PRELIMINARY RESULTS

 

 

 

20 March 2013

 

 

PRELIMINARY RESULTS FOR THE 52 WEEKS ENDED 29 DECEMBER 2012

 

Greggs is the leading bakery retailer in the UK,

with over 1,670 retail outlets throughout the country,

serving freshly baked products to six million customers each week

 

SALES UP 4.8%, DRIVEN BY NEW SHOP OPENINGS AND WHOLESALE

 

·    Total sales up 4.8% to £735m

·    100 net new shops opened

·    Wholesale and franchise sales contributed 2.8% points to sales growth

·    Like-for-like sales down 2.7%

·    Pre-tax profit* down 2.2% to £51.9m

·    Diluted earnings per share* up 0.5% to 39.0p

·    Dividend per share up 1.0% to 19.5p

* before exceptional items: 2012 pre-tax credit £1.4m (2011: pre-tax credit £7.4m)

"Success in our new business channels coupled with new shop openings saw total sales growing again this year despite challenging market conditions.

 

"We have reshaped our plans for 2013 to focus on our core estate by increasing investment in our successful new formats in 'food on the go' and 'local bakery'. At the same time we will continue to develop sales through new shop openings, and make further progress in new markets through our wholesale and franchise agreements."

 

-     Roger Whiteside, Chief Executive

 

ENQUIRIES: Greggs plc Roger Whiteside, Chief Executive Richard Hutton, Finance Director Tel:     020 7796 4133 on Wednesday 20 March only            0191 281 7721 thereafter

Hudson Sandler Wendy Baker / Alex Brennan Tel: 020 7796 4133

 

 

CHAIRMAN'S STATEMENT

 

In my 11th and final report as Chairman, I am pleased to report another year of progress towards our key strategic objectives, designed to strengthen the business for the longer term. In particular, we have continued to diversify our activities, making Greggs more accessible to more customers through the rapid and profitable development of the new business channels of wholesaling and franchising, at the same time as opening a record number of new shops. While progress in these strategic areas has been encouraging, market conditions in 2012 continued to be exceptionally challenging.

 

Our financial performance

 

In 2012 consumer spending remained under pressure, shopper footfall declined, and the country experienced some of the wettest weather ever recorded. Despite this sales grew by 4.8 per cent to a record £735 million though like-for-like sales were 2.7 per cent lower and pre-tax profit before exceptional items was £51.9 million, a reduction of 2.2 per cent.

 

The Board remains committed to pursuing a progressive dividend policy that pays due regard to the growth of earnings per share over the medium term, the cash generative nature of the business and our determination to deliver value to our shareholders. The Board recommends a maintained final dividend of 13.5 pence per share, making a total dividend for the year of 19.5 pence (2011: 19.3 pence), an increase of 1.0 per cent.

 

The Board

 

In December 2012, Ken McMeikan announced his intention to leave Greggs to take up the position of Chief Executive of Brakes Group and he left the Board on 8 March 2013 following the appointment of Roger Whiteside as his successor. I would like to record our thanks to Ken for his leadership since he joined Greggs in 2008, and particularly for the role he has played in developing our strategic vision, strengthening the business, living our values and further enhancing our place in the community.

Roger Whiteside took up the position of Chief Executive on 4 February 2013, having been a member of our Board as a Non-Executive Director since 2008. Roger was previously Chief Executive of Punch Taverns plc and brings to his new role more than 30 years' experience of food and retailing gained with Marks & Spencer, Ocado and Threshers. He also has the great advantages of having been directly involved in the development of our strategy and of already being known and well respected by our people. I am sure that Greggs has a great future under his leadership.

 

Allison Kirkby joined the Board as an Independent Non-Executive Director on 30 January 2013. Allison is Chief Financial Officer of the global media production company Shine Group, and brings to the Board expertise in finance, consumer products and the media industry. She will succeed Ian Durant as Chair of the Audit Committee when Ian takes my place as Chairman of the Board after the Annual General Meeting in May 2013.

 

My own intention not to seek re-election at the AGM was announced in September 2012 and I am pleased to pass on my responsibilities as Chairman to such a capable successor as Ian Durant. Since I succeeded Ian Gregg as Chairman in 2002, the Group has opened more than 450 new shops and created around 3,000 additional jobs. It has also undergone fundamental changes in its management, structure and strategy and is now a much more centrally run business with a harmonised product range and a single, strong national brand. I am very grateful to my colleagues on the Board and throughout the business for their unstinting help and support during my time with Greggs.

