Final Results - Year Ended 1 January 2000

Greggs PLC 3 March 2000 GREGGS plc PRELIMINARY RESULTS FOR THE YEAR ENDED 1 JANUARY 2000 Greggs is the UK's leading retailer specialising in sandwiches, savouries and other bakery products, with a particular focus on takeaway food and catering. It has some 1,100 retail outlets throughout the UK, trading primarily under the Greggs and Bakers Oven brands. These results represent the group's ninth consecutive year of profit, earnings and dividend growth. * Sales up 5.9 per cent to £308.7 million - core volume growth of 4.0 per cent * Record pre-tax profit of £21.5 million - up 6.5 per cent * Diluted earnings per share up 10.3 per cent to 134.2 pence * Dividends increased 9.8 per cent to 45.0 pence per share * Substantial investment for future growth * Divisional and central management further strengthened * New shop designs developed * Thurston and Braggs divisions re-branded as Greggs * Construction of new £2 million Group Technical Centre at Newcastle upon Tyne nearing completion 'We have made an encouraging start to the new year, in which we expect to derive growing benefits from our investments in people, brands, shops and facilities.' - Ian Gregg, Chairman ENQUIRIES: Greggs plc Hudson Sandler Mike Darrington, Managing Director Keith Hann / Justin Strong Malcolm Simpson, Financial Director Tel: 020 7796 4133 Tel: 020 7796 4133 on Friday, 3 March only 0191 281 7721 thereafter CHAIRMAN'S STATEMENT This was a year in which we concentrated on building for the future, making substantial investments in our brands, shops, products and people in pursuit of our long term strategic vision. We also achieved strong core volume growth and made satisfactory profit progress. Results Sales rose by 5.9 per cent to £308.7 million, including like-for-like growth of 6.5 per cent (adjusted to a comparable 52 week basis) and pre-tax profit advanced by 6.5 per cent to £21.5 million. We maintained our operating margin despite an increase in our cost base as we invested to strengthen our management and technical resources, with the aim of facilitating future growth. As anticipated, there was also a substantial under-recovery of fixed costs in the final week of the year as a result of the pattern of Christmas and New Year opening, including the impact of the extra Millennium bank holiday. Diluted earnings per share grew by 10.3 per cent to 134.2 pence (1998: 121.7 pence). Dividend The Board recommends an increased final dividend of 31.5 pence per share (1998: 28.5 pence). Together with the increased interim dividend of 13.5 pence per share paid in October, this makes a total dividend for the year of 45.0 pence (1998: 41.0 pence), an increase of 9.8 per cent. Subject to the approval of the Annual General Meeting, the final dividend will be paid on 19 May 2000 to shareholders on the register at 14 April 2000. Our commitment to shareholders remains the pursuit of a progressive dividend policy, providing increases in their income broadly in line with the growth of earnings per share over the medium term. Business highlights The outstanding feature of our performance was the strength of core volume growth, which averaged 4.0 per cent over the year as a whole. This was driven primarily by the success of our takeaway food ranges of sandwiches and savouries. The Greggs brand continued to make excellent progress, and Bakers Oven also improved its like-for-like sales. We developed new shop formats for both fascias, designed to address the mass market for bakery-related takeaway food and seated catering in the first decade of the twenty-first century. The Managing Director comments on trading and business development in more detail in his report on pages 4 - 8. The Board I am pleased to announce the appointment of Susan Johnson MBA (42) as an additional non-executive director, with effect from 2 March 2000. Susan was chief executive of Northern Business Forum from 1996 until earlier this year, when she became an executive director of Yorkshire Forward. I am sure that her career experience in sales and marketing, and her knowledge of regional issues, will enable her to make a valuable contribution to the Board. Staff As ever, the success of the group as a whole has depended on the individual efforts of our 14,000 staff, and in particular on their commitment to providing excellent customer service. I would like to take this opportunity to thank all of them for their contributions to our progress during the year. Prospects We have made an encouraging start to the new year, in which we expect to derive growing benefits from our investments in people, brands, shops and facilities. I