10th Mar 2006 07:01
Greggs PLC10 March 2006 10 March 2006 GREGGS plc PRELIMINARY RESULTS FOR THE 52 WEEKS ENDED 31 DECEMBER 2005 Greggs plc is the UK's leading retailer specialising in sandwiches, savouriesand other bakery products, with a particular focus on takeaway food andcatering. It has over 1,300 retail outlets throughout the UK, trading under theGreggs and Bakers Oven brands. • Record pre-tax profit of £50.2 million (2004: £47.8 million) - up 5.0 per cent • Dividends per share increased 10.4 per cent to 106.0 pence (2004: 96.0 pence) • Fourteenth consecutive year of profit, earnings and dividend growth • Like-for-like sales up 4.0 per cent - core volume up 1.0 per cent • Slower growth in second half reflects increasingly challenging trading environment • Significant cost increases in shop wages and shop and bakery energy • 72 new shops opened - net addition of 56 to 1,319 after re-sites and closures • Consistently strong cash flow: net cash balances increased £3.0 million to £65.6 million • Like-for-like sales level in first nine weeks of current year • Further £5 million increase in energy costs expected in 2006 "The trends that emerged during the second half of 2005 have continued in thecurrent year to date. We are taking action to ameliorate the effects of thismore challenging trading climate by continuing to bear down on costs across thegroup as well as finding more cost effective ways of increasing sales. However,profits in the first nine weeks are materially below the level of last year;whilst it is much too early to predict the performance of the business for theyear as a whole, we believe that it is unlikely that we will attain the level ofprofit achieved in 2005. The business has great fundamental strengths in itsbrands, reputation, finances, management and people, and I am sure that thesewill continue to stand us in good stead during this testing period." - Derek Netherton, Chairman ENQUIRIES:Greggs plc Hudson SandlerSir Michael Darrington, Managing Director Jessica Rouleau / James HillMalcolm Simpson, Finance Director Tel: 020 7796 4133Tel: 020 7796 4133 on Friday, 10 March only keithhann.communications 0191 281 7721 thereafter Keith Hann Tel: 07831 521870 CHAIRMAN'S STATEMENT As expected, we made modest progress this year in the face of an increasinglychallenging trading environment and substantial cost pressures in the secondhalf, particularly in energy. This is the Group's fourteenth consecutive yearof profit, earnings and dividend increases, and our strategy remains focused onthe delivery of continued growth in the longer term. Results Group sales for the 52 weeks ended 31 December 2005 increased by 5.8 per cent to£533 million (2004: £504 million), including like-for-like sales growth of 4.0per cent. Operating profit rose by 3.0 per cent to £47.1 million (2004: £45.8million), representing an operating margin of 8.8 per cent (2004: 9.1 per cent).This reduction reflected the decline in our like-for-like sales growth as theyear progressed, and significant cost increases particularly for shop wages andshop and bakery energy. Although this year included one fewer trading week than2004, a more favourable pattern of shop holiday closures over the Christmasperiod meant that there was little net effect on profit. After increased finance income of £3.0 million (2004: £2.0 million) as a resultof higher average cash balances, pre-tax profit improved by 5.0 per cent to£50.2 million (2004: £47.8 million). Diluted earnings per share rose by 4.2per cent to 278.9 pence (2004: 267.7 pence). Net cash in the balance sheet atthe year end was £65.6 million (2004: £62.6 million), an increase of £3.0million. Dividend The Board recommends a final dividend of 70.0 pence per share (2004: 66.0pence), an increase of 6.1 per cent. Together with the interim dividend of 36.0pence (2004: 30.0 pence), paid in October 2005, this makes a total for the yearof 106.0 pence (2004: 96.0 pence). This is a rise of 10.4 per cent and theincreased dividend is covered 2.6 times by diluted earnings per share. This is our twenty-first consecutive year of dividend growth since Greggs cameto the stock market in 1984, which reflects the Group's consistently strong cashgeneration, and our continued growth in earnings per share. Subject to the approval of the Annual General Meeting, the final dividend willbe paid on 25 May 2006 to shareholders on the register at 28 April 2006. Business highlights