure to support new shop openings was focused on pipeline opportunities in locations which customers typically access by car, these having proved the most resilient under prevailing trading conditions.
Depreciation and amortisation on property, plant and equipment and intangibles in the year was £60.8 million (2019: £59.9 million). A further £51.9 million (2019: £50.8 million) of depreciation was charged in respect of right-of-use assets as a result of capitalised leases.
Our plans for 2021 include capital expenditure of around £70 million. This will include completion of the Balliol Park automated cold store, increases to manufacturing capacity for savoury products and a return to the previous rate of expansion of our shop estate. In this respect we will be investing in around 100 new company-managed shops alongside further openings with franchise partners.
Having invested substantially in the shop estate in recent years we intend to refurbish relatively few shops in 2021 but will continue trials of formats designed to support future plans. The requirement for capital expenditure to refurbish our existing shops will increase in the coming years and we will start to address supply chain capacity to meet the growth opportunities ahead. On current plans we expect this to require capital expenditure of c.£90 million in 2022 followed by c.£100 million in 2023.
Management of return on capital
We manage return on capital against predetermined targets and monitor performance through our Investment Board, a management committee where all capital expenditure is subject to rigorous appraisal before and after it is made. For investments in new shops we target an average cash return on invested capital of 25 per cent, with a hurdle rate of 22.5 per cent, over an average investment cycle of eight years. Other investments are appraised using discounted cash flow analysis. With trading conditions currently subdued we have not changed our investment criteria but are looking beyond current trading conditions when evaluating which investments will make strong returns on capital in the medium term.
Working capital
Group net current liabilities were £45.3 million at the end of 2020 (2019: £66.4 million), the overall reduction primarily reflecting lower-than-normal levels of trading and tax liabilities along with a lower cash balance. Trade and other receivables have increased as a result of increased growth in the B2B (wholesale/franchise) channel and provisions for performance-related remuneration are much reduced.
Pension scheme liability
The net liability shown on the balance sheet for the Company's closed defined benefit pension scheme increased to £11.9 million (2019: £0.6 million), mainly as a result of the reduction in the discount rate applied to future liabilities. The scheme underwent a full actuarial revaluation in 2020, the results of which are expected to show a deficit in funding. The Company is working with the scheme's trustee to ensure that any funding requirements are met over the medium term.
Cash flow
In a year when there was so much pressure on cash resources it was a great advantage to have started 2020 with a strong cash balance. Following record financial results in 2019 the opening position in 2020 was a net cash balance of £91.3 million. The net cash inflow from operating activities after lease payments in 2020 was £1.5 million (2019: £169.5 million). After capital expenditure and other smaller investing and financing activities the net outflow for the year was £54.5 million (2019: net inflow of £3.1 million), resulting in an end-of-year net cash balance of £36.8 million.
The events of 2020 have demonstrated the importance of ensuring good liquidity. Greggs has consistently maintained a net cash position in order to be able to meet its obligations through a downturn or temporary interruption to its ability to trade. The negative working capital position that is generated by the Company's operations crystalises quickly in the absence of cash receipts from trading. At the end of 2020 we estimate that this working capital outflow would be in the order of £35 million in a situation where Greggs was not able to trade its shops. In addition to this the weekly 'cash burn', assuming continued government support for job retention and relief from business rates, would be around £4 million per week.
The Company's new revolving credit facility allows it to draw up to £100 million in committed funds, subject to it retaining a minimum liquidity of £30 million (i.e. maximum net borrowings are £70 million). This facility is designed to provide protection to the business should it experience further periods of lockdown in the year ahead.
With a net cash position and committed facilities in place the Company is in a position to look beyond short-term trading uncertainties and begin investing in the opportunities that present themselves for profitable growth in the years ahead.
