14th Mar 2005 07:01
Greggs PLC14 March 2005 14 March 2005 GREGGS plc PRELIMINARY RESULTS FOR THE 53 WEEKS ENDED 1 JANUARY 2005 Greggs plc is the UK's leading retailer specialising in sandwiches, savouriesand other bakery products, with a particular focus on takeaway food andcatering. It has over 1,250 retail outlets throughout the UK, trading under theGreggs and Bakers Oven brands. • Record pre-tax profit of £46.7 million (2003: £40.5 million) - up 15.3 per cent • Thirteenth consecutive year of profit, earnings and dividend growth • Earnings per share up 14.8 per cent to 264.7 pence (2003: 230.5 pence) • Dividends increased 20.0 per cent to 96.0 pence per share (2003: 80.0 pence) • Like-for-like sales up 5.1 per cent • Operating margin improved through core growth and effective cost management • Positive consumer response to Greggs brand relaunch • Pleasing improvement in Bakers Oven performance and profit contribution • 56 new shops opened - net addition of 32 to 1,263 after re-sites and closures • Net cash balances increased to £62.6 million (2003: £36.4 million) • Like-for-like sales up 5.2 per cent in the year to date "During 2005 we plan to accelerate both the opening of new shops and therefurbishment of established outlets. We will be supporting this retaildevelopment with substantial investment in our manufacturing facilities,including the construction of a new savouries plant in Newcastle upon Tyne.Selling price inflation is expected to trend upwards as we seek to recoverfurther substantial increases in wage costs. We also face a significant rise inenergy costs in the second half, following the end of our current long-termsupply agreement. Despite these pressures, I believe that the Group is wellequipped to make further progress during the year." - Derek Netherton, Chairman ENQUIRIES:Greggs plc gcg hudson sandlerSir Michael Darrington, Managing Director Wendy Baker / James HillMalcolm Simpson, Financial Director Tel: 020 7796 4133Tel: 020 7796 4133 on Monday, 14 March only keithhann.communications 0191 281 7721 thereafter Keith Hann Tel: 07831 521870 High resolution images are available for the media to view and download fromwww.vismedia.co.uk CHAIRMAN'S STATEMENT I am pleased to report another year of good progress, based on our provenbusiness strategy and values. Both our brands achieved healthy like-for-likesales growth, contributing to improved operating margins, while costs were againwell controlled. This enabled the Group to deliver its thirteenth consecutiveyear of profit, earnings and dividend growth. Results The 2004 financial year comprised the 53 weeks to 1 January 2005 (2003: 52 weeksto 27 December 2003). Total Group sales for the period increased by 10.3 percent to £504 million (2003: £457 million). Adjusted to a comparable 52 weekbasis, the total sales increase would have been 8.4 per cent. Operating profitgrew by 14.0 per cent to £44.7 million (2003: £39.2 million), with a 0.3percentage point improvement in operating margin reflecting our core volumegrowth and effective cost management. This more than offset continuing pressurefrom increasing wage costs. Because of shop holiday closures, inclusion of the53rd week had a small negative impact on operating profit. After increased net interest receivable of £2.0 million (2003: £1.3 million),pre-tax profit rose by 15.3 per cent to £46.7 million (2003: £40.5 million).Basic earnings per share grew by 14.8 per cent to 264.7 pence (2003: 230.5pence). Net cash in the balance sheet at the year end was £62.6 million,compared with £36.4 million at the end of 2003. Dividend The Board recommends a final dividend of 66.0 pence per share (2003: 54.5pence). Together with the increased interim dividend of 30.0 pence, paid inOctober 2004, this makes a total for the year of 96.0 pence (2003: 80.0 pence),a rise of 20.0 per cent. We have increased our dividends to shareholders every year since the companyfloated in 1984, and the compound rate of growth over this period has been 18per cent per annum. The Board is committed to a progressive dividend policyand, in view of the company's consistently strong cash generation, believes thatit is likely that dividends will grow faster than earnings over the next fewyears. Subject to the approval of the Annual General Meeting, the final dividend willbe paid on 27 May 2005 to shareholders on the register at 29 April 2005. Business highlights Our sustained success in the bakery-related takeaway food market reflects ourclear, specialist focus and further improvements in our products, shops andservice. These have been complemented by successful, national brand marketinginitiatives which