Greggs : Preliminary Results

RNS Number : 9896X Greggs PLC

28 February 2017

28 February 2017

PRELIMINARY RESULTS FOR THE 52 WEEKS ENDED 31 DECEMBER 2016

Greggs is the leading bakery food-on-the-go retailer in the UK, with over 1,750 retail outlets throughout the country A STRONG PERFORMANCE AND FURTHER STRATEGIC PROGRESS 2016 Financial highlights

· Total sales up 7.0% to £894.2m (2015: £835.7m)

• Company-managed shop like-for-like sales* up 4.2% (2015: 4.7%)

• Operating profit excluding property profits** and exceptional items*** up 8.6% to £78.1m (2015:

  £71.9m)

• Pre-tax profit excluding exceptional items*** £80.3m (2015: £73.0m)

  · Pre-tax profit £75.1m (2015: £73.0m)

• Strong cash generation enabling significant, self-funded capital investment to support growth

• Total ordinary dividend per share up 8.4% to 31.0p (2015: 28.6p)

  * like-for-like sales in Company-managed shops (excluding franchises) with a calendar year's trading history

  ** freehold property disposal gains of £2.2min 2016 (2015: £1.2m)

  *** exceptional pre-tax charge of £5.2min 2016 (2015: £ nil)

  Strategic progress

• Growing strength in the food-on-the-go market

• Further improvements to product range, including extended choice in hot drinks and hot food

• 'Balanced Choice' range of healthier options now accounts for over 10% of sales

• 208 shops refurbished - 92% of shop estate now transformed to food-on-the-go format

• 145 new shops opened, 79 closures (66 net openings); 1,764 shops trading at 31 December 2016

• Investment in upgraded operating systems progressing well - finance system implemented and shop replenishment successfully trialled

• £100m, five-year investment programme in manufacturing and distribution operations commenced

  Current trading

• 2017 has started in line with our expectations

• Company-managed shop like-for-like sales up by 2.0% in 8 weeks to 25 February 2017

• Underlying (excluding New Year trading pattern) Company-managed shop like-for-like sales in weeks 2 to 8 up by 2.9%

"In 2016 we delivered another strong performance as we continued on our journey to transform Greggs from a traditional bakery business into a modern, attractive food-on-the-go retailer. Our product offer is evolving to meet the changing needs of our customers and our shop estate and service levels have benefited from significant investment. "The UK consumer outlook is more challenging than we have seen in recent years, with industry-wide pressures emerging in commodities as well as labour costs. However we are confident of making further progress as we implement our plan to grow Greggs as a contemporary food-on-the-go brand."

- Roger Whiteside, Chief Executive

ENQUIRIES:

Greggs plc

Roger Whiteside, Chief Executive Richard Hutton, Finance Director Tel: [phone]

Hudson Sandler

Wendy Baker / Alex Brennan/Fern Duncan Tel: [phone]

An audio webcast of the analysts' presentation will be available to download later todayat http://corporate.greggs.co.uk/

Chairman's statement

Greggs performed stronglyin 2016, benefiting fromthe investments that we have made in recent years and the continued implementation of changes in line with our strategic plan. The food-on-the-go market continues to grow and is highlycompetitive and fast-moving. This requires us to constantly evolve and develop our offer to customers. Our clear plan and record of deliveryis bringing sustainable long-termgrowth for the benefit of all stakeholders.

Overview

In 2016 Greggs demonstrated once again its ability to manage a major change agenda whilst delivering a strong trading and financial performance. The Greggs brand is increasingly relevant to consumers in the food-on-the- go market as a result of our investments in the shop estate and the quality of our food and drink offer. We have made notable progress in the overhaul of our processes and systems and this will continue in the year ahead, alongside significant investment to transform our internal supply chain to support further growth in shop numbers and deliver a more efficient business.

The Chief Executive's report provides greater detail on performance in 2016 and progress against our strategic plan.