Richard Hutton
Finance Director
16 March 2021
Greggs plc
Consolidated income statement
for the 53 weeks ended 2 January 2021 (2019: 52 weeks ended 28 December 2019)
|
|
|
2020 |
2019 |
|
|
|
Total
|
Total
|
|
|
|
£m |
£m |
|
|
|
|
|
|
Revenue |
|
811.3 |
1,167.9 |
|
Cost of sales |
|
(300.4) |
(418.1) |
|
Cost of sales excluding exceptional items |
|
(299.6) |
(412.2) |
|
Exceptional items (see Note 4) |
|
(0.8) |
(5.9) |
|
|
|
________ |
________ |
|
Gross profit |
|
510.9 |
755.7 |
|
|
|
|
|
|
Distribution and selling costs |
|
(465.8) |
(572.8) |
|
Administrative expenses |
|
(52.1) |
(62.2) |
|
|
|
________ |
________ |
|
Operating (loss) / profit |
|
(7.0) |
114.8 |
|
|
|
|
|
|
Finance expense |
|
(6.7) |
(6.5) |
|
|
|
________ |
________ |
|
(Loss) / profit before tax |
|
(13.7) |
108.3 |
|
|
|
|
|
|
Income tax |
|
0.7 |
(21.3) |
|
|
|
________ |
________ |
|
(Loss) / profit for the financial year attributable to equity holders of the Parent |
|
(13.0) |
87.0 |
|
|
|
======= |
======= |
|
Basic (loss) / earnings per share |
|
(12.9p) |
86.2p |
|
Diluted (loss) / earnings per share |
|
(12.9p) |
85.0p |
Greggs plc
Consolidated statement of comprehensive income
for the 53 weeks ended 2 January 2021 (2019: 52 weeks ended 28 December 2019)
|
|
| |
|
| 2020 | 2019 |
|
| £m | £m |
|
|
|
|
(Loss) / profit for the financial year |
| (13.0) | 87.0 |
|
|
|
|
Other comprehensive income |
|
|
|
Items that will not be recycled to profit and loss: |
|
|
|
Remeasurements on defined benefit pension plans |
| (11.2) | 3.0 |
Tax on remeasurements on defined benefit pension plans |
| 2.1 | (0.5) |
|
| ________ | ________ |
Other comprehensive income for the financial year, net of income tax |
| (9.1) | 2.5 |
|
| ________ | ________ |
|
|
|
|
Total comprehensive income for the financial year |
| (22.1) | 89.5 |
|
| ======= | ======= |
Greggs plc
Consolidated Balance Sheet
at 2 January 2021 (2019: 28 December 2019)
|
| 2020 | 2019 |
|
|
| Restated |
|
| £m | £m |
ASSETS |
|
|
|
Non-current assets |
|
|
|
Intangible assets |
| 15.6 | 16.8 |
Property, plant and equipment |
| 345.3 | 353.7 |
Right-of-use assets |
| 270.1 | 272.7 |
Investments |
| - | - |
|
| ________ | ________ |
|
| 631.0 | 643.2 |
|
|
|
|
Current assets |
|
|
|
Inventories |
| 22.5 | 23.9 |
Trade and other receivables |
| 39.4 | 27.1 |
Cash and cash equivalents |
| 36.8 | 91.3 |
|
| ________ | ________ |
|
| 98.7 | 142.3 |
|
| ________ | ________ |
Total assets |
| 729.7 | 785.5 |
|
| ________ | ________ |
LIABILITIES |
|
|
|
Current liabilities |
|
|
|
Trade and other payables |
| (91.1) | (142.3) |
Current tax liability |
| - | (11.8) |
Lease liabilities |
| (48.6) | (48.8) |
Provisions |
| (4.4) | (5.8) |
|
| ________ | ________ |
|
| (144.1) | (208.7) |
Non-current liabilities |
|
|
|
Other payables |
| (3.7) | (4.2) |
Defined benefit pension liability |
| (11.9) | (0.6) |
Lease liabilities |
| (243.1) | (226.9) |
Deferred tax liability |
| (2.3) | (2.4) |
Long-term provisions |
| (3.0) | (1.6) |
|
| ________ | ________ |
|
| (264.0) | (235.7) |
|
| ________ | ________ |
Total liabilities |
| (408.1) | (444.4) |
|
| ________ | ________ |
Net assets |
| 321.6 | 341.1 |
|
| ======= | ======= |
EQUITY |
|
|
|
Capital and reserves |
|
|
|
Issued capital |
| 2.0 | 2.0 |
Share premium account |
| 15.7 | 13.5 |
Capital redemption reserve |
| 0.4 | 0.4 |
Retained earnings |
| 303.5 | 325.2 |
|
| ________ | ________ |
Total equity attributable to equity holders of the Parent |
| 321.6 | 341.1 |
|
| ======= | ======= |
Greggs plc
Consolidated statement of changes in equity
for the 53 weeks ended 2 January 2021 (2019: 52 weeks ended 28 December 2019)
52 weeks ended 28 December 2019 (Restated)
|
| Attributable to equity holders of the Company | ||||
|
| Issued capital | Share premium | Capital redemption reserve | Retained earnings
| Total |
|
| £m | £m | £m | £m | £m |
|
|
|
|
|
|
|
Balance at 30 December 2018 (as previously reported) |
| 2.0 | 13.5 | 0.4 | 313.2 | 329.1 |
Impact of change in accounting policy * |
| - | - | - | (5.7) | (5.7) |
|
| ________ | ________ | ________ | ________ | ________ |
Restated balance at 30 December 2018 |
| 2.0 | 13.5 | 0.4 | 307.5 | 323.4 |
|
|
|
|
|
|
|
Total comprehensive income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the financial year |
| - | - | - | 87.0 | 87.0 |
Other comprehensive income |
| - | - | - | 2.5 | 2.5 |
|
| ________ | ________ | ________ | ________ | ________ |
Total comprehensive income for the year |
| - | - | - | 89.5 | 89.5 |
|
|
|
|
|
|
|
Transactions with owners, recorded directly in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of own shares |
| - | - | - | 4.9 | 4.9 |
Purchase of own shares |
| - | - | - | (11.8) | (11.8) |
Share-based payment transactions |
| - | - | - | 4.4 | 4.4 |
Dividends to equity holders |
| - | - | - | (72.1) | (72.1) |
Tax items taken directly to reserves |
| - | - | - | 2.8 | 2.8 |
|
| ________ | ________ | ________ | ________ | ________ |
Total transactions with owners |
| - | - | - | (71.8) | (71.8) |
|
| ________ | ________ | ________ | ________ | ________ |
Restated balance at 28 December 2019 |
| 2.0 | 13.5 | 0.4 | 325.2 | 341.1 |
|
| ======= | ======= | ======= | ======= | ======= |
|
|
|
|
|
|
|
*Details of the change in accounting policy and consequent restatement are given in the Basis of preparation on page xx.