Trading conditions grew more challenging as the year progressed, as growth inour market place slowed. Increasing pressure on consumer spending, reducedactivity on the high street and increased competition were reflected in ourperformance across the country. We have focused on controlling our costs tocope with this demanding environment, while maintaining our high standards ofproduct quality, presentation and service. New shop openings exceeded ourtarget and we have continued to invest in brand advertising and shoprefurbishments designed to increase consumer awareness and appeal. MikeDarrington provides a fuller commentary on these and other trading and businessdevelopment issues in his Managing Director's Report on pages 5 - 9. The Board Malcolm Simpson, who reaches the age of 65 in October, has decided to retire asFinance Director after serving on the Board in that position since 1975. Hewill relinquish the finance role with effect from our AGM in May, though he willremain an Executive Director with continuing responsibility for our important ITfunction. I would like to record our appreciation of his exceptionally long,dedicated and effective service. Richard Hutton FCA (37), who is currently Deputy Finance Director, is appointedto the Board as an Executive Director with effect from 13 March 2006, and willsucceed Malcolm as Finance Director in May. Richard qualified as an accountantwith KPMG and gained career experience with Procter & Gamble before joiningGreggs in 1998. He is a Non-Executive Director of Northern Recruitment Groupplc. We are delighted to welcome Sir Ian Gibson CBE (59) who has agreed to join theBoard as an additional Non-Executive Director with effect from 1 April 2006. Ianwas Chief Executive of Nissan Europe B.V., Senior Vice President of Nissan MotorCompany (Japan), Deputy Chairman of Asda Group and Chairman of BPB plc. Ian is aNon-Executive Director of Northern Rock plc and of GKN plc. On appointment, Ianwill become a member of the Company's Audit and Remuneration Committees. People Perhaps our greatest competitive strength is the cheerfulness and dedication ofour excellent team in our shops and bakeries, and their commitment to deliveringcustomer satisfaction by providing excellent products and service. Once again Iwould like to express the Board's thanks for their hard work during the year. Prospects The trends that emerged during the second half of 2005 have continued in thecurrent year to date. Like-for-like sales in the first nine weeks are levelwith last year, and we are facing increases in the order of £5 million in ourenergy costs. This includes the full year impact of a new one year electricitysupply agreement covering the majority of our shops, which took effect in autumn2005; this winter has also brought significantly increased gas and power costsin our bakeries and some larger retail outlets not covered by our contract. Webelieve that it will prove difficult to recover these extra costs through higherselling prices, given the less buoyant consumer spending climate and increasedcompetition. We are taking action to ameliorate the effects of this more challenging tradingclimate by continuing to bear down on costs across the group as well as findingmore cost effective ways of increasing sales. However, profits in the firstnine weeks are materially below the level of last year; whilst it is much tooearly to predict the performance of the business for the year as a whole, webelieve that it is unlikely that we will attain the level of profit achieved in2005. The business has great fundamental strengths in its brands, reputation,finances, management and people, and I am sure that these will continue to standus in good stead during this testing period. Derek Netherton, Chairman 10 March 2006 MANAGING DIRECTOR'S REPORT We have achieved another record result despite slowing sales growth andincreasing cost pressures in the second half. This is a testimony to thestrength of our proposition and above all to the quality of our excellent teamof people. Their pride and confidence in the business, and their commitment toproviding a friendly and efficient customer service, are our greatest assets forthe future. Trading performance As the Chairman has noted, trading conditions grew progressively more difficultduring 2005. These affected our operations under both our brands, and in everypart of the country. After a healthy start, with like-for-like