5th Aug 2005 07:00
Greggs PLC05 August 2005 5 August 2005 GREGGS plc INTERIM RESULTS FOR THE 24 WEEKS ENDED 18 JUNE 2005 Greggs is the UK's leading retailer specialising in sandwiches, savouries andother bakery products, with a particular focus on takeaway food and catering.It has over 1,250 retail outlets throughout the UK, trading under the Greggs andBakers Oven brands. • Record interim pre-tax profit of £15.6 million - up 15.1 per cent • Building on thirteen consecutive years of profit, earnings and dividend growth • Earnings per share (diluted) up 14.9 per cent to 87.1 pence • Interim dividend increased 20.0 per cent to 36.0 pence per share • Like-for-like sales up 5.2 per cent despite tougher comparatives in final weeks • Net 25 new shops opened: confident of at least 50 net openings this year • Net cash balances increased to £69.6 million at end of first half • Record £47 million capital expenditure programme proceeding to plan "As expected, we have achieved a very satisfactory performance in our firsthalf, despite the effect of increasingly demanding prior year comparatives andmore volatile weather in its final weeks. Less favourable conditions this yearare reflected in slower like-for-like sales growth of 3.0 per cent in the sixweeks to 30 July. Improvement in the rate of growth will, in part, depend onresumption of more typical weather. Although profits in its first six weeks arebelow our budget and the level of last year, we believe that the Group is wellequipped to make further progress in the second half. Our confidence in thelong term prospects of the business is reflected in our accelerating shopopening programme and our record capital investment for the future." - Sir Michael Darrington, Managing Director 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 Friday, 5 August only keithhann.communications 0191 281 7721 thereafter Keith Hann Tel: 07831 521870 High resolution images are available for the media to view and download from www.vismedia.co.uk MANAGING DIRECTOR'S INTERIM STATEMENT As expected, we have achieved a very satisfactory performance in our first half,despite the effect of increasingly demanding prior year comparatives and morevolatile weather in its final weeks. Results Sales in the first half (24 weeks) increased by 9.1 per cent to £235.9 million(2004: £216.2 million), including like-for-like sales growth of 5.2 per cent.This comprised a 5.8 per cent uplift in weeks 1-19, as already reported at ourAGM, and a slower increase of 2.9 per cent in weeks 20-24. We had anticipatedthat sales growth would slow as we entered a period of more testingcomparatives, and this effect was exaggerated by the onset of very changeableweather. Over the first half as a whole, we assess the weather effect on ourbusiness as broadly neutral compared with 2004. Operating profit increased by 8.7 per cent to £14.2 million (2004: £13.1million), while pre-tax profit showed a more substantial increase of 15.1 percent to £15.6 million (2004: £13.6 million). This reflected increased interestreceivable of £1.4 million (2004: £0.5 million) on our higher cash balances.Earnings per share (diluted) rose by 14.9 per cent to 87.1 pence (2004: 75.8pence). Adoption of International Financial Reporting Standards ('IFRS') The profit and earnings previously reported for the first half of 2004, and forour financial year to 1 January 2005, have been restated following our adoptionof IFRS in place of the UK Generally Accepted Accounting Practices (UK GAAP)used previously. The principal effects on our historic accounts arise fromdifferences in the treatment of defined benefit pension costs, share-basedincentive schemes and the timing of recognition of dividends. These areexplained in more detail in the separate document referred to in Note 1 on page9. We do not anticipate that our earnings for the current year, as preparedunder IFRS, will be materially different from those we would have reported underUK GAAP. Dividend We announced in our last annual report that dividends were likely to increase ata faster rate than earnings over the next few years, in the light of ourconsistently strong cash generation. Our intention is to move dividend cover to2.5 times over the next year or so. In the light of this intention and partlyto improve the balance between our interim and final dividends, the Board hasdeclared an increased interim dividend of 36.0 pence per share (2004: 30.0pence) which is an increase of 20.0 per cent. We will consider our finaldividend in the light of our stated intention and our earnings for the year as awhole. Trading highlights We achieved good sales growth across the business during the first half. Ourlike-for-like sales increase included core volume growth of 2.3 per cent, whileselling price inflation rose to 2.9 per cent as we recovered cost increasesparticularly in wages, bakery energy and fuel. Ingredient costs overall were relatively stable, helped by the weakness of theUS dollar, although there are signs that this benefit may reverse in the secondhalf. In the final weeks of the