Greggs plc
Consolidated statement of changes in equity (continued)
53 weeks ended 2 January 2021
|
| Attributable to equity holders of the Company | ||||||
|
| Issued capital | Share premium | Capital redemption reserve | Retained earnings | Total | ||
|
| IFRS 16 | IFRS 16 | IFRS 16 | IFRS 16 | IFRS 16 | ||
|
| £m | £m | £m | £m | £m | ||
|
|
|
|
|
|
| ||
Balance at 29 December 2019 (restated) |
| 2.0 | 13.5 | 0.4 | 325.2 | 341.1 | ||
|
|
|
|
|
|
| ||
Total comprehensive income for the year |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Profit for the financial year |
| - | - | - | (13.0) | (13.0) | ||
Other comprehensive income |
| - | - | - | (9.1) | (9.1) | ||
|
| ________ | ________ | ________ | ________ | ________ | ||
Total comprehensive income for the year |
| - | - | - | (22.1) | (22.1) | ||
|
|
|
|
|
|
| ||
Transactions with owners, recorded directly in equity |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Issue of ordinary shares |
| - | 2.2 | - | - | 2.2 | ||
Sale of own shares |
| - | - | - | 1.5 | 1.5 | ||
Purchase of own shares |
| - | - | - | (0.5) | (0.5) | ||
Share-based payment transactions |
| - | - | - | 0.9 | 0.9 | ||
Dividends to equity holders |
| - | - | - | - | - | ||
Tax items taken directly to reserves |
| - | - | - | (1.5) | (1.5) | ||
|
| ________ | ________ | ________ | ________ | ________ | ||
Total transactions with owners |
| - | 2.2 | - | 0.4 | 2.6 | ||
|
| ________ | ________ | ________ | ________ | ________ | ||
Balance at 2 January 2021 |
| 2.0 | 15.7 | 0.4 | 303.5 | 321.6 | ||
|
| ======= | ======= | ======= | ======= | ======= | ||
Greggs plc
Consolidated statement of cashflows
for the 53 weeks ended 2 January 2021 (2019: 52 weeks ended 28 December 2019)
| Group | |
| 2020 | 2019 |
| £m | £m |
Operating activities |
|
|
Cash generated from operations (see below) | 61.6 | 246.0 |
Income tax paid | (10.7) | (20.3) |
Interest paid on lease liabilities | (6.5) | (6.6) |
Interest paid on borrowings | (0.8) | - |
| ________ | ________ |
Net cash inflow from operating activities | 43.6 | 219.1 |
| ________ | ________ |
Investing activities |
|
|
Acquisition of property, plant and equipment | (58.8) | (85.4) |
Acquisition of intangible assets | (2.8) | (3.7) |
Proceeds from sale of property, plant and equipment | 1.8 | 1.4 |
Interest received | 0.6 | 0.3 |
| ________ | ________ |
Net cash outflow from investing activities | (59.2) | (87.4) |
| ________ | ________ |
Financing activities |
|
|
Proceeds from issue of share capital | 2.2 | - |
Sale of own shares | 1.5 | 4.9 |
Purchase of own shares | (0.5) | (11.8) |
Proceeds from loans and borrowings | 100.0 | - |
Dividends paid | - | (72.1) |
Repayment of loans and borrowings | (100.0) | - |
Repayment of principal on lease liabilities | (42.1) | (49.6) |
| ________ | ________ |
Net cash outflow from financing activities | (38.9) | (128.6) |
| ________ | ________ |
Net (decrease)/increase in cash and cash equivalents | (54.5) | 3.1 |
|
|
|
Cash and cash equivalents at the start of the year | 91.3 | 88.2 |
| ________ | ________ |
Cash and cash equivalents at the end of the year | 36.8 | 91.3 |
| ======= | ======= |
|
|
|
Cash flow statement - cash generated from operations
| 2020 | 2019 |
| m | m |
|
|
|
(Loss)/profit for the financial year | (13.0) | 87.0 |
Amortisation | 4.0 | 3.8 |
Depreciation - property, plant and equipment | 56.9 | 56.1 |
Depreciation - right-of-use assets | 51.9 | 50.8 |
Impairment - property, plant and equipment | 5.2 | 0.3 |
Impairment - right-of-use assets | 8.8 | 0.5 |
Loss on sale of property, plant and equipment | 0.5 | 1.2 |
Release of government grants | (0.5) | (0.5) |
Share-based payment expenses | 0.9 | 4.4 |
Finance expense | 6.7 | 6.5 |
Income tax expense | (0.7) | 21.3 |
Decrease / (increase in inventories) | 1.4 | (3.1) |
(Increase) / decrease in receivables | (12.3) | 4.5 |
(Decrease) / increase in payables | (48.2) | 19.9 |
Decrease in provisions | - | (1.7) |
Decrease in pension liability | - | (5.0) |
| ________ | ________ |
Cash from operating activities | 61.6 | 246.0 |
| ======= | ======= |
Greggs plc
Notes
1. Basis of preparation and accounting policies
The preliminary announcement has been prepared in accordance with international accounts standards in conformity with the requirements of the Companies Act 2006 and, as regards the Group accounts, International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union [("IFRSs as adopted by the EU"). It does not include all the information required for full annual accounts.