are helping us to achieve growing customer awareness of ourconsistent quality and value. We also benefited from more favourable weatherpatterns over the year as a whole. Mike Darrington provides a more detailedcommentary on these and other trading and business development issues in hisManaging Director's Report on pages 5 - 10. The Board Julie Baddeley, 53, joined the Board as an additional Independent Non-ExecutiveDirector on 1 March 2005, and has also become a member of the Board's Audit,Remuneration and Nominations Committees. Julie is a non-executive director ofYorkshire Building Society, Computerland UK and the Pension Client Group withinthe Government's Department of Work and Pensions. She previously held seniorexecutive roles at Accenture, Sema Consulting and Woolwich plc, where she was amain board director responsible for Information Technology and Human Resources.Her extensive experience in these areas complements the existing strengths andskills of the Board, and is expected to enable her to make a valuablecontribution to our discussions. People The business depends on all our people working together to deliver greatproducts and excellent customer service each day. Our good results testify oncemore to the strength of their individual commitment and the effectiveness oftheir teamwork. On behalf of the Board, I would like to express our thanks forall that they have achieved during the year. Prospects During 2005 we plan to accelerate both the opening of new shops and therefurbishment of established outlets. We will be supporting this retaildevelopment with substantial investment in our manufacturing facilities,including the construction of a new savouries plant in Newcastle upon Tyne. Asa result, capital expenditure is budgeted to rise to nearly £50 million for theyear. Trading in the current year has started satisfactorily, with like-for-like salesin the year to date increasing by 5.2 per cent. Selling price inflation, whichwas 2.4 per cent at the end of 2004, is expected to trend upwards as we seek torecover further substantial increases in wage costs. We also face a significantrise in energy costs in the second half, following the end of our currentlong-term supply agreement. Despite these pressures, I believe that the Groupis well equipped to make further progress during the year. Derek Netherton, Chairman 14 March 2005 MANAGING DIRECTOR'S REPORT The growth of Greggs has been based on the quality of our business ingredients.These include a proven strategy, enjoyable products, strong brands, and acommitment to giving customers great service and good value. Our most importantingredient of all is our excellent team of people. Once again they have been apleasure to work with over the year, and have delivered results ahead ofexpectations. Trading performance Our good progress during 2004 reflects the benefits of increasing core volumesthrough our established shops, the addition of a net 32 new units, and ourcontinued focus on controlling costs. After a slow start, like-for-like salesgrowth improved during the late spring and summer, when our performance comparedwith a period of exceptionally hot weather in 2003. Although progress thenreturned to more normal levels, a good consumer response to our marketingcampaigns and generally favourable weather helped us to achieve better thanexpected like-for-like sales growth in the final quarter, despite the widelyreported weakness of high street retailing over the Christmas period. After a like-for-like sales increase of 4.1 per cent in the first half (24weeks), which included core volume growth of 2.0 per cent, performance improvedin the second half (29 weeks), when we achieved like-for-like sales growth of6.0 per cent, including a core volume uplift of 3.7 per cent. The like-for-likesales increase for the year as a whole was 5.1 per cent, including core volumegrowth of 2.9 per cent. Our selling price inflation was 2.1 per cent in the first half and 2.3 per centin the second, averaging 2.2 per cent for the year. This again reflected acontinuing programme of product upgrades as well as the recovery of significantcost increases. The most important of these was in wages, as we responded tomarket pressures throughout the retail sector and sought to ensure that ourremuneration would continue to attract and retain high quality people. Including the benefit of new shop openings in the current and prior year, totalsales rose by 10.3 per cent, comprising increases of 7.5 per cent in the firsthalf and 12.6 per cent in the second, which this year included the benefit of a53rd trading week. As the Chairman has noted, inclusion of the 