2 August 2022

INTERIM RESULTS FOR THE 26 WEEKS ENDED 2 JULY 2022

Greggs is a leading UK food-on-the-go retailer,

with more than 2,200 retail outlets throughout the country

Trading in line with plan and good strategic progress

First half financial highlights

* Like-for-like (LFL) company-managed shop sales performance against comparable period in 2021

Operational and strategic developments

"Greggs delivered an encouraging performance in the first half of the year with sales ahead of 2019 levels.  These results demonstrate the continued strength of the Greggs brand and demand for our great tasting, quality and value for money offering.

"During the period we continued to make good progress with our strategic priorities, including expanding our shop estate and making Greggs more accessible to customers through extended trading hours and digital channels.

"In a market where consumer incomes are under pressure Greggs offers exceptional value for customers looking for food and drink on-the-go.  We are well positioned to navigate the widely publicised challenges affecting the economy and continue to have a number of exciting growth opportunities ahead, with a clear strategy for expansion.  We remain confident in Greggs' ability to deliver continued success."

-     Roisin Currie, Chief Executive

CHIEF EXECUTIVE'S REPORT

Greggs has continued to trade well in 2022 with like-for-like (LFL) sales in company-managed shops growing by 22.4% (Q1: 36.9%, Q2: 11.2%) when compared with the equivalent period of 2021.  As expected, the rate of growth in the second quarter began to normalise but remained encouraging as we passed the anniversary of restrictions being lifted in 2021.  Total sales for the 26 weeks to 2 July 2022 were £694.5 million, an increase of 27.1% (H1 2021: £546.2 million).

We are making good progress with our strategic priorities, growing the shop estate at a faster pace and making Greggs more accessible to customers through extended trading hours and digital channels.  At the same time, we continue to invest in further improving the sustainability of Greggs as a major brand in the food-on-the-go market.

Operational review

Sales levels were encouraging in the first half of 2022.  Performance in the first quarter was flattered by comparison with restricted trading conditions in the same period of 2021 but we are now reporting against a more similar year-on-year base.  Comparing with the pre-pandemic level, first half like-for-like sales in company-managed shops were 12.3% per cent higher than the equivalent period of 2019 despite footfall remaining below 2019 levels.

The breadth of the Greggs estate continues to provide geographical diversification as consumer behaviour adjusts coming out of the pandemic.  Our strong presence in towns and suburbs, along with a growing portfolio of convenient roadside shops, has counter-balanced the slower recovery seen in large city centres and public transport hubs.

Our estate expansion has been focused away from traditional shopping areas while, at the same time, we have taken the opportunity to grow in catchments where Greggs has traditionally been underrepresented, such as central London and rail hubs.  In the first half of 2022 we opened 70 new shops (including 26 franchised units) and closed 12 shops, giving a total of 2,239 shops (of which 401 are franchised) trading at 2 July 2022.

In June 2022 we opened our 400^th franchised shop in Selby in partnership with our newest franchise partner, Rontec, one of the leading players in the UK forecourt industry.  Other notable shop openings in the first half of 2022 included three 'drive-thru' sites, of which we have a growing pipeline, and our in-store café concept in Primark Birmingham.  In the most recent two weeks we have also opened shops in London's Leicester Square and Liverpool Street Station.

Strategic development

We have a clear plan to address the many attractive growth opportunities available to Greggs over the coming years.  This was set out at our Capital Markets Day in October 2021 and we have made good progress in the first half of 2022 as we seek to make Greggs more accessible to customers across multiple channels and dayparts.  Our strategic investment in the Greggs estate, brand and support infrastructure over recent years puts us in a strong position to move forward at pace.

Estate growth

We see a clear opportunity for Greggs to expand its UK estate to at least 3,000 shops, and have increased the rate at which we are opening in new locations given the increased availability of good sites.  Our confidence in the scale of opportunity is underpinned by the success we have already had in catchments where Greggs currently has a relatively low presence such as retail parks, railway stations, airports, supermarkets and central London.

The Greggs brand, and our strong, proven covenant is attractive to landlords and has resulted in a strong pipeline of opportunities.  In 2022 we expect to open 150 net new shops and believe that this rate of growth is sustainable beyond the current year.  At least a third of this annual growth is expected to be achieved with franchise partners; we currently have fourteen such partners covering travel and convenience shopping catchments.

