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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