53rd week actually had a smallnegative effect on operating profit, which nevertheless rose by 14.0 per cent to£44.7 million as operating margin benefited from our higher volume throughput.Including the benefit of increased interest receivable on our growing averagecash balances, pre-tax profit improved by 15.3 per cent to £46.7 million. Greggs brand UK The nine Greggs divisions in the UK represent more than 80 per cent of ourretail portfolio and naturally remain the major contributor to Group profits.Like-for-like sales for the year grew by 4.9 per cent, including core volumegrowth of 2.4 per cent. This comprised a like-for-like increase of 3.8 per centin the first half and 5.7 per cent in the second, including core volume gains of1.4 per cent and 3.2 per cent respectively. The improvement in like-for-like sales performance was assisted by a major brandre-launch in April, with the introduction of an updated identity designed tore-emphasise our heritage as a baker. This featured in point of sale materialand in-shop promotions, and was backed by a major media campaign that includedTV advertising in most of our regions, using the slogan 'It's the way we bake itthat makes it'. This is helping us to achieve growing national awareness ofGreggs as the leading brand in the bakery arena, including takeaway food. All divisions made pleasing progress during the year. Bakers Oven brand The four Bakers Oven divisions showed a very good improvement in both theirlike-for-like sales performance and their contribution to Group profits.Like-for-like sales for the year grew by 6.3 per cent, including a core volumeincrease of 4.8 per cent. The brand enjoyed a good first half, in whichlike-for-like sales grew by 5.0 per cent and core volumes by 3.9 per cent.Growth accelerated in the second half, which produced a like-for-like salesincrease of 7.2 per cent including a core volume gain of 5.5 per cent. Sellingprice inflation over the year was below the Group average at 1.5 per cent,reflecting our successful initiatives to enhance consumer perceptions of thebrand's value credentials, notably in sandwiches. The improved performance of Bakers Oven follows the appointment of a newmanaging director and a strengthening of the senior team last year. Themanagement team has taken determined action to drive sales through improvementsin the product offer, service standards and retail environment. It has alsoaddressed areas of past underperformance, notably through the rationalisation ofthe retail chain in Scotland. We are particularly pleased that this improvement in profitability is broadbased, encompassing all four Bakers Oven divisions. Greggs Continental Europe We opened additional shops in Antwerp and Leuven during the year, giving us twoin each city and a total of four in Belgium. We continue to refine and developour product range as the learning process continues. Retail profile We opened a total of 56 new shops during the year and closed 24, including 10which were re-sited in better locations. This produced a net increase of 32shops to a total of 1,263 at the year end. At the beginning of 2005 we had1,045 units under the Greggs brand in the UK, a net addition of 38; four underthe Greggs fascia in Belgium, a net addition of two; and 214 under the BakersOven brand, a net reduction of eight. We completed 24 comprehensive shoprefurbishments and 8 minor refits during the year. Further work was undertaken to refine the new Greggs shop format, with the aimof reinforcing our credentials as a baker, softening some aspects of itstakeaway orientation and reducing the costs of its implementation. Investmentin shop refurbishments was deliberately restrained as this process continued.Although some work remains to be done, I am pleased to report that the resultsof our latest trials have been sufficiently encouraging to permit a significantacceleration of the refurbishment programme in the current year, when we expectto refit some 60 shops. We also plan to increase the pace of new shop openings in 2005, and expect toadd a net 45 shops to our chains during the year. Although these willpredominantly be under the Greggs brand in the UK, we also plan a number ofopenings for Bakers Oven and the addition of two further shops in Belgium. Product profile Sales growth under both our brands continued to be driven predominantly by thetakeaway food categories of savouries and sandwiches. Savouries showed thestrongest growth, though sandwiches also made good progress, benefiting from theGreggs brand relaunch and improvements to the Bakers Oven range. Cakes andconfectionery products continued to generate modest like-for-like