Shop refurbishment will also play a part in enabling the strategic growth agenda.  Our latest shopfitting standard, which is already being deployed for all new shops and relocations, supports operational excellence in serving new channels such as delivery and Click + Collect, as well as presenting an attractive, modern environment for customers.  We expect to refurbish around 100 shops to this standard in 2022, progressing to 250 annually in the medium term.

Evening trade

The evening daypart represents the largest segment of the food-to-go market by value, but is the area where Greggs currently has the lowest penetration.  By extending trading hours, addressing menu options and offering delivery we believe that Greggs can increase its participation in the evening market, further leveraging our investment in facilities that are under-utilised after 4pm.

In the first half of 2022 we extended trading hours in the company-managed estate.  300 shops now trade until at least 8pm (July 2021: 130).  In the second half of 2022 we will extend trading hours in more shops as we better understand the extent of demand in different locations.  The evening daypart is now our strongest-growing trading time, albeit from a low base.

Ranging trials have reinforced the importance of hot food options in the evening daypart, as well as the demand for our core food and drink range.  In developing the range our aim is to stock options that are in demand throughout the day, in order to minimise operational complexity and maintain strong availability for customers.

Delivery

Delivery, through our partnership with Just Eat, is now available across the UK from 1,180 of our shops, up from 1,000 at the start of the year.  Delivery is a channel that presents further growth potential for Greggs as we learn to serve it more effectively and increase availability into the evening.

The recovery in out-of-home activity over the past twelve months has seen a market-wide trend whereby a proportion of delivery customers have switched their purchases back to the walk-in channel.  It is clear, however, that the majority of the new trade we have generated through delivery is incremental and that it offers additional access to Greggs at times when customers are unable to visit our shops themselves.

Greggs App

The Greggs App, relaunched in 2021, offers a convenient platform for customers to access additional services from Greggs whilst also being rewarded for their loyalty.  Use of the app has grown strongly, aided by increased marketing of the benefits.  From a strategic perspective the Greggs App offers:

Menu development

Menu development supports our strategic growth objectives as well as the commitments made in the Greggs Pledge.

In the first half of 2022 we broadened our healthier choices through the launch of two salad meal boxes - Smoky Cajun Rice with BBQ Chicken & Sweetcorn Fritters and Sweet Potato Bhaji & Rice, which is a vegan option.  Both can be eaten cold or taken away to heat.  We also continued to incentivise healthier choices by offering fruit pots for just 75 pence as an add-on to our meal deals.

To meet demand for hot food options we continued to roll out hot food cabinets, particularly to those shops that are targeting the evening trade.  867 company-managed shops now have hot food cabinets and we plan to add a further 400 in the second half of the year.

To support further our objective of growing the level of trade in the evening we have added two new pizza flavours, Mexican Chicken and Pepperoni Hot Shot.  Our great-value pizza offer can now be accessed through the walk-in, Click + Collect and delivery channels.  Customers can customise their pizza toppings when ordering through our digital channels and we intend to trial the customisation of sandwich fillings in the second half of 2022.

Supply chain development

The development of our supply chain will support the significant growth opportunity ahead of us and require additional manufacturing and logistics capacity.  In the third quarter of 2022 we expect to commission the new pizza manufacturing line that is under construction at our Enfield manufacturing site.  At Balliol Park in Newcastle, we are undertaking preparatory works ahead of adding a fourth line to extend capacity for the production of our iconic savoury products.

Our plans for ambitious growth will require the addition of further manufacturing and logistics capacity in the years ahead.  We have been exploring site options on which to base this capacity and expect to make further progress on this in the second half of the year.

Support systems

In the first half of 2022 we achieved a major milestone with the completion of the deployment of SAP across our supply chain, a huge achievement for the teams involved.  The focus of our systems development has now turned to support for our growth ambitions, particularly our digital capabilities but also the integration of new channels to our core systems.  In a tight labour market, we have also been working on an upgraded recruitment platform that will improve current processes and the overall candidate experience.

Greggs Pledge

Our separate sustainability report details the progress made in 2021 on the objectives of the Greggs Pledge, our commitment to further improve our ESG credentials in ten key areas.  In the first half of 2022 we continued to advance this agenda, and were delighted to achieve the National Equality Standard, an industry-recognised standard for diversity and inclusion.  This accreditation reflects the significant progress we have made in respect of diversity and inclusion whilst supporting us to identify areas where we can continue to improve. A key element of the accreditation was having leaders who advocate diversity and inclusion, supporting people through their employment journey and having strategies in place to drive change.

