2013 Interim Results 2013 Interim Results for the 26 weeks ended 29 - - PowerPoint PPT Presentation

2013 Interim Results 2013 Interim Results

for the 26 weeks ended 29 June 2013

Agenda

• First half financial performance
• Strategy
• Outlook
• Questions

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First half headlines

• Total sales up 3.4% to £362m:
• 19 net new shops opened
• B2B sales contributed 2.0% to sales growth
• Like-for-like sales down 2.9%
• Pre-tax profit down £4.6m to £11.4m
• Pre-tax profit down £4.6m to £11.4m
• Diluted EPS down 3.4p to 8.5p
• Good cash generation
• Dividend per share maintained at 6.0p

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Financial performance

Richard Hutton, Finance Director Richard Hutton, Finance Director

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2013 £m 2012 £m Sales £361.7 £349.7 +3.4% Operating profit* 11.5 16.2 Finance expense (0.1) (0.2)

Group sales and profits

Finance expense (0.1) (0.2) Profit before taxation 11.4 16.0 Diluted earnings per share* 8.5p 11.9p Dividend per share 6.0p 6.0p

* Restated to reflect amendment to IAS19 (Employee Benefits):

• Additional charge in H1 2013 £0.1m (H1 2012: £0.5m)
• Expected additional charge for full year 2013 £0.2m (2012: £1.0m)

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Sales growth driven by new shops and B2B

Net new shops +4.3% (+£15.3m) New B2B +2.0% (+£6.8m) LFL -2.9% (-£10.1m)

• B2B growth from annualising of Iceland ‘bake at home’ range extension
• Further Moto franchises, now in 21 locations (June 2012; 2)
• Own shop numbers up 67 vs. June 2012

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+3.4% total sales (+£12.0m)

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H1 LFL - an improving trend

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Wet weather ’12 & Diamond Jubilee Tough start to ‘13

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Significant Q1 profit impact

profit 8

• Incl. benefit of

Diamond Jubilee comps

• Incl. impact of

earlier Easter £m pro

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First half operating profit bridge

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First half margin

2013 £m 2012 £m Sales £361.7 £349.7

Gross margin % 59.0% 60.6% Distribution & selling % 51.0% 51.0% Admin % 4.8% 5.0% Admin % 4.8% 5.0%

Operating profit 11.5 16.2

Operating margin % 3.2% 4.6%

• GM change: 0.6% mix impact from B2B growth plus increase in

promotional participation & input costs

• D&S costs supported by efficiency projects & one less public holiday
• Admin expenses well controlled

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Input costs

First half cost inflation: 2013 H2 outlook:

• Protein & dairy prices driving additional 30bps overall inflation in H2
• Flour position largely open pending wheat harvest
• Business rates increases continue to offset rent reductions
• Currently circa 5 months forward cover

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• In recent years savings have averaged c.£8m annually due to:

‒ Supply chain productivity plan (£15m cumulative annual savings target by 2015) ‒ Step change cost reduction activity

• 2013 on track for similar full year savings

Cost savings on target

• 2013 on track for similar full year savings
• H1 examples:

‒ Simplifying shop operations £0.5m ‒ Better buying £0.8m ‒ Refrigeration maintenance £0.5m

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Tax and dividend

2013 2012 H1 tax charge 23.8% 25.3% Diluted earnings per share 8.5p 11.9p Dividend per share 6.0p 6.0p Dividend per share 6.0p 6.0p Taxation:

• Effective tax rate reflects 1.25% reduction in headline

Corporation Tax rate

• Guidance for full year now 23.8%, falling to 22.0% from 2016

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2013 2012 £m £m

Refits and additional equipment 7.5 8.0 New shops and re-sites 3.5 5.1 Manufacturing capacity 0.2 0.9 Other 7.9 6.4

First half capital expenditure

Other 7.9 6.4 Total capital expenditure 19.1 20.4 Full year capex now expected to be circa £50m Number of gross new shops opened (excluding franchises) 25 35 Number of refits 90 64

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Cash flow and balance sheet

• Net cash of £12.0m at half year (2012: £1.8m)
• Good capital discipline in H1
• Net £24.7m cash generated from operating activities

(2012: £14.2m)

• Continuing to fund investment from cash generation
• Continuing to fund investment from cash generation