The financial information set out above does not constitute the Company's statutory accounts for the years ended 2 January 2021 or 28 December 2019 but is derived from these accounts. Statutory accounts for the 52 weeks ended 28 December 2019 have been delivered to the registrar of companies, and those for the 53 weeks ended 28 December 2021 will be delivered in due course. The auditor has reported on those accounts; the audit reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The preliminary announcement has been prepared using the accounting policies published in the Group's accounts for the 52 weeks ended 28 December 2019, which are available on the Company's website www.greggs.co.uk. From 29 December 2019 the following amendments were adopted by the Group:
• Amendments to References to the Conceptual Framework in IFRS Standards.
• Amendments to IAS 1 and IAS 8: Definition of Material.
• Amendment to IFRS 16 Covid-19-Related Rent Concessions
Their adoption did not have a material effect on the accounts. The Group chose not to use the practical expedient available in the amendment to IFRS 16.
Restatement of comparatives
Due to a change in accounting policy there has been a prior year restatement of deferred tax balances as a result of an agenda decision issued by the IFRS Interpretations Committee (IFRIC) in May 2020 which clarified the accounting for deferred tax when the recovery of the carrying amount of an asset gives rise to multiple tax consequences. In these situations, the Company previously assessed the net position for recoverability but following the IFRIC agenda decision is now required to consider the tax consequences separately and as a result a deferred tax asset of £5.7 million relating to buildings which previously qualified for industrial buildings allowances that was first recognised in 2008 has been derecognised in the opening position for the comparative period due to not being considered recoverable. This deferred tax asset of £5.7 million remains unrecognised at 2 January 2021.
This restatement has resulted in the following balance sheet changes whereby deferred tax is adjusted by £5.7 million, resulting in derecognition of the previous deferred tax asset and recognition of a deferred tax liability, and retained earnings reduced by £5.7 million. There is no impact on profit and loss or earnings per share in either the current or the prior year.
| Group | Parent Company
| ||
| At 28 December 2019 | At 30 December 2018 | At 28 December 2019 | At 30 December 2018 |
| £ million | £ million | £ million | £ million |
Deferred tax asset / (liability |
|
|
|
|
As originally stated - deferred tax asset | 3.3 | 0.2 | 3.7 | 0.6 |
Adjustment | (5.7) | (5.7) | (5.7) | (5.7) |
| _____ | _____ | _____ | _____ |
As restated - deferred tax liability | (2.4) | (5.5) | (2.0) | (5.1) |
| ===== | ===== | ===== | ===== |
|
|
|
|
|
Retained earnings |
|
|
|
|
As originally stated | 330.9 | 313.2 | 329.2 | 311.5 |
Adjustment | (5.7) | (5.7) | (5.7) | (5.7) |
| _____ | _____ | _____ | _____ |
As restated | 325.2 | 307.5 | 323.5 | 305.8 |
| ===== | ===== | ===== | ===== |
The accounting policy for deferred tax has been updated to reflect that when the recovery of the carrying amount of an asset gives rise to multiple tax consequences which are not subject to the same income tax laws, separate temporary differences are identified, and the deferred tax on these is accounted for separately, including assessment of the recoverability of any deferred tax assets that arise.
Going concern
The Directors have considered the adoption of the going concern basis of preparation for these accounts in the context of the continued uncertainty regarding the ongoing impact of Covid-19 on the trading performance of the Group. At the end of the reporting period the Group had available liquidity comprised of cash and cash equivalents plus an undrawn revolving credit facility ('RCF') (which is committed to December 2023) totaling £106.8 million. The RCF covenants relate to maximum borrowing levels and minimum liquidity for the 2021 financial year, thereafter they relate to maximum leverage and a minimum fixed charge cover. How these covenants are measured and the required ratios are set out in note 2.
In 2020 it was necessary to protect the cash position of the Group whilst the additional credit facilities were put in place. Dividends and capital expenditure were temporarily stopped along with any non-essential expenditure. Government support for job retention was accessed and the Company benefitted from business rate relief.
The Directors have reviewed cash flow forecasts - which include severe but plausible downsides - prepared for a period of 12 months from the date of approval of these accounts as well as covenant compliance for that period.
The forecasts assume that:
- the Covid-19 pandemic requires two months of further lockdown restrictions in November 2021 and February 2022, during which the Company continues to trade as it has done during the most recent periods of lockdown restrictions (i.e. its shops remain open albeit trading at reduced levels);
- there is a gradual recovery in sales levels outside of the restricted periods, which the Group has modelled based on experience in the second half of 2020;
- no further government support is utilised (including for periods where continued availability of support has already been announced);
In this scenario the Group is able to operate without needing to draw on its existing committed lending facility and without taking mitigating actions such as reducing capital expenditure and other discretionary spend.