look forward to reporting another year of profitable growth in 2000. Ian Gregg Chairman MANAGING DIRECTOR'S REPORT The group has made pleasing progress in many areas: improving product and service quality, raising brand awareness, further strengthening management and developing new retail concepts for the future. Our investments have helped us to achieve good core volume growth, increasing our share of the bakery-related retail and catering markets. Strategic development Last year we set out four key areas of management focus, as part of our drive to secure recognition as Europe's finest bakery-related retail business. I am pleased to report progress in each of these areas: Brand awareness. We have completed the re-branding of our Leeds-based Thurston retail chain as Greggs of Yorkshire, and of our Braggs division in Birmingham as Greggs of the Midlands. This means that our Greggs divisions now share a single, strong brand identity throughout the UK, with the sole exception of our specialist Birketts operation in the Lake District. The initial costs of changing shop fascias and point of sale material were borne during 1999, and we expect to derive growing benefits from our enhanced ability to develop and market the Greggs brand nationwide. We achieved positive results from our TV advertising campaigns in Scotland and the North East. For Bakers Oven, securing a prominent site in the Millennium Dome as the attraction's sole bakery-related retailer and caterer provides a key opportunity to raise public awareness of the brand, and initial results from this outlet have been encouraging. Retail environment. We have developed a new shop design for the Greggs brand in two principal formats: one tailored for city centre sites and the other for suburban locations. Both are designed to meet the needs of our customers for improved access to takeaway food, with an increased emphasis on in-shop display and speedy self-service. These designs will be rolled out progressively across the chain as shops undergo refurbishment as part of our normal cycle. We are also investing in the latest generation of touch-screen electronic point of sale technology: following successful trials, we plan to extend this to some 200 shops by the end of the current year. The new Bakers Oven seated catering concept was expanded aggressively during the first half, and achieved generally encouraging sales. Capital and running costs, however, were too high. We therefore decided to slow the rate of investment in the format until these issues were resolved. Improvement was evident in the final quarter and we are continuing to monitor the progress of these outlets closely, before committing ourselves to any acceleration of the opening programme. We continue to believe that there is an attractive opportunity for a retail format that addresses the value-conscious mass market and capitalises on our bakery heritage. Product and service excellence. The group's new central savouries unit at Balliol Park in Newcastle has performed well, continuing to improve the quality and consistency of its output at a low unit cost. Its products have proved popular with customers, helping to drive the significant growth we have achieved in the savoury category. This facility will be complemented by the opening in April of our new £2 million group technical centre, which will be dedicated to providing our customers with even more enjoyable products that combine taste, satisfaction and value for money. The new distribution facility for Bakers Oven at Kettering continued to make good progress, and is now providing our stores with considerable improvements in the quality and accuracy of deliveries, compared with the outsourced distribution arrangements it replaced. People. We have further strengthened our divisional and central management resources in a number of key areas, including sales and marketing, shop design, information technology, production, product development and quality assurance. The majority of these new people are working at the divisional level, where they are settling in well and beginning to make valuable contributions to our development. In particular, we are becoming ever more skilled in evaluating our customers' needs and identifying market trends. This will ensure further improvements in our decision-making processes in the future. Trading performance As the Chairman has reported, we achieved a good sales performance during the year. Group turnover increased by 5.9 per cent to £308.7 million. Core volumes grew by 5.0 per cent under the Greggs brand and 1.4 per cent in the Bakers Oven divisions, while total like-for-like sales under the