sales growth of5.8 per cent in the 19 weeks up to our AGM in May, growth slowed in the finalweeks of the first half and remained under pressure for the remainder of theyear. Following the 5.2 per cent uplift reported for the first half, whichincluded core volume growth of 2.3 per cent, second half like-for-like salesincreased by an underlying 2.0 per cent, increased to 3.0 per cent by thebenefit of additional trading days over the Christmas holiday period. Corevolume in the second half was level with last year. The like-for-like salesincrease for the full 52 weeks was 4.0 per cent, including core volume growth of1.0 per cent. Taking the year as a whole, the weather was average for our business, and we donot believe that it had any appreciable effect on our performance. Moreimportant factors appear to have been a general slowing of growth in our marketplace, influenced by increasing pressure on consumer spending and reducedactivity on the high street. This has led to reduced demand from both shoppersand shop workers, while the proliferation of takeaway food outlets in recentyears has created an increasingly competitive trading climate. Our selling price inflation was 2.9 per cent in the first half and 3.0 per centin the second, averaging 3.0 per cent for the year. Although this partlyreflected our continuing programme to upgrade our products, we were able torecover some of our increased costs in wages and energy, though the major impactof higher electricity and gas prices came only in the final months of the year.The environment for ingredient costs was generally benign throughout the year,though our suppliers are now also coming under pressure from rising energyprices. We can be certain that energy will be a major inflationary element forthe foreseeable future, with our total costs in this area in 2006 likely to besome £5 million higher than last year. Including the benefit of new shop openings in the current and prior year, totalsales rose by 5.8 per cent, comprising increases of 9.1 per cent in the firsthalf and 3.3 per cent in the second. Operating profit grew by 8.7 per cent inthe first half and 0.7 per cent in the second, making an increase of 3.0 percent for the year. Pre-tax profit improved by 5.0 per cent to exceed £50 millionfor the first time. Greggs brand UK The nine Greggs divisions in the UK account for over 80 per cent of our retailportfolio and are the main contributor to Group profits. Like-for-like salesfor the year grew by 4.2 per cent, including core volume growth of 1.1 per cent.In the first half like-for-like sales increased by 5.5 per cent, includingcore volume growth of 2.3 per cent, while in the second half like-for-like salesadvanced by 3.1 per cent. We have trialled several new sales promotion activities to help drive coregrowth, and we plan to roll out the more successful of these as the yearprogresses. Bakers Oven brand The four Bakers Oven divisions grew more slowly than the Greggs brand, withlike-for-like sales for the year increasing by 3.2 per cent, including corevolume growth of 0.5 per cent. After a 3.9 per cent like-for-like uplift in thefirst half, including a core volume gain of 2.0 per cent, the second halfproduced a like-for-like increase of 2.7 per cent with nearly maintainedvolumes. Selling price inflation over the year as a whole was 2.7 per cent,compared with 3.1 per cent in Greggs. Bakers Oven's seated catering business makes it more exposed than Greggs to theeffects of reduced consumer activity on the high street, though its managementhas enjoyed considerable success in countering these trends by focusing andsimplifying the catering offer and improving products. Although the profitcontribution from the brand was lower than in 2004, when a very significantimprovement was achieved, I believe that the longer term trends in Bakers Ovenare encouraging. Greggs Continental Europe We opened a third shop in Antwerp in September 2005 and continue to trade in twolocations in Leuven, giving us a total of five shops in Belgium. Sales trendsare positive and our knowledge of the market place is constantly improving. Weexpect to open a further two to three shops in Belgium over the next 12 months. Retail profile We opened 72 new shops during the year and closed 16, giving us a net increaseof 56 units to a total of 1,319 at the year end. This exceeded the target of 45net openings that we set at the beginning of the year. At 31 