Our people and values

Consumers have many options in the food-on-the-go market, and we have to ensure that all aspects of our business support our purpose and strategy. This has required us to make some difficult decisions, particularly regarding the organisation of our manufacturing and logistics operations, which the Board has considered carefully and which are outlined in this report. In all its discussions the Board has been clear to ensure that any changes are implemented with due regard to our values; being open, honest, and treating people with consideration and respect.

These values are also reflected in our approach to conducting business responsibly. We have made further improvements to our already strong reputation in areas such as environmental management, animal welfare and support for the communities where we trade. Acting responsibly and conducting business in a sustainable manner by looking after the interests of all stakeholders is ultimately in the best interests of shareholders.

I would like to thank everyone who has worked for Greggs during the past year and contributed to such a strong performance on so many levels. Their commitment to delivering outstanding service and value to our customers every day was clearly reflected in customer satisfaction and sales in 2016.

The Board

The composition of the Board was unchanged in 2016. Much of our time has been spent overseeing the major programmes of change that support the Company's strategic plan, particularly the significant investment under way to grow our internal supply chain. We also continued to focus on the development of our people and our understanding of the needs of customers.

Directors continue to be encouraged to get out into the business, sample our products and talk with colleagues and customers. In doing so we ensure that Non-Executive Directors' contributions to Board discussions are well informed, supporting open and constructive dialogue with the management team.

The Board oversees the allocation of resources for the business and this includes the level of investment in its operations, taking account of shareholder returns as well as a fair reward to staff, responsible funding of pension obligations and equitable treatment of suppliers. The business is highly cash-generative and continues to operate without external financial debt, a position considered appropriate given the lease obligations inherent in our business model.

Further details of the Board's work can be found in the Governance and Committee sections of the Annual Report.

Dividend

Our progressive dividend policy targets an ordinary dividend that is two times covered by earnings, with any further surplus capital being returned to shareholders. Our Finance Director, Richard Hutton, outlines the expected application of the distribution policy in more detail in the Financial review.

In line with its progressive dividend policy the Board intends to recommend at the Annual General Meeting a final dividend of 21.5p per share (2015: 21.2p), giving a total ordinary dividend for the year of 31.0p (2015: 28.6p), an increase of 8.4%.

Looking ahead

The Board recognises the need to engage with, and balance the interests of, many different stakeholders including customers, employees, pensioners, suppliers and shareholders. There is an overriding priority to maintain and enhance the competitiveness of the business in order to equip Greggs for long-term sustained success.

In the short term we face a period of greater economic uncertainty and increased pressure from cost inflation. We have highlighted the changes necessary to support the ongoing strategic realignment of the business, including the major investment programme under way to grow our supply chain. This will involve some difficult changes for some of our colleagues, as detailed in the Chief Executive's report, but is essential to support the long-term competitiveness of the business.

Greggs is a strong business with a great team. I am confident that we can build on our recent success and make further progress in the year ahead.

Ian Durant Chairman

28 February 2017

Chief Executive's report

In 2016 we delivered another strong performance as we continued on our journey to transform Greggs from a traditional bakery business into a modern, attractive food-on-the-go retailer. Our product offer is evolving to meet the changing needs of our customers and our shop estate and service levels have benefited from significant investment. We have made good progress in the modernisation of our systems and processes and have commenced the investment programme that will transform our supply chain capability and increase capacity to support our ambitions for shop growth.

Financial performance

Total sales grew to £894.2 million in 2016, up 7.0 per cent. Within this company-managed shop like-for-like sales grew by 4.2 per cent.

Underlying operating profit, excluding property profits and exceptional items, grew by 8.6 per cent to £78.1 million (2015: £71.9 million). Pre-tax profit (including exceptional items) grew by 2.9 per cent to £75.1 million.

Market background: Growing food-on-the-go market

The overall market for food-on-the-go continued to be favourable during 2016, with growing consumer disposable income supporting demand despite uncertainty in the economic outlook. Customer footfall remained challenging in a number of shopping locations, supporting our strategy of progressively reducing our dependence on general shopping activity through alternative shop location and enhancing our offer to meet customers' needs at different times of the day. The market for food-on-the-go remains highly competitive but we saw like-for-like sales and transaction growth throughout 2016, demonstrating the strength of the Greggs brand, its relevance and our quality, value and differentiated offer.