two fascias were up by 7.7 per cent and 3.4 per cent respectively. The difference between volume and total like-for-like increases principally represents upgraded products at higher prices, rather than inflation. Our sales growth is particularly pleasing in the light of the overall pattern of high street trading, which was less buoyant than in the previous year; this naturally affects demand for both takeaway food and seated catering in city centre locations. The weather had a broadly neutral effect on our trading over the year as a whole. Pre-tax profit, up 6.5 per cent at £21.5 million, was in line with the revised budgets we set when the Millennium bank holiday trading pattern became apparent. This additional holiday, combined with the fact that Christmas and New Year 1999 fell at weekends, led to our shops being open for significantly fewer days in the final week of the year than in the comparable week in 1998, and therefore to a substantial under-recovery of our fixed costs. Actual performance in this 52nd week was in line with our expectations. The nine Greggs divisions remained the principal drivers of group performance. Greggs of Scotland again achieved outstanding results: it has built an excellent reputation in its market place, and continues to benefit from its drive to improve product quality. At the opposite end of the country, our Greggs of Twickenham division also made very encouraging progress. Bakers Oven Midlands continued to be the strongest performer among our four Bakers Oven divisions. The development of our principal product categories continued to reflect long- established trends, with takeaway sandwiches and savouries showing strong growth under both the Greggs and Bakers Oven fascias. Cakes and confectionery products, many of which are now bought as takeaway snacks, often complementing a savoury purchase, retained a fairly stable share of our sales. We have a strong focus on crusty and other speciality breads rather than on standard loaves, but total bread and roll sales nevertheless continued their decline as a proportion of our trade. Retail profile At the year end we had a total of 1,084 shops, a net increase of 12 over the year. We opened a record 53 new shops, including 12 resites to improved locations, but this was offset by 41 closures of lower turnover outlets as we continued the drive to improve the overall quality of our retail portfolio. We ended the year with 825 Greggs and 259 Bakers Oven shops, compared with 801 and 271 respectively in 1998. There were 68 comprehensive refurbishments and 49 minor shop refits completed during the year. Capital investment Capital expenditure was lower than in the previous year at £22.4 million (1998: £26.2 million). This was below our original budget, following our decision to moderate the pace of new concept developments at Bakers Oven. Major investments during the year included the construction of the new group technical centre in Newcastle, as well as our programmes of shop openings and refurbishments. The group's budgeted capital expenditure in 2000 is broadly in line with last year's. We plan to open a record 61 new shops, giving us a net addition of some 25 as we continue to reshape our portfolio through the closure of smaller outlets and those in lower traffic locations. We will also maintain our programme of shop refurbishments, beginning the roll-out of the new Greggs shop design and extending our new EPoS system. Cash flow and balance sheet The group's cash flow remains strong, enabling us to fund all our investment plans from our own resources. We ended the year with a net cash position of £8.9 million, compared with £8.7 million at the end of 1998. Employees We value all our people and are committed to the creation of a safe and enjoyable work environment that enables the growth of mutual respect, participation and long term partnership. A major survey of all our 14,000 staff was undertaken by external specialists during the year, to explore our employees' feelings about the company and the way that we operate and communicate. Although we achieved better results in this survey than in any comparable exercise our consultants had undertaken, they nevertheless identified scope for improvement in a number of areas. Their recommendations are currently being implemented across the group, in line with our commitment to continuous improvement in every aspect of our operations. Outlook We believe that we have the right people and the right strategy in place to achieve our vision of building Europe's finest bakery-related retail business. We will continue to expand organically through the progressive expansion and