period, we began to face comparison with theperiod of very strong like-for-like sales growth that began in May 2004 andcontinued through the second half of that year. Greggs brand UK. The nine Greggs divisions achieved overall like-for-like salesgrowth of 5.5 per cent during the first half, comprising a core volume increaseof 2.3 per cent and selling price inflation of 3.2 per cent. We continued tobenefit from our successful development and marketing of a national brandidentity, and from growth in the takeaway food market. We have accelerated boththe opening and refitting of shops in the new Greggs format, which is producingencouraging results. Our longest-established divisions continued to build on their strong pastperformances, with Greggs of Scotland again delivering an outstanding result andGreggs of the North East also making excellent progress. Bakers Oven brand. The four Bakers Oven divisions, with their seated cateringfacilities, were more affected than Greggs by the widely reported slowdown ofoverall consumer traffic on the high street. This was reflected in the brand'slower rate of like-for-like sales growth of 3.9 per cent. This comprised a corevolume increase of 2.0 per cent and selling price inflation of 1.9 per cent - alower rate than at Greggs as we continued our successful initiatives to enhancethe brand's value credentials, particularly in sandwiches. Greggs Continental Europe. Our four shops in Belgium are achieving encouraginglike-for-like sales growth from a relatively low base, as we continue our workto refine and develop our offer. We expect to open a further 3-4 units inBelgium over the next 12 months. Product profile Once again we achieved our strongest growth in takeaway food, with savouries inparticular making excellent progress. Sandwiches and sweet lines also performedwell, while the proportion of our sales derived from the traditional bakerycategories of bread and rolls continued to decline. The 'Lifestyle Choice'range of healthier-eating sandwiches has been further developed, with a numberof new lines currently being trialled, and we are also continuing to triallower-fat variants of savoury lines. We are applying our substantial technicaland product development resources to assist in the reduction of salt and fat inour products, while providing consumers with the taste and choice they desire. Retail profile We opened 30 new shops during the first half and closed 5, giving us a netaddition of 25 outlets to a total of 1,288 at 18 June. This comprised 1,071units under the Greggs brand in the UK, a net addition of 26 since the year end;213 Bakers Ovens, a net reduction of 1; and four Greggs shops in Belgium. Sincethe end of the half we have added a further net 13 shops and are thereforeconfident that we will open at least a net 50 over the year as a whole, comparedwith our previously stated target of 45. A total of 18 shops were refittedduring the period, in line with our plans, as we accelerated the roll-out of thenew Greggs shop format. Investment and finance Capital expenditure increased to £13.4 million (2004: £11.3 million),principally as a result of the increased number of shop openings and refits.Work is well underway on our second central savouries unit at Balliol Park,Newcastle upon Tyne, where the main structural work has already been completed.We expect total capital expenditure for the year to be around £47 million,almost double the level in 2004. As a result of our strong operating cash flow, net cash on the balance sheet wassubstantially higher than in June 2004 at £69.6 million (2004: £46.7 million).This compared with £62.6 million at our year end on 1 January 2005. People and the community We have maintained our focus on attracting and retaining good people by payingcompetitive salaries, improving working conditions and doing our utmost toensure that work is an enjoyable experience. During the half year we created anadditional 300 jobs through our continued expansion. We have long beencommitted to encouraging employee share ownership, and I am pleased to reportthat our sixth SAYE Share Plan matured successfully during the period, providingsubstantial benefits to more than 1,500 staff. The Greggs Breakfast Clubs have continued to develop successfully and nowoperate in more than 100 primary schools. The scheme involves us working inpartnership with parents and other school volunteers to provide a wholesome freebreakfast to pupils. We welcome the Government's interest in extending theprovision of facilities at the beginning and end of the school day and believethat our approach, with its proven results, can make a valuable contribution tocommunities in disadvantaged areas. Outlook The opening weeks of the second half in 2004 were a period of exceptionallystrong growth, aided by ideal weather. Less favourable conditions this year arereflected in slower like-for-like sales growth of 3.0 per cent in the six weeksto 30 July. Improvement in the rate of growth will, in part, depend onresumption of more typical weather. We have always anticipated that