The Directors further considered a more severe scenario where the Group suffers from a brand-damaging food scare resulting in a significant sales reduction in addition to the downside assumptions described above. In this scenario the Group would take mitigating actions in respect of capital expenditure and other discretionary spend. This forecast scenario shows a possible requirement to draw on the RCF but no breaches of the covenants linked to it.
After reviewing these cash flow forecasts and considering the continued uncertainties and mitigating actions that can be taken, the Directors believe that it is appropriate to prepare the accounts on a going concern basis. After making enquiries, the Directors are confident that that the Company and the Group will have sufficient funds to continue to meet their liabilities as they fall due for at least 12 months from the date of approval of the financial statements. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
Judgements and estimates
In preparing this preliminary announcement, management have made judgements and estimates that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
Impairment
Property, plant and equipment and right-of-use assets are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. For example, shop fittings and right-of-use assets may be impaired if sales in that shop fall. When a review for impairment is conducted the recoverable amount is estimated based on either value-in-use calculations or fair value less costs of disposal. Both value-in-use and fair value less costs of disposal calculations require management to estimate of future cash flows generated by the assets and an appropriate discount rate. Consideration is also given to whether the impairment assessments made in prior years remain appropriate based on the latest expectations in respect of recoverable amount. Where it is concluded that the impairment has reduced, a reversal of the impairment is recorded.
The Covid-19 crisis has meant that all shops have had periods of no, or reduced, sales and the rate of recovery of sales is inherently uncertain. This is considered to be an impairment trigger and as a result all assets in company-managed shops have been tested for impairment.
As a result of the crisis and following the shutdown period a decision was made not to reopen 38 shops. All shop fittings and right-of-use assets in these shops have been fully impaired (with no significant degree of estimation required) at a cost of £5.3 million (of which £2.5 million relates to fixtures and fittings and £2.8 million relates to right-of-use assets). In addition, a provision of £2.5 million was made for onerous costs and dilapidations directly related to these closures which is expected to be utilised over the remaining term of these shop leases. The assumptions regarding the lease term in respect of these shops were reviewed and where required the lease liability was remeasured before assessing the shop for impairment.
For the remainder of the estate an impairment review was carried out using the following assumptions:
• Shops have been categorised into different catchment areas (e.g., city centres, transport hubs) and assumptions made on the rate of like-for-like sales recovery for each catchment;
• Like-for-like sales have been assumed to grow from December 2020 levels to a level six per cent lower than pre-Covid-19 levels (on average across the estate) by the end of 2021, then continuing to grow to pre-lockdown levels by December 2022, with a further one per cent growth per annum beyond that through to 2027. Where shops are used to fulfil online orders, the revenues for fulfilling these are included within the estimated cash flows for the shop;
• The like-for-like sales recovery assumes temporary national lockdown restrictions (i.e. schools and non-essential retail closed) for the whole of Q1 2021, with further temporary lockdowns in November 2021 and February 2022. For those periods it is assumed that Greggs would trade at a sales level consistent with its recent experience of these conditions;
• EBITDAR is used as a proxy of net cash flow excluding rental payments. The base figures are assumed to include any potential impacts of Brexit;
• The discount rate is based on the Group's WACC with an uplift for risk in the current environment and at 2 January 2021 was 6.7 per cent (28 December 2019: 5.4 per cent); and
• Consideration of the appropriate period over which to forecast cashflows including with regard to remaining lease term.
On the basis of these calculations an impairment provision of £8.7 million has been made in respect of 87 shops (of which £2.7 million relates to fixtures and fittings and £6.0 million relates to right-of-use assets).
2. Segmental analysis
The Board is considered to be the 'chief operating decision-maker' of the Group in the context of the IFRS 8 definition. In addition to its Company-managed retail activities, the Group generates revenues from its Business to Business ('B2B') channel which includes franchise and wholesale activities. With the reduction in the level of company-managed retail activities during 2020 both channels are now categorised as reportable segments for the purposes of IFRS 8.
Company-managed retail activities - the Group sells a consistent range of fresh bakery goods, sandwiches and drinks in its own shops. Sales are made to the general public on a cash basis. All results arise in the UK.
B2B channel - the Group sells products to franchise and wholesale partners for sale in their own outlets as well as charging a licence fee to franchise partners. These sales and fees are invoiced to the partners on a credit basis. All results arise in the UK.
In the current year the Board has regularly reviewed the revenues of each segment separately. A review of trading profit for each segment was not possible as there was no basis on which meaningfully to allocate costs during the period when the Company-managed shops were closed. The Board receives information on overheads, assets and liabilities on an aggregated basis consistent with the Group accounts.
| 2020 | 2020 | 2020 | 2019 | 2019 | 2019 |
| Retail company-managed shops | B2B | Total | Retail company-managed shops | B2B | Total |
| £m | £m | £m | £m | £m | £m |
Revenue | 715.3 | 96.0 | 811.3 | 1,073.8 | 94.1 | 1,167.9 |
| ======= | ======= | ======== | ======= | ======= | ======== |
Trading (loss)/profit* |
|
| 66.4 |
|
| 205.2 |
Overheads including profit share |
|
| (73.4) |
|
| (90.4) |
|
|
| ________ |
|
| ________ |
Operating (loss)/profit |
|
| (7.0) |
|
| 114.8 |
Finance expense |
|
| (6.7) |
|
| (6.5) |
|
|
| _______ |
|
| _______ |
(Loss)/profit before tax |
|
| (13.7) |
|
| 108.3 |
|
|
| ======= |
|
| ======= |
* Trading profit is defined as gross profit less supply chain costs and retail costs (including property costs) and before central overheads.