Strategic direction: Focus on food-on-the-go

Our strategic plan, first announced in 2013, set out to show that Greggs could be a winning brand in the highly competitive food-on-the-go market. Our business has been transformed in that time delivering an unbroken record of positive like-for-like sales and new levels of profit. It is now time to set a higher aspiration for the business, our purpose being to make good freshly prepared food accessible to everyone, with the aim of becoming the customers' favourite for food-on-the-go.

For this next phase we have refreshed our plan to reinforce our commitment to putting the customer at the heart of our strategy - it has four key pillars:

1. Great-tasting freshly prepared food

2. Best customer experience

3. Competitive supply chain

4. First class support teams

These pillars are all supported by our long-standing approach to conducting our business in a responsible manner, and in doing so making a positive impact on people's lives.

Delivering our strategy

1. Great-tasting freshlyprepared food

Greggs is a strong and trusted brand and we draw on our heritage in fresh bakery to compete successfully in the food-on-the-go market. The Greggs product offer is differentiated by the way we freshly prepare food each day in our shops and by offering outstanding value for money for good quality, great-tasting food-on-the-go.

Making good freshly prepared food accessible to all income levels is embedded in our core purpose as a brand, with outstanding value meal deals setting us apart from the competition. We maintained the price of our breakfast meal deal for the seventh year running and saw increased participation in our range of all-day meal deals offering any savoury or sweet product plus any hot drink.

We have continued to make improvements to our product ranges that have helped drive positive like-for-like sales growth for thirteen consecutive quarters.

Breakfast

This continues to be the fastest growing part of our trading day, linked predominantly with customers travelling, thereby lessening our dependence on general shopping footfall. The value of our breakfast meal deal remains market leading and we have successfully built on this to offer greater menu choice, encouraging increased spend and visit frequency.

Hot drinks

Our reputation for great-tasting coffee continues to grow both alongside our breakfast offer and, increasingly, as an accompaniment to food at any time of the day. 'Any hot drink' features across our meal deal offers and is proving increasingly popular. Significant investment in additional coffee machines is driving speed of service and, as our reputation in this category builds, we are successfully extending choice in our coffee options.

Balanced Choice

Demand for healthier choices in food-on-the-go continues to grow and our Balanced Choice range, offering fewer than 400 calories and good nutritionals, has been growing to match. Sales last year exceeded £100m showing how our reach as a brand can have real impact in encouraging people to make healthier food-on-the-go choices. In the summer we built on our early success in sandwiches and 'no added sugar' drinks by launching a range of freshly prepared salads followed by a new range of savoury bakes in the autumn. Alongside these developments we extended the availability of fresh fruit, freshly prepared yoghurts, fruit and nut snacks and our first gluten-free products.

Hot food

This is another area of growing customer demand where we are investing in our capability to offer choice and speed of service. Hot sandwiches have proved particularly popular and we have invested in additional ovens in response

to demand. This opens up opportunities for menu development which last year included burritos. Hot soup has been another source of growth lending itself well to full-flavoured Balanced Choice development.

Good food

Customers increasingly care where their food comes from. Because we make the majority of the food we sell ourselves we are well placed to reassure customers that we deliver food they can trust. As a large-scale food manufacturer buying base ingredients we are one step closer to the source than many of our competitors who buy finished products. We are investing more in telling our story to customers, extending our association with Fairtrade, promoting our Good Egg award, committing to sustainable tuna fishing and gaining accreditation in animal welfare.

Alongside this we are setting out to lead the food-on-the-go sector in eliminating or reducing unnecessary ingredients including salt, fat and sugar. In addition, we want our customers to be able to make informed choices and are the only major food-on-the-go brand providing full traffic light nutritional information on all products via our website.