sales growth.The traditional bakery staples of bread and rolls continued their long termdecline as a proportion of our sales, though we believe that their quality andtheir presence in our shops is an important contributor both to the success ofour sandwich ranges and to positive consumer perceptions of our entire offer. Enjoyability and customer choice remain key criteria in our approach to productdevelopment. We have continued to widen the 'Lifestyle Choice' range ofhealthier-eating sandwiches and wraps, and are seeing a gradual and progressiveimprovement in sales. Strategic principles We attach great importance to the Mission, Vision and Values statement set outin our annual report, and have continued to make progress in all key areas. 'A Great Place to Work'. Greggs began as a small family bakery and we havealways striven to maintain the ethos of a caring business that puts its peoplefirst. By treating our people correctly, we aim to ensure that they will treatcustomers well and help us to deliver good results for the benefit of all ourstakeholders. We have borne a substantial increase in our wage bill to ensurethat we can continue to recruit and retain high quality staff, particularly inour shops. We are also seeking to improve the working environment for all ourpeople through investment in improved staff facilities in our shops andbakeries, and the progressive upgrading of our offices. During the year weundertook an extensive consultation exercise to develop a new statement of ourculture, in words with which everyone in the Group can identify. Thisunderlines our commitment to treating all our people in a friendly and informalway. While we are committed to hard work and achievement, we also want everyoneto know that they matter and to enjoy what they do. 'Enjoyable Experience'. Our business is all about producing tasty fresh foodfor daily purchase. Customers will only return to us day after day if weprovide them with something that gives them real pleasure and satisfaction. Theconsistent focus of our investment in product development is therefore on makingeverything we sell even more enjoyable. We are aided in this by the substantialresources available in our state-of-the-art Group Technical Centre in Newcastleupon Tyne, where our technologists and chefs are also applying themselves to thereduction of salt and fat in our products, in line with Government guidelines.We are strongly committed to the principle of customer choice, and lower fatalternatives to a number of our key lines are currently under trial. Thefacilities at the Group Technical Centre for the rapid microbiological testingof ingredients and products are also helping us to ensure the highest standardsof food safety. 'Business Excellence'. We are determined to achieve continuous improvement inevery area of our business, by simplifying what we do and ensuring that all ourpeople understand our corporate objectives and how they can help to realisethem. Great emphasis is placed on effective two-way communication with everyonein the Group, and on continuously raising standards through the sharing of bestpractice. The adoption of EFQM total quality management standards has helped usin the process of systematically targeting, benchmarking and measuring progress,by facilitating self-assessment and the identification of critical areas forimprovement. 'Challenging Targets'. Our growth has always been based on setting andattaining stretching targets. Since 1998 we have had a published goal ofexpanding the Group to achieve sales of £1 billion through 1,700 shops by 2010.As I noted last year, our planned growth has been constrained by our search forthe right formula to permit us to drive expansion of the Bakers Oven chain.Latterly we had also slowed the Greggs shop opening programme as we focused onrefining and developing its new concept. I am pleased that we are now in aposition to accelerate our retail expansion and look forward to making morerapid progress towards our targets in the current year and beyond. In thelonger term, I remain confident that there is significant further potential forthe Group, with scope for at least 2,000 shops under our existing brands in theUK and additional opportunities on the Continent. 