our growth rate in the second half would belower than in the first as a result of more demanding sales comparatives. Inaddition, as we have previously noted, we face a substantial increase in shopenergy costs following the end of a long-term supply contract, together withcontinuing pressure on wage and fuel costs. Although profits in its first six weeks are below our budget and the level oflast year, we believe that the Group is well equipped to make further progressin the second half. Our confidence in the long term prospects of the businessis reflected in our accelerating shop opening programme and our record capitalinvestment for the future. Sir Michael Darrington Managing Director Consolidated income statementFor the 24 weeks ended 18 June 2005 24 weeks ended 24 weeks ended 53 weeks ended 18 June 2005 12 June 2004 1 January 2005 £'000 £'000 £'000 Revenue 235,868 216,202 504,186Cost of sales (91,130) (83,467) (192,860) Gross profit 144,738 132,735 311,326 Distribution and selling costs (110,881) (101,334) (228,510)Administrative expenses (19,645) (18,330) (37,053) Operating profit before financing 14,212 13,071 45,763 Finance income 1,474 667 2,003Finance expenses (73) (173) (15) Profit before tax 15,613 13,565 47,751 Income tax (5,028) (4,457) (15,474) Profit for the period 10,585 9,108 32,277 Basic earnings per share 87.9p 76.8p 270.5pDiluted earnings per share 87.1p 75.8p 267.7p Consolidated statement of recognised income and expenseFor the 24 weeks ended 18 June 2005 24 weeks ended 24 weeks ended 53 weeks ended 18 June 2005 12 June 2004 1 January 2005 £'000 £'000 £'000 Actuarial losses on defined benefit plans (724) (409) (903)Tax on items taken directly to equity 217 123 271 Net expense recognised directly in equity (507) (286) (632) Profit for the period 10,585 9,108 32,277 Total recognised income and expense for the period 10,078 8,822 31,645 Consolidated balance sheetAs at 18 June 2005 18 June 2005 12 June 2004 1 January 2005 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 166,575 162,716 163,832Deferred tax assets 4,115 3,577 3,486 170,690 166,293 167,318Current assetsInventory 7,342 6,641 7,283Trade and other receivables 17,751 14,166 13,949Cash and cash equivalents 69,619 46,666 62,601 94,712 67,473 83,833 Total assets 265,402 233,766 251,151 LIABILITIESCurrent liabilitiesTrade and other payables (69,596) (64,711) (59,204)Current tax liabilities (5,780) (4,343) (7,685) (75,376) (69,054) (66,889)Non-current liabilitiesDefined benefit pension liability (12,010) (11,707) (11,052)Other payables (103) (110) (105)Deferred tax liability (16,356) (15,817) (15,949) (28,469) (27,634) (27,106) Total liabilities (103,845) (96,688) (93,995) Net assets 161,557 137,078 157,156 EQUITYCapital and reserves attributableto equity holdersIssued capital 2,432 2,426 2,428Share premium account 12,618 11,981 12,217Retained earnings 146,507 122,671 142,511 Total equity attributable to 161,557 137,078 157,156shareholders Consolidated statement of cash flowsFor the 24 weeks ended 18 June 2005 24 weeks ended 24 weeks ended 53 weeks ended 18 June 2005 12 June 2004 1 January 2005 £'000 £'000 £'000 Cash flows from operating activitiesProfit for the period 10,585 9,108 32,277Depreciation 9,584 9,367 21,003Loss on sale of property, plant and equipment 238 183 358Release of government grants (4) (4) (7)Share based payment expenses 144 57 124Finance income (1,474) (667) (2,003)Finance expenses 73 173 15Income tax expense 5,028 4,457 15,474(Increase)/decrease in inventory (59) 485 (157)Increase in debtors (3,807) (1,129) (912)Increase in creditors 10,094 9,797 4,287Movement in pension liability 254 (49) (1,198) Cash from operating activities 30,656 31,778 69,261Interest paid (73) (173) (15)Income tax paid (6,596) (6,950) (14,150) Net cash inflow from operating activities 23,987 24,655 55,096 Cash flows from investing activitiesAcquisition of property, plant and equipment (13,433) (11,258) (25,090)Proceeds from sale of property, plant and equipment 1,141 443 1,348Interest received 1,474 667 2,003 Net cash outflow from investing activities (10,818) (10,148) (21,739) Cash flows from financing activitiesProceeds from issue of share capital 405 448 686Sale of own shares 3,517 2,753 3,200Purchase of own shares (2,163) (941) (941)Dividends paid (7,910) (6,459) (10,059) Net cash outflow from financing activities (6,151) (4,199) (7,114) Net increase in cash and cash equivalents 7,018 10,308 26,243 Cash and cash equivalents at the start 62,601 36,358 36,358of the period Cash and cash equivalents at the end 69,619 46,666 62,601of the period Consolidated statement of changes in equityAs at 18 June 2005 Attributable to equity shareholders Share capital Share premium Retained earnings Total £'000 £'000 £'000 £'000 At 2 January 2005 2,428 12,217 142,511 157,156Shares issued in the period 4 401 - 405Total recognised income and expense - - 10,078 10,078Purchase of own shares - - (2,163) (2,163)Sale of own shares - - 3,517 3,517Share based payments - - 144 144Equity dividends - - (7,922) (7,922)Tax on items taken directly