Interim Results
Greggs PLC
04 August 2006
4 August 2006
GREGGS plc
INTERIM RESULTS
FOR THE 24 WEEKS ENDED 17 JUNE 2006
"Our interim results reflect the combination of flat like-for-like sales and
substantially increased costs, particularly for energy, that we highlighted in
our last results announcement and at our AGM in May. These impacts have been
mitigated by successful initiatives to reduce other costs. We are also seeking
to drive turnover growth through new product launches, and are beginning trials
of a number of other innovations to extend the reach and appeal of our brands."
• Sales up 3.1 per cent to £243.1 million; like-for-like sales level
• Energy costs up £2.4 million, an increase of 69 per cent
• Operating profit £11.4 million (2005: £14.2 million), down £2.8 million in
line with the Board's expectations
• Pre-tax profit £12.5 million (2005: £15.6 million), a reduction of 20.0 per
cent
• Diluted earnings per share 72.0 pence (2005: 87.1 pence), a reduction of
17.3 per cent
• Interim dividend increased 5.6 per cent to 38.0 pence per share (2005: 36.0
pence per share)
• £38.7 million returned to shareholders to date through share buyback
programme; intending to continue programme
• Greggs Healthier Options range launched successfully at beginning of second
half
• Bakers Oven divisions in North and Scotland to be restructured and
integrated with Greggs brand
"Like-for-like sales in the first four weeks of the second half rose by 1.4 per
cent. This improving trend was offset by a decline of 2.6 per cent in the two
weeks to 29 July due to the exceptionally hot weather, leaving us only
marginally ahead at this stage. The product, sales and cost initiatives that we
are taking are helping to further strengthen confidence within the business and
create a more positive platform for the second half, when we also face less
demanding prior year comparatives.
Operating profit in the second half to date was showing an encouraging trend
prior to the recent hot weather, despite the continued impact of higher energy
costs. We expect our operating results in the second half to be closer to those
of the comparable period of last year, subject to market and weather conditions.
I am confident that the Group is well placed to compete and prosper in the
future, and to leverage the great fundamental strengths it enjoys in its brands,
assets, products and people."
- Sir Michael Darrington, Managing Director
ENQUIRIES:
Greggs plc Hudson Sandler
Sir Michael Darrington, Managing Director Jessica Rouleau / James Hill
Richard Hutton, Finance Director Tel: 020 7796 4133
Tel: 020 7796 4133 on Friday, 4 August only keithhann.communications
0191 281 7721 thereafter Keith Hann
Tel: 07831 521870
MANAGING DIRECTOR'S INTERIM STATEMENT
Our interim results reflect the combination of flat like-for-like sales and
substantially increased costs, particularly for energy, that we highlighted in
our last results announcement and at our AGM in May. These impacts have been
mitigated by successful initiatives to reduce other costs. We are also seeking
to drive turnover growth through new product launches, and are beginning trials
of a number of other innovations to extend the reach and appeal of our brands.
Results
In the first half (24 weeks to 17 June) total sales increased by 3.1 per cent to
£243.1 million (2005: £235.9 million). Like-for-like sales for the period were
level against a very strong trading period in 2005, when they grew by 5.2 per
cent. Excluding price inflation, core volumes declined by 3.0 per cent. We
attribute this to a general slowing of consumer expenditure, a growing consumer
interest in healthier eating and a proliferation of competing takeaway formats.
There was no significant weather effect on our trading in the first half of
either year.
Operating profit was £2.8 million or 19.6 per cent lower than in the previous
first half at £11.4 million (2005: £14.2 million). Energy costs increased by
£2.4 million, or 69 per cent, with further pressure arising in transport and
waste disposal. Ingredient prices remained largely stable and concentration on
lowering overheads helped offset inflation in retail costs.
Interest receivable was reduced by 27.7 per cent to £1.1 million (2005: £1.5
million) as we returned surplus cash to shareholders through increased dividends
and our continuing share buyback programme. Pre-tax profit was 20.0 per cent
lower at £12.5 million (2005: £15.6 million), while diluted earnings per share
were 72.0 pence (2005: 87.1 pence), a reduction of 17.3 per cent.