We have also been focused on setting science-based targets to reduce our emissions in line with a 1.5^oC ambition. These targets have now been submitted to the Science Based Targets initiative for verification, and will support our ambition to be Net Zero in Scopes 1 & 2 by 2035, and in Scope 3 by 2040.

Another notable landmark in early July was the opening of our first "Eco-Shop" in Northampton.  This gives us a platform to develop and test solutions to minimise our impact on the environment by cutting down on waste and reducing the use of energy and water.  Successful elements of the trial will be rolled out in line with our Pledge commitment.

Board changes

Today we have announced the appointment of Matt Davies as an independent non-executive director and Chair Designate with immediate effect.  Matt will succeed Ian Durant as Chair of the Board of Greggs on 1st November 2022, when Ian steps down from the Board.  On behalf of the Board I would like to thank Ian for his support and leadership through what has been a transformational period for Greggs.

As part of our ongoing plans to ensure smooth succession for Board roles Lynne Weedall, who joined the Board in May 2022, will become Chair of our Remuneration Committee with effect from 1 September 2022.

Financial performance

Total sales for the 26 weeks to 2 July 2022 were £694.5 million (H1 2021: £546.2 million).  Like-for-like sales in company-managed shops grew by 22.4% (Q1: 36.9%, Q2: 11.2%).

Pre-tax profit was £55.8 million in the first half of 2022 (H1 2021: £55.5 million).  The contribution from sales in the period was significantly stronger than that seen under the more restricted conditions experienced in the first half of 2021, although the 2021 outcome did benefit from temporary relief from business rates and reduced rates of VAT.  We have worked hard to mitigate the impact of cost inflation on customers but some further small price increases have been necessary; these appear not to have impacted transaction numbers.

The rate of cost inflation increased significantly in the first half of the year, driven by food, packaging and energy commodities.  We have continued to extend forward our purchasing cover and have fixed input prices for an average of around five months of our future requirements across these areas.  Across all cost areas we now estimate that the overall level of cost inflation in 2022 will be around nine per cent, although some uncertainty remains.

The net financing expense of £3.2 million in the period (H1 2021: £3.9 million) comprised £3.2 million in respect of the IFRS 16 interest charge on lease liabilities, £0.4 million of facility charges under the Company's (undrawn) financing facilities and £0.4m income relating to interest received on bank deposits, the Company's defined benefit pension scheme and foreign exchange gains.

The effective rate of Corporation Tax for the period was 17.7% (H1 2021: 20.0%) with the year-on-year reduction reflecting the availability of super-deduction capital allowances.

Diluted earnings per share for the period were 44.8 pence (H1 2021: 43.2 pence).

Capital expenditure and financial position

Capital expenditure during the first half was £41.9 million (H1 2021: £23.5 million) as we increased investment in line with our estate growth and development plans and neared completion of additional pizza capacity at our Enfield manufacturing site.  In the balance of the year we will continue the development of our retail estate. We are making good progress with the identification of potential sites for expansion of our supply chain.  The timing of any land purchase will be material to 2022 capital expenditure and, in the context of the uncertainty over this, our full year guidance of circa £170 million capital expenditure remains appropriate.

We continue to carry a higher-than-normal cash position in order to fund the investment in our significant growth programme and ended the period with a cash balance of £145.7 million (3 July 2021: £118.3 million).  In addition, the Company has access to a revolving credit facility that 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).

Dividends

The previously-declared special dividend of 40.0 pence per share was paid in April 2022. 

The Board has declared an interim dividend of 15.0 pence per share (2021: 15.0 pence).  The overall ordinary dividend for the year will be proposed in line with our progressive dividend policy, which targets a full year ordinary dividend that is around two times covered by underlying earnings.

The interim dividend will be paid on 7 October 2022 to those shareholders on the register at the close of business on 9 September 2022.

Outlook

Despite market-wide inflationary pressures Greggs has continued to perform well.  Consumer behaviour is still recovering from the impact of the pandemic and employment levels are high.  In a market where consumer incomes are under pressure Greggs offers exceptional value for customers looking for food and drink on-the-go.  In the four weeks to 30 July like-for-like sales in company-managed shops were 13.1% above the equivalent period of 2021.

Clearly there are considerable uncertainties in the economy as a whole, but we continue to trade in line with our plan and are making good progress against our strategic objective to become a larger, multi-channel business.  As such, the Board's expectations for the full year outcome remain unchanged.

                                                                                                                               Roisin Currie

Chief Executive

                                                                                                                            2 August 2022