to equity - - 342 342 At 18 June 2005 2,432 12,618 146,507 161,557 Notes 1. Basis of preparation EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidatedfinancial statements of Greggs plc, for the 52 weeks ending 31 December 2005, beprepared in accordance with International Financial Reporting Standards adoptedfor use in the EU ("IFRSs"). Greggs plc adopted IFRSs with effect from 2 January 2005. Our transition dateis 28 December 2003 being the start date of the earliest period for which wepresent full comparative information in our 2005 Annual Report and Accounts. This interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRSs in issue that either areendorsed by the EU and effective (or available for early adoption) at 31December 2005 or are expected to be endorsed and effective (or available forearly adoption) at 31 December 2005, the Group's first annual reporting date atwhich it is required to use adopted IFRSs. Based on these adopted and unadoptedIFRSs, the directors have made assumptions about the accounting policiesexpected to be applied when the first annual IFRS financial statements areprepared for the 52 weeks ending 31 December 2005. In particular, the directors have assumed that the following IFRS issued by theInternational Accounting Standards Board and IFRIC Interpretations issued by theInternational Financial Reporting Interpretations Committee will be adopted bythe EU in sufficient time that they will be available for use in the annual IFRSfinancial statements for the 52 weeks ending 31 December 2005: • Amendment to IAS 19, Employee Benefits - Actuarial Gainsand Losses, Group Plans and Disclosure In addition, the adopted IFRSs that will be effective (or available for earlyadoption) in the annual financial statements for the 52 weeks ending 31 December2005 are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the 52 weeks ending 31 December 2005. The preparation of this financial information resulted in changes to theaccounting policies as compared with the most recent annual financial statementsprepared under previous Generally Accepted Accounting Practice (GAAP). Therevised accounting policies have been applied consistently to all periodspresented in this financial information. IFRS 1 mandates that most IFRSs are applied fully retrospectively, meaning thatthe opening balance sheet at 28 December 2003 is restated as if those accountingpolicies had always been applied. There are certain limited exemptions to thisrequirement. A detailed review of the changes in our accounting policies and reconciliationsof our financial statements from UK GAAP to IFRS at key dates has today beenpublished to the London Stock Exchange and is available on our website atwww.greggs.plc.uk. 2. Accounting policies The accounting policies that the Group intends to apply for the 52 weeks ending31 December 2005 are set out in the document referred to in note 1. Theadoption by the Group of IAS 32 and IAS 39 prospectively from 2 January 2005 hashad no impact on the accounting policies due to the nature of any financialinstruments used. 3. Status of financial information The comparative figures for the 53 weeks ended 1 January 2005 are not thecompany's statutory accounts for that financial year. Those accounts, whichwere prepared under UK GAAP, have been reported on by the company's auditors anddelivered to the registrar of companies. The report of the auditors wasunqualified and did not contain statements under section 237(2) or (3) of theCompanies Act 1985. The interim information for the 24 weeks ended 18 June 2005 and 12 June 2004 hasnot been audited or reviewed by the auditors. In relation to the financialstatements for the 53 weeks ended 1 January 2005, this has been extracted from arestatement of the financial information taken from the company's statutoryaccounts for that financial year and the auditors have issued a special purposeaudit report on that financial information. This audit report can be found alongwith the detailed review referred to in note 1. 4. Dividends The following dividends were declared and paid by the Group: 24 weeks ended 24 weeks ended 53 weeks ended 18 June 2005 12 June 2004 1 January 2005 Dividend paid per ordinary share 66.0p 54.5p 84.5p(pence per share)Total dividend paid (£000s) 7,922 6,457 10,059 For the 24 weeks ended 18 June 2005 a dividend of 36p per ordinary share (24weeks ended 12 June 2004: 30.0p, 53 weeks ended 1 January 2005: 66.0p) isproposed amounting to £4,357,000 (24 weeks ended 12 June 2004: £3,640,000, 53weeks ended 1 January 2005: £7,922,000). 5. Defined benefit pension scheme The valuation of the defined benefit pension scheme for the purposes of IAS19 asat 1 January 2005 has been updated as at 18 June 2005 and the movements havebeen reflected in this interim statement. 6. Interim report The interim report is being posted to all shareholders and copies are availableon application to the Company Secretary, Greggs plc, Fernwood House, ClaytonRoad, Jesmond, Newcastle upon Tyne, NE2 1TL. 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