3. Exceptional items
| 2020 | 2019 |
| £m | £m |
Cost of sales |
|
|
Supply chain restructuring - redundancy | 0.1 | 0.7 |
- depreciation and asset write-off | - | 0.1 |
- transfer of operations | 0.7 | 5.0 |
- property-related | - | 0.1 |
| ________ | ________ |
Total exceptional items | 0.8 | 5.9 |
| ======= | ======= |
Supply chain restructuring
This charge arises from the decisions, announced in 2016 and 2017, to invest in and reshape the Company's supply chain in order to support future growth. In 2020 and 2019 the costs related to accelerated depreciation and the expenses incurred as a result of further consolidation of manufacturing into dedicated centres of excellence, including additional running costs. This programme of investment is due to be completed in 2021.
4. Taxation
Recognised in the income statement
| 2020 | 2019 |
| Total | Total |
| £m | £m |
|
|
|
Current tax |
|
|
Current year | (0.6) | 22.2 |
Adjustment for prior years | (0.6) | (0.1) |
| ________ | ________ |
| (1.2) | 22.1 |
| ________ | ________ |
Deferred tax |
|
|
|
|
|
Origination and reversal of temporary differences | 0.4 | (0.2) |
Adjustment for prior years | 0.1 | (0.6) |
| ________ | ________ |
| 0.5 | (0.8) |
| ________ | ________ |
Total income tax expense in income statement |
(0.7) |
21.3 |
| ======= | ======= |
5. Earnings per share
Basic earnings per share for the 53 weeks ended 2 January 2021 is calculated by dividing profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the 53 weeks ended 2 January 2021 as calculated below.
Diluted (loss)/earnings per share
There are no potential ordinary shares in the current year that are considered to be dilutive. The number of potential ordinary shares that could be dilutive in future years is 915,989.
Profit attributable to ordinary shareholders
| 2020 | 2019 |
| Total | Total |
| £m | £m |
(Loss)/profit for the financial year attributable to equity holders of the Parent | (13.0) | 87.0 |
| ======= | ======= |
Basic (loss)/ earnings per share | (12.9p) | 86.2p |
Diluted (loss) earnings per share | (12.9p) | 85.0p |
Weighted average number of ordinary shares
| 2020 | 2019 | |
| Number | Number | |
|
|
| |
Issued ordinary shares at start of year | 101,155,901 | 101,155,901 | |
Effect of own shares held | (302,104) | (342,748) | |
Effect of shares issued | 113,334 | - | |
| __________ | __________ | |
Weighted average number of ordinary shares during the year | 100,967,131 | 100,813,153 | |
Effect of share options in issue | - | 1,505,456 | |
| __________ | __________ | |
Weighted average number of ordinary shares (diluted) during the year | 100,967,131 | 102,318,609 | |
| ========= | ========= | |
6. Dividends
The final declared dividend of 33.0p in respect of 2019 was cancelled as a cash preservation measure in response to the Covid-19 crisis. No dividends have been declared in respect of 2020.
|
|
| 2020 | 2019 |
|
|
| £m | £m |
|
|
|
|
|
2018 final dividend |
|
| - | 25.3 |
2019 interim dividend |
|
| - | 12.0 |
2019 special dividend |
|
| - | 35.3 |
2019 final dividend |
|
| - | - |
|
|
| ________ | ________ |
|
|
| - | 72.6 |
|
|
| ======= | ======= |
7. Related parties
The Group has a related party relationship with its subsidiaries, associates, Directors and executive officers and pension schemes.
There have been no related party transactions in the year which have materially affected the financial position or performance of the Group.
8. Principal risks and uncertainties
Approach to risk management
Our risk management methodology is well embedded in the business, and gives a holistic view of our risk exposure. The effective taking and managing of risk is essential to enable us to meet our business objectives.
The Board has ultimate responsibility for our risk management approach, and sets the parameters within which risk can be accepted. Elements of this responsibility are delegated to the Audit Committee, including reviewing the effectiveness of the overall risk and assurance approach.
Proactive risk management is the responsibility of the Risk Committee, a management committee comprising representation from across the business which meets at least three times each year. It ensures that mitigation plans are put into place to manage risks appropriately. Each functional area within the business is responsible for the ongoing operational management of existing and emerging risks.
Emerging risks
New and emerging risks facing the business are discussed at each Risk Committee meeting, and are escalated to the Board as appropriate, where the potential impact is considered to be significant. Discussions are informed by matters raised across the business, providing a route for management to escalate any concerns. The Board is also asked to identify and consider new and emerging risks, and seeks assurance that such risks are being properly managed.
In considering the new and emerging risk landscape, we have benchmarked our view against other organisations, to inform our discussions and ensure that we have considered all relevant areas.
Covid-19 has impacted on a number of our principal risks during the year. This is reflected in our assessment of the movement on risk set out below.