Dividend and the share buyback programme
The Group is strongly cash generative, which enables us to invest in the growth
of our business as well as returning cash to investors. We have reviewed our
capital structure and have concluded that shareholders would benefit from a more
efficient, geared balance sheet. We have therefore decided to increase
progressively our annual distribution through dividends while continuing to buy
back shares, where we see it to be in the interests of our shareholders. In
determining the level of dividends and buyback we will have due regard to the
fixed costs (primarily rental costs) relating to our portfolio of predominantly
leasehold properties.
With the above factors in mind, the Board has declared an increased interim
dividend of 38.0 pence per share (2005: 36.0 pence), a rise of 5.6 per cent.
Going forward, over the medium term we expect to reduce our dividend cover
further, whilst maintaining a sustainable payout ratio. This reflects our
consistent commitment to delivering shareholder value, reflected in our record
of dividend increases for 21 consecutive years since Greggs' flotation in 1984.
During the first half of the financial year, the trustees of the Greggs Employee
Benefit Trust (EBT) purchased 439,829 shares at a cost of £16.4 million for the
future satisfaction of employee share options. Additionally, the Company
purchased 751,482 of its ordinary shares for cancellation, at an average price
of £37.21 and a total cost of £28.2 million. As a result, we ended the first
half with net cash on the balance sheet of £25.5 million, and 11,443,869 shares
in issue, including those held by the EBT.
Since the beginning of the second half the Company has spent a further £10.5
million purchasing for cancellation 264,997 ordinary shares at an average price
of £39.56. In total, therefore, in the current year to date, the Company has
acquired for cancellation 1,016,479 ordinary shares, at an average price of
£37.83 and a total cost of £38.7 million.
It is our present intention to purchase the balance of 563,000 shares available
under the current shareholder mandate and thereafter to renew our authority and
to continue buying back shares provided that we consider it to be in the
interests of our shareholders to do so.
Divisional performance
During the first half like-for-like sales under the Greggs brand showed a modest
decline of 0.3 per cent, while those under the Bakers Oven brand improved by 0.8
per cent. This principally reflected a disappointing performance by the Greggs
brand in the first quarter, since when it has shown an improving trend.
The Greggs divisions in the North of England and Scotland continued to perform
more strongly than those in the South, and we are taking steps to improve the
profitability of our southern divisions, focusing on sales growth initiatives
underpinned by action on costs.
In Belgium, we are achieving good core volume growth and improved margins in
line with our plans to move towards profitability. We have just opened our
sixth Greggs shop, in a suburban location in Antwerp.
Bakers Oven made a reduced contribution overall, primarily because of continued
underperformance in the North and Scotland.
Bakers Oven restructuring
In the light of the unsatisfactory performance of the Bakers Oven divisions in
the North of England and Scotland over a number of years, we are today informing
employees of our intention to integrate these divisions with the Greggs brand.
Subject to full consultation with our employees and their representatives, we
propose to transfer 49 of the 63 Bakers Oven shops in these two regions to the
Greggs divisions in the North East, Yorkshire and Scotland, where the shops will
be rebranded as Greggs, or to the successful Bakers Oven Midlands operation.
Some 14 poorly performing shops will be closed and this, together with changes
to supply arrangements, regrettably will result in the loss of around 200 jobs.
We expect to incur closure costs of some £2.5 million, which will be shown in
the full year accounts. The restructuring is expected to enhance annual profit
by some £1.25 million from our next financial year.
We remain fully committed to strengthening Bakers Oven in the Midlands and
South, where we are generating good returns on our investment.