'Caring for the Community'. We remain strongly committed to making acontribution to the communities where we operate, particularly in areas ofsocial deprivation. The Greggs Breakfast Clubs in selected primary schools haveproved of real value in improving pupils' attendance and concentration in themorning, as well as encouraging family involvement in their children's schools.We have expanded the Clubs to 82 locations and expect to have 120 in operationby the end of 2005. Their development has been aided by the recruitment of anew Community Initiatives Manager, who also works closely with Greggs Trust.The Trust is our principal channel for the distribution of the Group'scharitable donations, which last year totalled £615,000 (2003: £420,000), inline with our commitment as a founder member of the Per Cent Club. We gave£100,000 to the DEC appeal after the horrific Asian tsunami and I am pleased toreport that this Group donation has been more than matched by the fund-raisingefforts of our staff. We also remain an active supporter of Business in theCommunity. Our commitment to corporate social responsibility extends to ensuring propercare for the environment, and we have continued to pursue a range of initiativesto reduce our environmental impact by promoting efficient energy utilisation,maximising the recycling of packaging and minimising waste. Capital investment Capital expenditure during the year totalled £25.0 million, compared with ouroriginal budget of £34 million and actual expenditure of £32.4 million in theprior year. This reduction principally reflected a lower number of shoprefurbishments than we had originally expected. In total we spent £13.6 million(2003: £14.3 million) on new shops and refurbishments, £8.1 million (2003:£13.8 million) on land, buildings and plant, and £3.3 million (2003: £4.3million) on vehicles. Expenditure on major bakery projects was at a lower levelthan in 2003, though we completed extensions of our facilities in Leeds andEdinburgh. During 2005 we expect a major increase in capital expenditure to nearly £50million. This reflects the acceleration of our shop refurbishment and openingprogrammes, together with increased investment in our manufacturing anddistribution facilities to support the growth of our retail chains. The largestsuch project is the construction of a second central savouries facility atBalliol Park, Newcastle upon Tyne, close to the original factory we opened in1998 and employing the same, proven technologies and processes. This willinvolve a total investment of £13 million over the next two years, and willenable us to meet growing demand for our successful savouries ranges under boththe Greggs and Bakers Oven brands. Cash flow and balance sheet Our strong operating cash flow combined with lower than expected capitalexpenditure resulted in an increase in net cash on the balance sheet to £62.6million at the year end. This compared with £36.4 million in December 2003, and£46.7 million at the end of our first half in June 2004. People We have an excellent team, which it is a real privilege to lead. I am glad toreport that our genuine commitment to our people is fully matched by theircommitment to doing an excellent job. Thus once again it is a great pleasure tobe able to thank all our 18,240 employees for their individual contributions toanother record result for the Group. I am also delighted to welcome the 335 additional staff we were able to recruitthrough our continued expansion in 2004, and look forward to the creation of afurther 650 jobs in the current year. The future As the Chairman has noted, the Group faces significant pressures from risingwage and energy costs during 2005. The challenge to us as managers is to absorbthese increases while accelerating our shop refurbishment and opening programmesand continuing to enhance our products, service and marketing. I am confidentthat we have the right team in place to handle all these issues successfully,and to deliver a year of further progress towards our strategic targets and ourvision of being Europe's finest bakery-related retailer. Sir Michael Darrington Managing Director 14 March 2005 Greggs plcGroup Profit and Loss Accountfor the 53 weeks ended 1 January 2005 2004 2003 £'000 £'000 Turnover 504,186 456,978Cost of sales (193,009) (175,284) _______ _______ Gross profit 311,177 281,694 Distribution and selling costs (228,891) (209,559)Administrative expenses (37,572) (32,968) _______ _______ Operating profit 44,714 39,167 Net interest receivable and other income 1,988 1,305 _______ _______ Profit on ordinary activities before taxation 46,702 40,472 Taxation on profit on ordinary activities (15,115) (13,235) _______ _______ Profit on ordinary activities after taxation 31,587 27,237 Dividends paid and proposed (11,524) (9,476) _______ _______ Retained profit for the financial year 20,063 17,761 ====== ======Basic earnings per share 264.7p 230.5pDiluted earnings per share 262.0p 227.6p The Group's operating profit for both the current and preceding financial yearderives