December 2005 there were 1,098 units under the Greggs brand in the UK, anet addition of 53; five under the Greggs fascia in Belgium, an increase of one;and 216 under the Bakers Oven brand, a net addition of two. Work has continued to refine and develop the new Greggs shop format, so as toreinforce our bakery heritage and reduce the cost of refits. I am pleased toreport that we have made significant progress in this area, reflected in anacceleration of our refurbishment programme during 2005, when we completed 34comprehensive shop refurbishments and 15 minor refits. We plan to add approximately 35 new shops to our portfolio in 2006, net ofclosures. These will be predominantly under the Greggs brand in the UK. Product profile Takeaway food categories continued to outperform other product groups under bothour brands. Although they are now a small proportion of our sales, we wereencouraged that our marketing focus on re-emphasising our bakery credentialshelped to generate modest growth in sales of bread and rolls in the second half,for the first time in many years. During 2005 we have significantlystrengthened our capability in the area of category management, in terms of bothpeople and processes, allied to the substantial resources and facilities at ourGroup Technical Centre in Newcastle upon Tyne. We expect to see increasingbenefit from our initiatives in both product development and range optimisationduring 2006 and beyond. One important example of this will be the expansion andimprovement of our healthier-eating range. Capital investment Capital expenditure during the year totalled £41.7 million, a substantialincrease on the £25.0 million we invested in 2004, but below our previous budgetof £47.0 million. The main components of our expenditure were £18.2 million(2004: £13.4 million) on new shops and refurbishments, £18.4 million (2004:£8.3 million) on land, buildings and plant, and £5.1 million (2004: £3.3million) on vehicles. The construction of our second central savouries unit at Balliol Park, Newcastleupon Tyne, is progressing on schedule and on budget. We expect to commissionthis major new plant, which has involved a total investment of £13 million,during the current year, providing additional capacity for the future growth ofthe business, enhanced efficiencies and improved working conditions for ourstaff. We have nearly completed a new production and distribution facility forBakers Oven at Balliol Park to replace the Carricks bakery in the city. During 2006 we plan to invest £40 million in the business, with major projectsincluding the relocation of our Rutherglen bakery in Glasgow to a new site atnearby Cambuslang, where we will construct a new plant delivering improvedproductivity and with the capacity to serve more shops in Scotland as ourexpansion continues. Cash flow and balance sheet The business is consistently and strongly cash generative, and this haspermitted us to increase dividends to shareholders by a total of 32.5 per centover the last two years while maintaining an exceptionally strong balance sheet.We have also made an additional contribution of £4.0 million to our mainpension scheme, notwithstanding which we have a deficit of £9.7 million measuredunder IAS 19 at 31 December 2005. Net cash at the year end totalled £65.6 million, an increase of £3.0 millionduring the year, though our average cash balances were substantially higher thanin 2004. We are currently considering plans for the use of our surplus cash. The community and the environment Caring for the community is one of the most important of our values, which makeGreggs such a special place to work. In May 2005 we passed an importantmilestone with the opening of our 100th Greggs Breakfast Club, and 113 of thesenow operate in primary schools in disadvantaged areas across the country,providing free, healthy breakfasts to children. Other charitable initiativesduring the year included raising over £310,000 for children's cancer charitiesthrough regional fun runs, which attracted over 11,000 participants. Over£150,000 was distributed by our divisional charity committees, which receivearound a third of their funding from employees' Give As You Earn donations,which are matched pound for pound by the Greggs Trust. The Trust remains ourprincipal channel for the distribution of the Group's charitable donations,which last year totalled £609,000 (2004: £615,000), in line with our commitmentas a founder