Shops
We opened 22 new shops during the first half and closed six, giving us a net
addition of 16 outlets to a total of 1,335 at 17 June. These comprised 1,114
units under the Greggs brand in the UK and five in Belgium, and 216 under the
Bakers Oven brand. As a result of the additional closures of unprofitable
Bakers Oven shops noted above, we now expect a net increase of some 20 shops
during the current year, compared with our original target of 35. The
rationalisation of Bakers Oven means that the potential for expansion of the
brand is also clearly smaller than we anticipated when we set our target of
expanding to a total of 1,700 shops in the UK by 2010. While we have no doubt
that we shall be able to achieve this target in the longer term, and that there
is ultimate scope for over 2,000 shops in the UK, we no longer believe that it
is realistic to expect it to be achieved by the end of the current decade.
We have continued our normal programme of investment in shop refurbishments to
ensure the maintenance of high retail standards, completing 18 such
refurbishments during the first half.
A number of trials of innovatory retail formats, locations and opening hours are
under way across the business as we harness the creative potential of our
divisions and encourage them to respond to new competitive challenges and
explore additional growth opportunities.
Products
During the first half like-for-like sales of savouries were stable, while
sandwich sales showed a slight decline. Sales of bread and rolls increased,
continuing the positive trend established in the second half last year. Drinks
sales were also up, while those of sweet lines were modestly reduced.
We remain committed to driving and further improving our range of excellent core
products. However, we also recognise that growing consumer interest in
healthier eating is a long term trend. We are responding to this with an
evolutionary approach that does not risk compromising our commitment to selling
tasty and enjoyable products at good value prices. Following extensive trials,
we launched a new Greggs Healthier Options range early in the second half,
comprising wraps, rolls and sandwiches that each contain less than 400
Kcalories, less than 10g fat, less than 4g saturated fat and less than 2g salt.
The range also includes a new fruit salad pot. Early indications are that all
these products have been well received by our customers.
Using the extensive product development resources at our Group Technical Centre
in Newcastle upon Tyne, we are working towards a progressive broadening of the
Healthier Options range, including its extension into the savouries and
confectionery categories.
Investment
Capital expenditure during the first half was £13.5 million (2005: £13.4
million). The new distribution centre at Balliol Park in Newcastle is operating
smoothly, while the second central savouries unit in the same location is
complete and ready for commissioning. We have carefully reviewed all planned
capital expenditure in the light of the trading climate. In addition to this,
site problems have delayed the start of work on our new bakery at Cambuslang,
Glasgow, to replace our Rutherglen plant. As a result, total capital investment
for the year is now expected to be below £35 million, compared with our original
budget of £40 million.
Balance sheet
At the end of the first half the Group had net cash balances of £25.5 million,
compared with £69.6 million at the end of the previous first half and £65.6
million at our year end on 31 December 2005. The reduction of £40.1 million
during this half reflects market purchases of ordinary shares by the Company and
the Greggs Employee Benefit Trust at a combined total cost of £44.6 million.
People and the community
We remain committed to playing an active and positive role in the communities
where we operate. There are now Greggs Breakfast Clubs operating in 125 primary
schools in disadvantaged areas across the country. Our charitable initiatives
are inevitably dependent on profit generation, and we are primarily focusing our
support on existing partnerships at this time.
We are also seeking to fulfil our responsibilities to the wider environment
through a range of initiatives designed to improve our performance in recycling
and to minimise waste.
I am grateful to all our staff for their resilience and cheerfulness, and for
the great efforts they have made to attract and retain customers in the more
challenging trading environment we have experienced this year.
Outlook
Like-for-like sales in the first four weeks of the second half rose by 1.4 per
cent. This improving trend was offset by a decline of 2.6 per cent in the two
weeks to 29 July due to the exceptionally hot weather, leaving us only
marginally ahead at this stage. The product, sales and cost initiatives that we
are taking are helping to further strengthen confidence within the business and
create a more positive platform for the second half, when we also face less
demanding prior year comparatives. We are undertaking a wide range of
innovative trials with the aim of driving future growth, and taking firm action
to rationalise loss-making operations.
Operating profit in the second half to date was showing an encouraging trend
prior to the recent hot weather, despite the continued impact of higher energy
costs. We expect our operating results in the second half to be closer to those
of the comparable period of last year, subject to market and weather conditions.