 

Our values

 

Greggs' special values have always set the Company apart and I am delighted that we have been able to maintain and increase our contribution to the community in these economically difficult times. For the second year in succession, our people and customers raised an amazing £1 million for the BBC Children in Need appeal and we also gave money to a range of other good causes and opened our 220th Greggs Breakfast Club.

My greatest pleasure in chairing Greggs has been getting to know our outstanding people, whose dedication to making great products and delivering excellent customer service is simply second to none, and who are without doubt one of the greatest strengths of the business. On behalf of the Board, I would like to thank all 20,000 of them for their individual contributions to overcoming the many challenges we faced together during 2012 and I wish them all well for the future.

 

Prospects

 

There can be no doubt that the trading environment will remain very challenging in 2013, with consumers remaining cautious and inflationary cost pressures affecting a number of our key commodities. We have set our plans for the year accordingly, with a renewed focus on driving sales from our core retail estate while continuing to develop our wholesale and franchise channels to new markets.

 

During the year we intend to make substantial investments in the business, more than doubling the pace of refurbishments in addition to opening new shops in targeted locations.  We are also in the process of acquiring the site where we plan to construct a new frozen manufacturing facility in Leicestershire in order to meet the growth in demand from all our channels to the customer.

 

As I step down from the business this year, I am confident that we have the right ingredients for further growth under the leadership of Ian Durant, Roger Whiteside and the management team and that the longer term prospects for Greggs are strong.

 

Derek Netherton

Chairman

20 March 2013

 

 

 

CHIEF EXECUTIVE'S REPORT

 

Success in our new business channels coupled with new shop openings saw total sales growing again this year although challenging market conditions resulted in disappointing like-for-like sales in our existing estate.

 

Market background: another challenging year

 

We saw no let-up in the pressure on our customers' disposable incomes during 2012. Consumers are shopping less and looking to make their money go further, putting pressure on marginal shopping locations and weaker brands. This was reflected in the failure of a number of well-known retail chains in the course of the year.

 

With shopper footfall remaining under pressure, we continued to rebalance our business by opening more shops where our customers work, travel or spend their leisure time, and developed new markets working in partnership with Iceland and Moto.

 

The weather was particularly poor during the year, which was the second wettest in the UK since records began. This was a significant deterrent to the frequent shopping trips that are a particular feature of a daily purchase business like Greggs.

 

With like-for-like sales under pressure throughout the year, our focus was to offer the best possible value to our customers. Our teams worked hard to deliver substantial cost savings across the business and we increased our investment in promotions, particularly in our popular meal deals.

 

Financial performance: resilient under difficult conditions

 

Against this very challenging background, Greggs increased its sales to a record of £735 million, a rise of 4.8 per cent. The main drivers of this growth were the good performance of our newly opened shops and the rapid expansion of our new wholesale business. Like-for-like sales were disappointingly down 2.7 per cent. Operating profit before exceptional items was down 2.2 per cent at £51.8 million and pre-tax profit before exceptional items down by 2.2 per cent to £51.9 million. Our Finance Director Richard Hutton comments on financial performance in more detail in the Financial Review.

 

Our products: responding to our customers' needs

 

Our customers continue to look to Greggs for great tasting, high quality, fresh food that also provides outstanding value. Our focus on value for money through meal deals saw strong sales, particularly at breakfast where our offer of a fresh bacon or sausage breakfast roll with a hot drink for just £2 was by far our most successful offer in 2012, with more than seven million sold during the year.

 

Coffee is a fast-growing category and sales of our fresh Fairtrade coffee continue to grow strongly, with 21 million cups sold in the year, an increase of 23 per cent, demonstrating Greggs' growing reputation in this important market.

 

The development of lower calorie options within the Greggs range is gathering pace with successful introductions such as porridge, salads, fruit pots and lower calorie sandwich choices.

 

Our traditional categories saw strong sales from new products such as our chicken tandoori baguette, selling over 3.5 million; chicken curry lattice, selling over 2 million; and our new raspberry cupcake, with over 2.5 million sold. New ranges of sandwich and cupcake platters were also successfully launched in 2012, priced from £6 to £12.50.

 

A Government proposal to extend VAT to include freshly baked savouries thrust the Greggs brand into the spotlight as we successfully led an industry campaign against this proposal. I would like to thank all our employees who made time for the enormous effort needed to mount the campaign on top of their normal business activities. The outcome is a sensible solution that is good for the bakery industry and its customers alike and creates a clear and objective test of what constitutes hot food for the future.