member of the 'Per Cent' Club. We also remain an active supporterof Business in the Community. As well as working to improve the lives of people in the communities where weoperate, we aim to adopt a responsible approach to the environment. We continueto comply with all relevant legislation and regulations, and conduct regularenvironmental audits of all our operations. During 2005 we have paid particularattention to our SEBA (Save Energy Be Aware) initiative in all shops andfactories, designed to reduce energy consumption. We have also introduced awaste management initiative designed to reduce the amount of food wastegenerated by our shops and bakeries, and to examine alternatives to landfill forits disposal. Efforts have continued to maximise the recycling of packaging andother appropriate materials, and we are working on a further initiative toreduce the use of packaging at source. People Our super team of people are critical to the business, and we have always beencommitted to treating them with fairness, consideration and respect. Bytreating our staff well, we believe we will ensure that they in turn will treatour customers well, which is one of the most important keys to business success.I am grateful to all our 18,833 employees for the hard work they have done toproduce another record result for the Group, in an increasingly testing tradingclimate. I would also like to take this opportunity to record our appreciationof the particular contribution of Steve Smith, a member of our senior executiveteam who retired during the year after 27 years with Greggs, including 13 asmanaging director of our South West division. The future As the Chairman has noted, 2006 looks set to be the most challenging year theGroup has faced for some considerable time. We are doing all we can to continuedriving the business forward without compromising our core values, or ourcommitment to excellent products and service. I am sure that these provide uswith the firmest of foundations for the future, as we continue our drive todeliver long term growth as Europe's finest bakery-related retailer. Sir Michael Darrington Managing Director 10 March 2006 Greggs plcConsolidated income statementfor the 52 weeks ended 31 December 2005(2004: 53 weeks ended 1 January 2005) 2005 2004 £'000 £'000 Revenue 533,435 504,186Cost of sales (203,346) (192,860) _______ _______ Gross profit 330,089 311,326 Distribution and selling costs (247,188) (229,510)Administrative expenses (35,758) (36,053) _______ _______ Operating profit 47,143 45,763 Finance income 3,106 2,003Finance expenses (90) (15) _______ _______ Profit before tax 50,159 47,751 Income tax (16,085) (15,474) _______ _______ Profit for the year attributable to equity holders of the 34,074 32,277parent ====== ======Basic earnings per share 282.1p 270.5pDiluted earnings per share 278.9p 267.7p Greggs plcConsolidated statement of recognised income and expensefor the 52 weeks ended 31 December 2005(2004: 53 weeks ended 1 January 2005) 2005 2004 £'000 £'000 Actuarial losses on defined benefit pension plans (2,345) (903)Tax on items taken directly to equity 704 271 ________ ________Net expense recognised directly in equity (1,641) (632) Profit for the financial year 34,074 32,277 ________ ________ Total recognised income and expense for the financial yearattributable to equity holders of the parent 32,433 31,645 ======= ======= Greggs plcConsolidated balance sheetat 31 December 2005 (2004: 1 January 2005) 2005 2004 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 180,826 163,832 Current assetsInventories 7,713 7,283Trade and other receivables 15,861 13,949Cash and cash equivalents 65,602 62,601 ________ ________ 89,176 83,833 ________ ________Total assets 270,002 247,665 ________ ________LIABILITIESCurrent liabilitiesTrade and other payables (58,686) (59,204)Current tax liabilities (8,086) (7,685) ________ ________ (66,772) (66,889)Non-current liabilitiesDefined benefit pension liability (9,730) (11,052)Other payables (98) (105)Deferred tax liability (11,927) (12,463) ________ ________ (21,755) (23,620) ________ ________Total liabilities (88,527) (90,509) ________ ________Net assets 181,475 157,156 ======= =======EQUITYCapital and reservesIssued capital 2,439 2,428Share premium account 13,440 12,217Retained earnings 165,596 142,511 ________ ________Total equity attributable to equity holders of the parent 181,475 157,156 ======= ======= Greggs