improvement of our retail portfolio, and to gain market share by offering excellent products, service and value for money. I look forward to reporting further progress towards these strategic goals in 2000. Mike Darrington Managing Director GROUP PROFIT AND LOSS ACCOUNT FOR THE 52 WEEKS ENDED 1 JANUARY 2000 1999 1998 £'000 £'000 Turnover 308,678 291,420 Cost of sales (123,535) (119,757) -------------------- Gross Profit 185,143 171,663 Distribution and selling costs (143,211) (133,976) Administrative expenses (20,241) (17,472) -------------------- Operating profit 21,691 20,215 Net interest payable and other income (171) (1) -------------------- Profit on ordinary activities before taxation 21,520 20,214 Taxation on profit on ordinary activities (5,602) (5,756) -------------------- Profit on ordinary activities after taxation 15,918 14,458 Dividends (5,327) (4,844) -------------------- Retained profit for the financial year 10,591 9,614 ====== ===== Earnings per share 135.1p 122.8p Diluted earnings per share 134.2p 121.7p The Group's operating profit for both the current and preceding financial period derives from continuing operations. There are no recognised gains or losses during the current and previous period other than the profit for the period. Reconciliation of movement in shareholders' funds 1999 1998 £'000 £'000 Profit on ordinary activities after taxation 15,918 14,458 Dividends (5,327) (4,844) -------------------- Retained profit for the financial year 10,591 9,614 New share capital - nominal value 13 19 - share premium 707 1,677 less: payment to QUEST - (109) -------------------- Net addition to shareholders' funds 11,311 11,201 Opening shareholders' funds 69,585 58,384 -------------------- Closing shareholders' funds 80,896 69,585 ====== ====== GROUP BALANCE SHEET AT 1 JANUARY 2000 1 January 2 January 2000 1999 £'000 £'000 Fixed assets Tangible assets 108,786 100,309 Investments 1,430 1,486 110,216 101,795 Current assets Stocks 5,983 5,880 Debtors 9,751 9,927 Cash at bank and in hand 8,892 8,734 ---------- ---------- 24,626 24,541 Creditors: amounts falling due within one year (49,755) (51,350) ---------- ---------- Net current liabilities (25,129) (26,809) ---------- ---------- Total assets less current liabilities 85,087 74,986 Creditors: amounts falling due after more than one year (2,180) (4,236) Provision for liabilities and charges Deferred taxation (2,011) (1,165) ---------- ---------- 80,896 69,585 ====== ====== Capital and reserves Called up share capital 2,388 2,375 Share premium account 9,151 8,444 Profit and loss account 69,357 58,766 ---------- ---------- Equity shareholders' funds 80,896 69,585 ====== ====== GROUP CASH FLOW STATEMENT FOR THE 52 WEEKS ENDED 1 JANUARY 2000 1999 1998 £'000 £'000 £'000 £'000 Net cash inflow from continuing operating activities 34,526 34,902 Returns on investments and servicing of finance Interest received 267 573 Interest paid (425) (549) Interest element of finance lease payments (13) (25) -------- -------- (171) (1) Taxation paid (6,668) (3,711) Capital expenditure and financial investments Purchase of tangible fixed assets (22,403) (26,204) Disposal of tangible fixed assets 974 1,065 Sale / (purchase) of investments 56 (1,153) -------- -------- (21,373) (26,292) Equity dividends paid (4,949) (4,477) Financing Issue of ordinary share capital 720 1,696 Redemption of loan notes (36) (38) Capital element of finance lease payments (102) (235) Loan repayments (1,789) (1,665) Government grants received - 29 Payment to QUEST - (109) -------- -------- Net cash outflow from financing (1,207) (322) ------- ------- Net increase in cash 158 99 ====== ====== Reconciliation of operating profit to net cash inflow from operating activities 1999 1998 £'000 £'000 £'000 £'000 Operating profit 21,691 20,215 Depreciation charges 13,035 11,146 Profit on disposal of fixed assets (83) (77) Release of government grants (25) (58) Increase in stocks (103) (1,025) Decrease / (increase) in debtors 176 (660) (Decrease) / increase in creditors (165) 5,361 ---------- ---------- Net (decrease) / increase in working capital (92) 3,676 ---------- ---------- Net cash inflow from continuing operating activities 34,526 34,902 ====== ====== NOTE: The financial information set out above does not constitute the Company's statutory accounts for the years ended 1 January 2000 or 2 January 1999. Statutory accounts for 1998 have been delivered to the Registrar of Companies, whereas those for 1999 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain a statement under Section 237(2) or (4) of the Companies Act 1985.

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