Principal risks and uncertainties
The Directors have carried out a robust assessment of the emerging and principal risks facing the Company, and set out below are those which are considered to present the most significant threat to the business' future development or performance. The position described below is a summary of the status at the date of the annual report.
Where appropriate, the impact of these risks occurring has been considered when devising the scenarios tested as part of the financial viability statement, though clearly the ongoing pandemic is the most significant factor.
Additional risks and uncertainties, not presently known to management or deemed less material currently, may also have an adverse effect on the business. Further, the exposure to each risk will evolve as we take mitigating actions, or as new risks emerge.
In disclosing our risk exposures, we have refocussed one of our technology risks identified previously to consider the impact of increased reliance on systems, rather than system capacity.
The principal risks are grouped according to their overriding theme, and are described along with key mitigations, the strategic pillars to which they are linked, and any movement in net risk during the year.
| Description | Key mitigations | Change |
ORGANISATIONAL CAPAPCITY | Business transformation |
|
|
Our current business change programme continues. Expected timelines or savings may not be met, and there may be disruption to our customers. | Our planned timetable has changed to reflect the current environment, with some elements of the programme accelerated, and others postponed. We now have a agreed model which can be implemented at our remaining supply sites. | ↓
| |
Supply chain disruption |
|
| |
Our more centralised production and larger distribution centres of excellence create a greater reliance on technology. As a result, the impact of any operational failure on our shops and customers increases. | We have processes in place to manage disruption at our sites, and these have been tested during the ongoing pandemic. Our capability to handle such situations has improved, and we have learned to cope more effectively with disruption. The availability of frozen stock also aids our response. | ↓
| |
Management of third-party relationships |
|
| |
As our reliance on third parties for services, ingredients or business support increases, we become more exposed to their business interruption risks. This could impact on our ability to produce, distribute or sell our products. There is also an increasing risk to product integrity, particularly in relation to food fraud. | All third parties are vetted prior to engagement, and key supplier relationships are managed by our central procurement team. The impact of the UK leaving the EU has increased this risk due to variability in border controls. | ↑
| |
Ability to attract / retain / motivate people |
|
| |
Market forces may result in a shortage of available workforce, particularly within our shops and specialist IT roles. The former may be compounded by the relative complexity of our shop operations compared with other retailers. | We have developed new centralised recruitment processes, making the application journey easier for potential employees. We offer attractive remuneration and benefit packages to reward our teams and encourage retention. The current economic environment also reduces this risk. | ↓
|
BRAND PERCEPTION | Description | Key mitigations | Change |
Damage to reputation |
|
| |
As our profile increases, so does the impact of any reputational damage due to a loss of customer trust. This could result from the sale of unsafe food, or products not meeting customer requirements, for example.
Engaging with a wider range of partners could result in a loss of control over our brand.
| Procedures are in place throughout our supply sites and shops to ensure that food safety is maintained. Compliance is monitored both internally and by regulators. Routine checks are carried out to confirm the integrity of our products and ingredients. We have robust crisis management procedures in place, and utilise third-party support where appropriate. All the processes described above are equally applicable to our franchise partners. | ↑
|
TECHNOLOGY | Description | Key mitigations | Change |
Cyber & data security |
|
| |
Our data and systems are exposed to external threats such as hackers or viruses, as are all businesses. These could result in data breaches, or disruption to our operation. The threat landscape is constantly evolving. An increase in homeworking due to the pandemic increases this risk.
| We actively monitor our networks and systems, including conducting regular penetration testing. Action is taken to protect against emerging threats. Our approach to information security is closely monitored by the Board. | ↑
| |
Reliance on systems |
|
| |
Greater system integration and interconnectivity results in an increased impact in the event of any process failure or technology outage. Network bandwidth could prove inadequate as we move to a cloud-based IT model.
| We work closely with partners to provide additional capacity and technical expertise when required. Contingency plans continue to evolve in response to system and process changes.
| ↔ |
REGULATORYCOMPLIANCE | Description | Key mitigations | Change |
Allergens |
|
| |
Increased focus on allergens and associated legislation brings added complexity to our operations. | We continue to progress towards a full allergen labelling solution as required by legislation, developing new processes and controls to ensure compliance. Extensive training is planned, to ensure that our teams are familiar with the complex new working methods. Allergen complaints are fully investigated and appropriate action taken to address the root cause. | ↑
| |
Other legislation and taxation |
|
| |
New legislation may necessitate additional processes, or changes to our operations, such as restricting our marketing opportunities. Continued growing concern over the environment and health may drive the introduction of additional levies and taxes, or new government requirements. | We input into the development of new regulations via engagement with industry bodies. Where new requirements are introduced, we take timely action to ensure we are compliant. Our "Greggs Pledge" demonstrates our commitment to operating ethically. | ↑
| |
Significant fines for non-compliance with legislation |
|
| |
Large financial penalties could be imposed on the business for breaches of legislation relating to many aspects of our operation. This risk is higher in the current situation, with broader regulatory requirements and an uncertain political and legislative environment. The rate of change of legislation, and complexity of new regulations further adds to the risk. | We have a system of due diligence controls and monitors in place across the business, to ensure that we continue to comply with requirements. Our audit processes confirm correct procedures are being followed. We have Primary Authority arrangements in place for Food Safety, Health and Safety, and Fire Safety, and have liaised closely regarding our approach to Covid-19.