 

Greggs brand awareness is strengthening as we build a substantial following online and increase advertising across a range of media. We now have over 663,000 Facebook fans, more than double the number a year ago. This year we will further strengthen our connection with our customers by launching a loyalty scheme enabling us to reward our customers and further target our marketing.

 

Our shops: making Greggs more accessible and enjoyable

 

We opened 121 new shops in 2012 and delivered a net increase of 100, after 21 closures, to give us a total of 1,671 shops at 29 December 2012. This included 10 new franchised shops in motorway service stations in partnership with Moto Hospitality Limited. Almost half our net new openings were in locations such as retail and industrial parks, motorway service stations and travel hubs.

 

We completed 118 shop refurbishments during the year. These focused on making the Greggs shopping experience even more enjoyable for our customers by increasing the space for browsing, making more products available for self-selection and providing seating wherever possible.  The returns on these refurbishments exceeded our targets in the year.

 

A further development in 2012 was the successful launch in June of our new 'local bakery' format, "Greggs the Bakery", in Gosforth, Newcastle upon Tyne. The concept combines the best-loved elements of the core Greggs sandwich, savouries and hot drinks range with new types of artisan breads freshly baked on the premises and an extended range of cakes, confectionery and pizzas.  The shop features a new style of layout and design to provide a much more traditional bakery shop experience, and is differentiated from our 'food on the go' outlets. The results from the initial trial led us to extend the concept to a further 10 locations by the end of the year; we continue to be pleased with the results and plan to roll out the concept further this year.

 

"Greggs moment", our coffee shop concept, is now operating in five locations and a further three new shops across the Midlands will open shortly. Tony Rowson, formerly a senior executive at Costa Coffee, joined us in October to head our developing business in this fast growing market, and we are already seeing the benefits of his extensive industry experience. Following the launch of the additional three shops we will complete a full review of the concept and decide on its roll-out potential.

 

With the success of our 'food on the go' and 'local bakery' refits during 2012 we have changed the shape of our plans to invest in shops this year. Our focus in 2013 will be on investing to improve sales from our core estate. We plan to refit a total of 250 shops, comprising both 'food on the go' outlets and the roll-out of the "Greggs the Bakery" format. We will also extend the most successful elements of the "Greggs the Bakery" range to shops in other suitable neighbourhood locations which will receive full refits in the future. We will continue to open new shops, though reverting to a more normal level of around 50-60 new openings, net of closures. These will include further franchised shops in motorway service areas in partnership with Moto.

 

Developing new markets

 

As well as investing in our existing chain of shops we are excited by the potential for growth in new markets working in partnership with Iceland and Moto.  Greggs' existing business is focused on the 'food on the go' and 'local bakery' markets but our success in selling a range of frozen products in Greggs branded cabinets in Iceland stores has shown we can compete effectively in the 'bake at home' market, taking market share from existing packaged brands. We believe this is an exciting new area of opportunity and in February 2013 we extended the range in Iceland to include additional pasties, pies and dessert lines.

 

In addition we plan to expand in new market segments. We successfully opened 10 shops last year in motorway service stations working with Moto on a franchise basis and will open more this year.

 

Our supply chain: achieving efficiencies and investing for growth

 

Greggs' vertical integration as both a baker and a retailer is a key point of difference and an important competitive advantage, particularly in a climate where consumers are increasingly concerned about the provenance of the food they eat. Our unique recipes, bakery expertise and sheer passion for our products all help to set Greggs apart and to deliver the great taste, quality and value that our customers expect. The quality of our facilities was recognised by the award of British Retail Consortium (BRC) accreditation to a number of our bakeries and production facilities during the year.

 

We have achieved substantial cost savings in our supply chain by investing in more efficient processes that have also enhanced food quality and safety across the business. Our originally targeted savings of £10 million over five years were delivered two years ahead of schedule in 2012 and we have now increased the target to £15m by 2014.

 

Following the opening of major new bakeries in Newcastle upon Tyne and Penrith in 2011, 2012 was a quieter year for investment in our supply chain. We completed a £2.5 million upgrade to increase the capacity of our savoury manufacturing plant in Newcastle upon Tyne, and opened a new "micro" bakery in Norwich to support our expansion into East Anglia, a region outside the reach of our main regional bakeries.

 

Looking ahead we have commenced the planning of a new £30 million frozen manufacturing facility in Leicestershire to complement our existing bakery at Balliol Park in Newcastle upon Tyne. This will provide substantially increased capacity to support our own retail expansion as well as the continued growth of our wholesale business, and will also deliver significant savings in logistics costs by bringing production closer to our customers in the Midlands and South.