plcConsolidated statement of cash flowsfor the 52 weeks ended 31 December 2005(2004: 53 weeks ended 1 January 2005) 2005 2004 £'000 £'000Cash flows from operating activitiesProfit for the financial year 34,074 32,277Depreciation 22,038 21,003Loss on sale of property, plant and equipment 484 358Release of government grants (7) (7)Share based payment expenses 557 124Finance income (3,106) (2,003)Finance expenses 90 15Income tax expense 16,085 15,474Increase in inventories (430) (157)Increase in debtors (1,912) (912)(Decrease) / increase in creditors (517) 4,287Increase / (decrease) in pension liability 333 (198) ________ ________Cash from operating activities 67,689 70,261Interest paid (90) (15)Income tax paid (14,625) (14,150) ________ ________Net cash inflow from operating activities 52,974 56,096 Cash flows from investing activitiesAcquisition of property, plant and equipment (41,687) (25,090)Proceeds from sale of property, plant and equipment 2,171 1,348Interest received 3,106 2,003 ________ ________Net cash outflow from investing activities (36,410) (21,739) Cash flows from financing activitiesProceeds from issue of share capital 1,234 686Sale of own shares 3,695 3,200Purchase of own shares (2,173) (941)Dividends paid (12,319) (10,059)Defined benefit pension scheme special contribution (4,000) (1,000) ________ ________Net cash outflow from financing activities (13,563) (8,114) ________ ________Net increase in cash and cash equivalents 3,001 26,243 Cash and cash equivalents at the start of the year 62,601 36,358 ________ ________Cash and cash equivalents at the end of the year 65,602 62,601 ======= ======= Greggs plc NOTES: 1. Status of financial information The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 December 2005 or 1 January 2005.Statutory accounts for 2004, which were prepared under UK GAAP, have beendelivered to the Registrar of Companies. The auditors have reported on the 2004accounts; their report was unqualified and did not contain a statement undersection 237(2) or (3) of the Companies Act 1985. The statutory accounts for2005, which are being prepared under accounting standards adopted by the EU,will be finalised on the basis of the financial information presented by thedirectors in this preliminary announcement and will be delivered to theRegistrar of Companies in due course. 2. Dividends The following tables analyse dividends when paid and the year to which theyrelate: 2005 2004 Per share Per share pence pence 2003 final dividend - 54.5p2004 interim dividend - 30.0p2004 final dividend 66.0p -2005 interim dividend 36.0p - ________ ________ 102.0p 84.5p ======= =======The proposed final dividend in respect of 2005 amounts to 70.0 pence per share(£8,536,000). This proposed dividend is subject to approval at the AnnualGeneral Meeting and has not been included as a liability in these accounts. 2005 2004 £'000 £'000 2003 final dividend - 6,4572004 interim dividend - 3,6022004 final dividend 7,959 -2005 interim dividend 4,360 - ________ ________ 12,319 10,059 ======= ======= 3. Reconciliation of movement in capital and reserves 2005 2004 Issued Share premium Retained Total Total capital earnings £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2005 2,428 12,217 142,511 157,156 132,356Shares issued in the year 11 1,223 - 1,234 686Total recognised income and expense - - 32,433 32,433 31,645Purchase of own shares - - (2,173) (2,173) (941)Sale of own shares - - 3,695 3,695 3,200Share based payments - - 557 557 124Dividends - - (12,319) (12,319) (10,059)Tax items taken directly to reserves - - 892 892 145 ________ ________ ________ ________ ________Balance at 31 December 2005 2,439 13,440 165,596 181,475 157,156 ======= ======= ======= ======= ======= 4. Earnings per share Basic earnings per share The calculation of basic earning per share at 31 December 2005 was based onprofit attributable to ordinary shareholders of £34,074,000 (2004: £32,277,000)and a weighted average number of ordinary shares outstanding during the yearended 31 December 2005 of 12,080,526 (2004: 11,931,728). Diluted earning per share The calculation of diluted earnings per share at 31 December 2005 was based onprofit attributable to ordinary shareholders of £34,074,000 (2004: £32,277,000)and a weighted average number of ordinary shares outstanding during the yearended 31 December 2005 of 12,215,800 (2004: 12,055,134). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Greggs