| ↔ | |
Impact of Brexit |
|
| |
Following the UK's exit from the EU, there remains uncertainty as to the regulatory requirements, with an associated future burden on the business. There is the potential for disruption at borders. | Actions were taken to ensure that all appropriate measures were in place. Contingency plans will be implemented should there be any disruption to our operations.
| ↓
|
EXTERNAL FACTORS | Description | Key mitigations | Change |
Impact of pandemic |
|
| |
The ongoing pandemic could have an adverse impact on our operations and the demand for our products. It is likely that working patterns and shopping habits will have changed, and there is the potential for a general economic downturn. The availability of liquidity may be restricted. | We continue to progress with the development of our business model, to provide our products to new customers via new routes, including a rapid rollout of our delivery partnership with JustEat. Our varied shop locations reduce our exposure to loss of high street footfall. We have demonstrated our ability to continue trading through all levels of restrictions. We have secured significantly more access to funding, should it be required. | ↑
| |
Climate change |
|
| |
Changes in climate could impact our business, both from a physical perspective and a result of the transition to carbon neutrality. | We have recently published our 'Greggs Pledge', which sets out our commitment to sustainability. The ten objectives will underpin our decision making and link closely to our strategy. We are taking action across the business to increase our climate resilience and improve our sustainability. | n/a |
9. Alternative Performance Measures
The Group uses alternative performance measures ('APM's) which, although financial measures of either historical or future performance, financial position or cash flows, are not defined or specified by IFRSs. The Directors use a combination of these APMs and IFRS measures when reviewing the performance, position and cash of the Group. The APMs in respect of pre-exceptional results are reconciled in the Income Statement and Notes 3 and 5.
Like-for-like (LFL) sales growth - compares year-on-year cash sales in our company-managed shops, with a calendar year's trading history and is calculated as follows:
| 2020 | 2019 |
| £m | £m |
|
|
|
Current year LFL sales | 665.2 | 987.8 |
Prior year LFL sales | 1,042.2 | 904.7 |
| ________ | ________ |
(Decline)/growth | (377.0) | 83.1 |
| ======== | ======== |
|
|
|
LFL sales (decline)/growth percentage | (36.2%) | 9.2% |
Return on capital employed(ROCE) - calculated by dividing profit before tax by the average total assets less current liabilities for the year.
|
| 2020 | 2019 | 2019 |
|
|
| Underlying | Including exceptional items |
|
| £m | £m | £m |
|
|
|
|
|
(Loss)/profit before tax |
| (13.7) | 114.2 | 108.3 |
|
| ======= | ======= | ======= |
Capital employed: |
|
|
|
|
Opening |
| 580.1 | 559.3 | 559.3 |
Closing |
| 589.8 | 580.1 | 580.1 |
|
| ------------- | ------------- | ------------- |
Average |
| 584.9 | 569.7 | 569.7 |
|
| ======= | ======= | ======= |
|
|
|
|
|
Return on capital employed |
| (2.3%) | 20.0% | 19.0% |
Notional return on capital employed - calculated by dividing profit before tax by the average total assets less current liabilities for the year and taking into account the pre-agreed adjustments in respect of IFRS 16 used by the Remuneration Committee for determination of incentive outcomes.
| 2020 |
| 2020 |
| As reported | IFRS 16 adjustments | Notional |
| £m | £m | £m |
|
|
|
|
(Loss)/profit before tax (see page X) | (13.7) | 5.1 | (8.6) |
| ======= | ======= | ======= |
|
|
|
|
Capital employed |
|
|
|
Opening | 576.8 | (219.2)* | 357.6 |
Closing | 585.6 | (235.3)* | 350.3 |
| ------------- |
| ------------- |
Average | 581.2 |
| 354.0 |
| ======= |
| ======= |
|
|
|
|
Return on capital employed | (2.4%) |
| (2.4%) |
| 2019 |
| 2019 |
| As reported | IFRS 16 adjustments | Notional |
| Restated |
| Restated |
| £m | £m | £m |
|
|
|
|
Profit before tax (see page X) | 108.3 | 4.2 | 112.5 |
| ======= | ======= | ======= |
|
|
|
|
Capital employed |
|
|
|
Opening | 556.0 | (216.3)* | 339.7 |
Closing | 576.8 | (219.2)* | 357.6 |
| ------------- |
| ------------- |
Average | 566.4 |
| 348.7 |
| ======= |
| ======= |
|
|
|
|
Return on capital employed | 19.1% |
| 32.3% |
* These adjustments are based on forecasts made on transition and therefore cannot be reconciled to the accounts.
Net cash inflow from operating activities after lease payments - calculated by deducting the repayment of principle of lease liabilities from net cash flow from operating activities
|
| 2020 |
| 2019 |
|
| £m |
| £m |
|
|
|
|
|
Net cash inflow from operating activities |
| 43.6 |
| 219.1 |
Repayment of principle of lease liabilities |
| (42.1) |
| (49.6) |
|
| ------------- |
| ------------- |
Net cash inflow from operating activities after lease payments |
| 1.5 |
| 169.5 |
|
| ======= |
| ======= |
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