from continuing operations. There are no recognised gains or lossesduring the current and previous year other than the profit for the year. Greggs plcReconciliation of movement in consolidated shareholders' funds 2004 2004 2003 2003 £'000 £'000 £'000 £'000 Profit for the financial year 31,587 27,237 Dividends (11,524) (9,476) _______ _______ 20,063 17,761 Retained profit for the financial yearNew share capital- nominal value 6 18- share premium 680 1,452Purchase of own shares into the Employee Benefit Trust (941) (1,485)Sale of own shares from the Employee Benefit Trust 3,200 - _______ _______ 23,008 17,746 Net addition to shareholders' fundsOpening shareholders' funds - as previously stated 139,196 119,965Prior year adjustment (5,046) (3,561) _______ _______Opening shareholders' funds - as restated 134,150 116,404 _______ _______ Closing shareholders' funds 157,158 134,150 ======= ======= Greggs plcGroup Balance Sheet at 1 January 2005 1 January 27 December 2005 2003 As restated £'000 £'000 £'000 £'000 Fixed assets Tangible assets 163,110 160,704Investments - - _______ _______ 163,110 160,704Current assets Stocks 7,283 7,126Debtors 13,949 13,037Cash at bank and in hand 62,601 36,358 _______ _______ 83,833 56,521 Creditors: amounts falling due within one year (74,811) (68,558) _______ _______ Net current assets / (liabilities) 9,022 (12,037) _______ _______ Total assets less current liabilities 172,132 148,667 Creditors: amounts falling due after more than one year (105) (112) Provisions for liabilities and charges Deferred tax (14,869) (14,405) _______ _______ 157,158 134,150 ====== ======Capital and reserves Called up share capital 2,428 2,422Share premium account 12,217 11,537Profit and loss account 142,513 120,191 _______ _______ Equity shareholders' funds 157,158 134,150 ====== ====== Greggs plcGroup Cash Flow Statement for the 53 weeks ended 1 January 2005 2004 2003 As restated £'000 £'000 £'000 £'000 Net cash inflow from continuing operating activities 69,261 57,722 Returns on investments and servicing of financeInterest received 2,003 1,313Interest paid (15) (8) _______ _______Net cash inflow from returns on investments and servicing of 1,988 1,305finance Taxation paid (14,150) (10,908) Capital expenditure and financial investmentsPurchase of tangible fixed assets (25,090) (32,361)Disposal of tangible fixed assets 1,348 787 _______ _______Net cash outflow from capital expenditure and financial (23,742) (31,574)investments Equity dividends paid (10,059) (8,807) _______ _______ Net cash inflow before financing 23,298 7,738 FinancingIssue of ordinary share capital 686 1,470Disposal / (purchase) of investments 2,259 (1,485) _______ _______Net cash inflow / (outflow) from financing 2,945 (15) _______ _______Net increase in cash in the period 26,243 7,723 ====== ====== Greggs plcReconciliation of operating profit to net cash inflow from operating activities 2004 2003 £'000 £'000 £'000 £'000Reconciliation of operating profit to net cash inflow fromoperating activities Operating profit 44,714 39,167Depreciation charges 20,978 18,985Loss on disposal of fixed assets 358 69Release of government grants (7) (7)Increase in stocks (157) (796)Increase in debtors (912) (1,297)Increase in creditors 4,287 1,601 _______ _______ Net decrease / (increase) in working capital 3,218 (492) _______ _______ Net cash inflow from continuing operating activities 69,261 57,722 ====== ====== NOTE: 1. Urgent Issues Task Force Abstract 38 Accounting for ESOP Trustshas been adopted for the first time resulting in a restatement of the 2003accounts. The Abstract requires that the Company's own shares held by theGreggs Employee Benefit Trust are deducted from shareholders' funds until theyvest unconditionally with employees. Prior to the adoption of UITF 38 theseshares were recognised as fixed asset investments. As a result, investments andshareholders funds as at 27 December 2003 have each been reduced by £5,046,000and during 2004 the purchase and sale of own shares held in the Employee BenefitTrust have been recognised as movements in shareholders funds. 2. The financial information set out above does not constitute theCompany's statutory accounts for the years ended 1 January 2005 or 27 December2003. Statutory accounts for 2003 have been delivered to the Registrar ofCompanies, whereas those for 2004 will be delivered following the Company'sAnnual General Meeting. The auditors have reported on these accounts; theirreports were unqualified and did not contain a statement under Section 237 (2)or (4) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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