Performance at the pre-tax profit level will reflect the reduction in interest
receipts as a consequence of our reduced cash balances, and the closure costs of
the intended Bakers Oven restructuring. Earnings per share will benefit from our
continuing share buyback programme.
I am confident that the Group is well placed to compete and prosper in the
future, and to leverage the great fundamental strengths it enjoys in its brands,
assets, products and people.
Sir Michael Darrington
Managing Director
4 August 2006
Consolidated income statement
For the 24 weeks ended 17 June 2006
24 weeks 24 weeks 52 weeks
ended ended ended
17 June 18 June 31 December
2006 2005 2005
£'000 £'000 £'000
Revenue 243,135 235,868 533,435
Cost of sales (94,058) (91,620) (203,346)
Gross profit 149,077 144,248 330,089
Distribution and selling costs (120,241) (111,983) (247,188)
Administrative expenses (17,405) (18,053) (35,758)
Operating profit 11,431 14,212 47,143
Finance income 1,065 1,474 3,106
Finance expenses (3) (73) (90)
Profit before tax 12,493 15,613 50,159
Income tax (3,998) (5,028) (16,085)
Profit for the period attributable 8,495 10,585 34,074
to equity holders of the parent
Basic earnings per share 72.4p 87.9p 282.1p
Diluted earning per share 72.0p 87.1p 278.9p
Consolidated statement of recognised income and expense
For the 24 weeks ended 17 June 2006
24 weeks 24 weeks 52 weeks
ended ended ended
17 June 18 June 31 December
2006 2005 2005
£'000 £'000 £'000
Actuarial gains / (losses) on defined benefit pension 1,323 (724) (2,345)
plans
Tax on items taken directly to equity (397) 217 704
Net expense recognised directly in equity 926 (507) (1,641)
Profit for the period 8,495 10,585 34,074
Total recognised income and expense for the period 9,421 10,078 32,433
attributable to equity holders of the parent
Consolidated balance sheet
As at 17 June 2006
17 June 18 June 31 December
2006 2005 2005
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 183,289 166,575 180,826
Current assets
Inventories 7,913 7,342 7,713
Trade and other receivables 22,085 19,032 15,861
Cash and cash equivalents 25,496 69,619 65,602
55,494 95,993 89,176
Total assets 238,783 262,568 270,002
LIABILITIES
Current liabilities
Trade and other payables (72,231) (70,877) (58,686)
Current tax liabilities (4,794) (5,780) (8,086)
(77,025) (76,657) (66,772)
Non-current liabilities
Defined benefit pension liability (8,911) (12,010) (9,730)
Other payables (98) (103) (98)
Deferred tax liability (12,713) (12,241) (11,927)
(21,722) (24,354) (21,755)
Total liabilities (98,747) (101,011) (88,527)
Net assets 140,036 161,557 181,475
EQUITY
Capital and reserves
Issued capital 2,289 2,432 2,439
Share premium account 13,471 12,618 13,440
Capital redemption reserve 150 - -
Retained earnings 124,126 146,507 165,596
Total equity attributable to equity holders of the 140,036 161,557 181,475
parent
Consolidated statement of cash flows
For the 24 weeks ended 17 June 2006
24 weeks 24 weeks 52 weeks
ended ended ended
17 June 18 June 31 December
2006 2005 2005
£'000 £'000 £'000
Cash flows from operating activities
Profit for the period 8,495 10,585 34,074
Depreciation 10,674 9,584 22,038
(Profit) / loss on sale of property, plant (103) 238 484
and equipment
Release of government grants (4) (4) (7)
Share based payment expenses 265 144 557
Finance income (1,065) (1,474) (3,106)
Finance expenses 3 73 90
Income tax expense 3,998 5,028 16,085
Increase in inventories (200) (59) (430)
Increase in debtors (6,224) (5,088) (1,912)
Increase / (decrease) in creditors 13,549 11,375 (517)
Movement in pension liability 504 254 333
Cash from operating activities 29,892 30,656 67,689
Interest paid (3) (73) (90)
Income tax paid (6,901) (6,596) (14,625)
Net cash inflow from operating activities 22,988 23,987 52,974
Cash flows from investing activities
Acquisition of property, plant and equipment (13,545) (13,433) (41,687)