 

I am pleased to welcome to the business Gavin Kirk, who joined us as Operational Supply Chain Director in May 2012 from Mars UK where he was European Supply Director. I would also like to congratulate everyone who works in our Supply Chain for their achievements during the year, both in successfully bedding down two major new bakeries and in maintaining supplies to our shops in the face of many unusual challenges, from floods to the traffic restrictions imposed in the London area during the Olympic and Paralympic Games.

 

Social Responsibility: doing the right thing

 

Greggs' long-standing commitment to corporate social responsibility lives at the core of our values, and I am happy to confirm my personal commitment to maintaining this tradition of putting people, the community and our environment at the very heart of everything we do.

 

Our continued progress against our key Social Responsibility targets in 2012 is detailed in the annual report. A particular highlight of our community work was the opening of our 220th Breakfast Club. We have successfully extended support for Breakfast Clubs by involving new corporate partners and now serve more than two million free breakfasts to disadvantaged primary school children each year. The generosity of our people and customers was undimmed by the recession, enabling us again to raise an incredible £1 million for the BBC Children in Need appeal. We also continued to support the excellent work of the Greggs Foundation, to which we donate at least one per cent of our pre-tax profits each year, and which made grants of over £1.4 million during 2012.

 

During the year we removed the very last artificial flavour from the Greggs' product range and we are proud that everything we produce ourselves is now free from added artificial colours and flavours, hydrogenated vegetable oils, trans fats and genetically modified ingredients. We have also continued to work to reduce the salt and fat content of our products through recipe improvements.

 

Further progress has been made in reducing the carbon footprint of our supply chain, and we have again reduced the amount of waste we send to landfill.

 

We welcomed 750 new people to our retail team through our new shop openings in 2012 and continued our efforts to make Greggs a great place to work for all our 20,000 employees. I am delighted that they will again share 10 per cent of our profits this year, a total of £5.8 million. We have opened the doors of Greggs to show the fantastic team of people who work in our business. They will appear in a major new eight part TV series which is due to air this year, and will, I am sure, help the public to identify even more strongly with Greggs as an already much-loved national brand.

 

Ian Gregg, our former Chairman, has written a new history of Greggs, all royalties from which he has generously agreed to donate to the Greggs Foundation which he established in 1987. The book will be sold in our shops with all the profit we make on sales of the book also going to the Greggs Foundation.

 

We were pleased to achieve recognition of the business at a number of awards ceremonies during the year. These included being named Bakery Food Manufacturer of the Year, Sandwich Retailer of the Year, North East Company of the Year and receiving a special Café Chain Development Award for "Greggs moment".

 

Outlook for 2013

 

As the Chairman has noted, this will undoubtedly be another challenging year for the UK retail industry. The severe snow in January has added to the on-going pressures of continued consumer recession, and while total sales for the first 11 weeks to 16 March 2013 were up 4.2 per cent, like-for-like sales were down by 4.0 per cent.  There has been an improving trend following the snow-impacted January when like-for-like sales were down 5.7 per cent, with February improving to a like-for-like decline of 2.0 per cent.  Consumer incomes remain under pressure and we continue to respond by offering customers even better value through further investment in our popular promotions and meal deals.

 

We have reshaped our plans for 2013 to focus on our core estate by increasing investment in our successful new formats in 'food on the go' and 'local bakery'. This will impact like-for-like performance in the short term due to increased shop closure periods but will provide a stronger platform for growth in the future. At the same time we will continue to develop sales through new shop openings, and make further progress in new markets through our wholesale and franchise agreements.  Investment in our supply chain will meet the growth in demand for our products across all these areas and we will continue to drive efficiencies to help mitigate the impact of commodity inflation on pricing to customers.  Greggs is a great business with an iconic brand, outstanding people and a clear strategy for long term, profitable growth. As a result I believe that the business is well placed, although profit growth is likely to be held back this year as we invest to strengthen the business for the longer term.

 

I am delighted to have been given the opportunity to succeed Ken McMeikan as Chief Executive of this business. I wish Ken success in his new role and would like to take this opportunity also to thank our outgoing Chairman Derek Netherton, alongside whom it has been my pleasure to work on the Board for nearly five years. Derek has provided decisive and sensitive leadership during a period of major change for the business over the past decade.

 

                                                                                                                                         Roger Whiteside

Chief Executive

                                                                                                                            20 March 2013