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Strategy

Roger Whiteside, Chief Executive

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Roger Whiteside, Chief Executive

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Agenda

• Executive summary
• Market context
• Greggs performance
• Strategic changes
• Impact of strategic changes on 2013
• Impact of strategic changes on 2013

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Executive summary

• Greggs must complete the transition from traditional bakery retailer to the

growing ‘food on the go’ (FOTG) market

• Focus must be on core FOTG customer and core operations
• Medium term priority is to improve quality of the estate:
• Increased rate of shop relocations
• One `Bakery FOTG’ shop format
• Limited net shop additions for 2-3 years

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• Limited net shop additions for 2-3 years
• Scope to increase efficiency and capacity of existing supply network – new

savoury plant build postponed

• Developing new markets not a short term priority
• Major investment in processes and systems required to complete centralisation

program

• Re-shaping the business over the next 2-3 years as we build a platform to

deliver long term sustainable growth

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Market context

• Greggs is pre-eminent in specialist bakery market but this market is

migrating to Grocers

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• 1. Specialists made up of Independents and Craft Bakers. Source: BB75; Mintel, Company Reports;

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Market context

• Greggs has therefore

moved to compete in the FOTG market, with the majority of customer visits now ‘on the go’

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‘on the go’

• 1. Other visits include food to be consumed later, or destination food visits

Source: Allegra Strategies: Eating Out in the UK 2012, OC&C Consumer Survey June 2013, OC&C analysis

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Market context

• The FOTG market is in growth but Greggs has lost market share

Market Value: FOTG 1vs Eating Out2, 2007-12 Indexed vs 2007 Market Value = 100

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Source: Allegra Strategies: Easting Out in the UK 2012, BRC

• 1. Based on coffee shop, sandwich shop and fast food chain purchases
• 2. Based on restaurant and pub purchases

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Greggs’ performance

Greggs performance relative to the FOTG market has been impacted by a number of factors:

• Rapidly expanding new

entrants and existing competitor shop

Greggs sales mix 22

competitor shop numbers

• Exposure to declining

traditional bakery categories such as bread

• Exposure to locations

unsuitable for FOTG

• Recent impact from

Iceland sales

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Strategic changes - focus on core FOTG market

• Accessing new markets no longer a priority
• Replaced by…

Bakery Food

• n the Go

sumer n our

rational ess vantage y chain

Keeping people, communities and values at the heart of the business Meeting consum needs Investing in ou shops

Improving operatio effectiveness Competitive advan through supply ch

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Investing in our shops

Strategic changes:

• Long term opportunity to increase shop numbers
• Medium term focus on improving quality not growing shop

numbers

• Long term consumer trends require re-shaping of estate

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More investment in successful ‘Bakery food on the go’ format Faster rate of relocation to stronger locations = Overall shop numbers to be relatively stable over the next 2-3 years

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Investing in our shops

Strategic changes:

• Long term opportunity to

increase shop numbers

• Medium term focus on

improving quality not growing shop numbers

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growing shop numbers

• Long term consumer

trends requires re-shaping

• f estate
• Simplify refits into one

format ‘Bakery Food on the Go’

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• 2. Investing in our shops

Strategic changes

• Simplify refits into one format ‘Bakery Food on the Go’

Before

Before

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• 2. Investing in our shops

Strategic changes

• Simplify refits into one format ‘Bakery Food on the Go’

Before

Before

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• 2. Investing in our shops

Strategic changes

• Simplify refits into one format ‘Bakery Food on the Go’

Before

After

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Investing in our shops

Strategic changes:

• Long term opportunity to increase shop numbers
• Medium term focus on improving quality not growing shop

numbers

• Long term consumer trends requires re-shaping of estate
• Simplify refits into one format ‘Bakery Food on the Go

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• Simplify refits into one format ‘Bakery Food on the Go
• Better use of space and flow to create ‘Greggs with seats’

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Investing in our shops

Strategic changes:

• Long term opportunity to increase shop numbers
• Medium term focus on improving quality not growing shop

numbers

• Long term consumer trends requires re-shaping of estate
• Simplify refits into one format ‘Bakery Food on the Go

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• Simplify refits into one format ‘Bakery Food on the Go
• Better use of space and flow to create ‘Greggs with seats’
• Strong sales from new formats (130 planned for second half)

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Investing in our shops

Strategic changes:

• Long term opportunity to increase shop numbers
• Medium term focus on improving quality not growing shop

numbers

• Long term consumer trends requires re-shaping of estate
• Simplify refits into one format ‘Bakery Food on the Go

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• Simplify refits into one format ‘Bakery Food on the Go
• Better use of space and flow to create ‘Greggs with seats’
• Strong sales from new formats (130 planned for second half)
• Moto franchise going well and to be extended

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Accessing new markets - no longer a priority

Strategic changes:

• Iceland wholesale to continue but

not extended to new retailers

• Moment by Greggs trial to be
• halted. Existing shops to be

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• halted. Existing shops to be

integrated into main chain, wherever possible

• International not a priority

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Improving operational effectiveness

New strategic initiative:

• Significant progress in recent years to centralise the business.
• Now need to begin final phase to invest in process and systems
• Independent review completed in first half
• Major investment required in process and systems

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• Major investment required in process and systems

replacement: ‒ £25m investment over 5 years ‒ £38m direct benefits expected plus improved responsiveness and flexibility for future developments

• £6m per annum net benefit as we complete the programme

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Improving operational effectiveness

Practical examples:

• Integrated ERP-based stock system replacing legacy of

autonomous divisional manufacturing & warehousing systems

• New ordering processes to ensure better product availability

and reduced waste

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and reduced waste

• Forecast-based manpower planning application to replace

manually generated staff rotas

• More transparent supplier management and purchasing

processes to drive full benefits of scale in buying

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Competitive advantage through supply chain

Strategic changes:

• Focus on efficiency and

capacity from existing network

• Postpone plans for new

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• Postpone plans for new

frozen manufacturing facility

• Continue development of

centres of excellence

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Meeting consumer needs - focus on FOTG

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Meeting consumer needs - focus on FOTG

Strategic changes:

• Overhaul, simplify and re-launch existing categories, e.g. Sweet

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Strategic changes:

• Overhaul, simplify and re-launch existing categories, e.g. Sweet
• Develop new reasons to visit e.g. Pizza

Meeting consumer needs - focus on FOTG

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Strategic changes:

• Overhaul, simplify and re-launch existing categories, e.g. Sweet
• Develop new reasons to visit, e.g. Pizza
• Promote quality credentials not just price, e.g. improved bakes

Meeting consumer needs - focus on FOTG

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Strategic changes:

• Overhaul, simplify and re-launch existing categories, e.g. Sweet
• Develop new reasons to visit, e.g. Pizza
• Promote quality credentials not just price, e.g. improved bakes
• Improve availability and service - early morning and Sunday

Meeting consumer needs - focus on FOTG

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• Improve availability and service - early morning and Sunday

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Strategic changes:

• Overhaul, simplify and re-launch existing categories, e.g. Sweet
• Develop new reasons to visit, e.g. Pizza
• Promote quality credentials not just price, e.g. improved bakes
• Improve availability and service - early morning and Sunday

Meeting consumer needs - focus on FOTG

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• Improve availability and service - early morning and Sunday
• Build day part - extended trading hours

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Strategic changes:

• Overhaul, simplify and re-launch existing categories, e.g. Sweet
• Develop new reasons to visit, e.g. Pizza
• Promote quality credentials not just price, e.g. improved bakes
• Improve availability and service - early morning and Sunday

Meeting consumer needs - focus on FOTG

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• Improve availability and service - early morning and Sunday
• Build day part - extended trading hours
• Engage customers better through loyalty scheme

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Financial impact of strategic changes on 2013

• £6-8m of one–off exceptional charges in H2 2013:
• Sunk costs of plans for frozen manufacturing facility
• Impairment of Greggs Moment shop assets
• Provision for onerous leases on 9 accelerated closures
• Impairment of Southall development site value

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• Financing facility no longer required

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Current trading and outlook

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and outlook

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Outlook

• Trading conditions remain challenging
• Improving LFL trend in Q2
• Momentum lost in recent heat wave
• 3.2% LFL decline in past 5 weeks to August 3rd
• Expectations for full year profits reduced by £3m
• Strategic plan has been changed to focus on core FOTG

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• Strategic plan has been changed to focus on core FOTG

business Re-shaping the business over the next 2-3 years as we build a platform to deliver long term sustainable growth

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QUESTIONS QUESTIONS

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