Proceeds from sale of property, plant and equipment 511 1,141 2,171
Interest received 1,065 1,474 3,106
Net cash outflow from investing activities (11,969) (10,818) (36,410)
Cash flows from financing activities
Proceeds from issue of share capital 31 405 1,234
Sale of own shares from Employee Benefit Trust (EBT) 1,443 3,517 3,695
Purchase of own shares into EBT (16,437) (2,163) (2,173)
Purchase of own shares for cancellation (28,183) - -
Dividends paid (7,979) (7,910) (12,319)
Defined benefit pension scheme special contribution - - (4,000)
Net cash outflow from financing activities (51,125) (6,151) (13,563)
Net (decrease) / increase in cash and cash equivalents (40,106) 7,018 3,001
Cash and cash equivalents at the start of the period 65,602 62,601 62,601
Cash and cash equivalents at the end of the period 25,496 69,619 65,602
Notes
1. Basis of preparation
The interim financial information has been prepared on the basis of the
accounting policies adopted in the Company's statutory accounts for the 52 weeks
ended 31 December 2005, as revised for the implementation of specified new or
amended endorsed standards or interpretations.
2. Status of financial information
The interim information for the 24 weeks ended 17 June 2006 and 18 June 2005 has
not been audited or reviewed by the auditors.
The comparative figures for the 52 weeks ended 31 December 2005 are not the
Company's statutory accounts for that financial year. Those accounts have been
reported on by the Company's auditors and delivered to the Registrar of
Companies. The report of the auditors was unqualified, did not include a
reference to any matters to which the auditors drew attention by way of emphasis
without qualifying their report and did not contain a statement under section
237(2) or (3) of the Companies Act 1985.
3. Dividends
The following dividends were declared and payable by the Group:
24 weeks 24 weeks 52 weeks
ended ended ended
17 June 18 June 31 December
2006 2005 2005
Dividend paid per ordinary share (pence per share) 70.0p 66.0p 102.0p
Total dividend payable (£'000s) 8,036 7,959 12,319
For the 24 weeks ended 17 June 2006 a dividend of 38.0p per ordinary share (24
weeks ended 18 June 2005: 36.0p, 52 weeks ended 31 December 2005: 70.0p) is
proposed amounting to £4,085,000 (24 weeks ended 18 June 2005: £4,360,000, 52
weeks ended 31 December 2005: £12,396,000).
4. Share capital and reserves
Reconciliation of movement in capital and reserves attributable to equity
shareholders
Share Share Capital Retained Total
capital premium redemption earnings
reserve
£'000 £'000 £'000 £'000 £'000
At 1 January 2006 2,439 13,440 - 165,596 181,475
Shares issued in the period - 31 - - 31
Total recognized income and - - - 9,421 9,421
expense
Purchase of own shares into - - - (16,437) (16,437)
EBT
Sale of own shares from EBT - - - 1,443 1,443
Purchase of own shares for (150) - 150 (28,183) (28,183)
cancellation
Share based payments - - - 265 265
Equity dividends - - - (7,979) (7,979)
At 17 June 2006 2,289 13,471 150 124,126 140,036
The number of ordinary shares in issue at 17 June 2006 was 11,443,869 (18 June
2005: 12,159,627, 31 December 2005: 12,193,957). The weighted average number of
ordinary shares outstanding during the period was 11,733,251 (18 June 2005:
12,038,042, 31 December 2005: 12,080,526).
5. Defined benefit pension scheme
The valuation of the defined benefit pension scheme for the purposes of IAS19 as
at 31 December 2005 has been updated as at 17 June 2006 and the movements have
been reflected in this interim statement.
6. Interim report
The interim report is being posted to all shareholders and copies are available
on application to the Company Secretary, Greggs plc, Fernwood House, Clayton
Road, Jesmond, Newcastle upon Tyne, NE2 1TL. It will also be available on the
Company's website, www.greggs.plc.uk.
This information is provided by RNS
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