2017 Preliminary Results: For the 52 weeks ended 30 December 2017 1 - - PowerPoint PPT Presentation

2017 Preliminary Results:

For the 52 weeks ended 30 December 2017

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• Highlights
• Financial performance
• Strategic progress
• Current trading & outlook

Agenda

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2017: good growth and further strategic progress

• Total sales up 7.4% to £960.0m
• Company-managed shop LFL sales* up 3.7%
• Operating profit excluding property profits** and exceptional items*** up 4.6% to

£81.7m

• Ordinary dividend per share up 4.2% to 32.3p
• Strong cash generation supporting investment programme for further growth

* like-for-like sales in Company-managed shops (excluding franchises) with a calendar year’s trading history ** freehold property disposal gains of £0.5m in 2017 (2016:£2.2m) *** exceptional pre-tax charge of £9.9m in 2017 (2016: £5.2m charge)

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2017 Financial performance Richard Hutton

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Group sales and profit

2017 £m 2016 £m Sales 960.0 894.2 +7.4% Operating profit before property & exceptional items 81.7 78.1 +4.6% Property disposal gains 0.5 2.2 EBIT before exceptionals 82.2 80.3 +2.4% Finance expense (0.4) (0.0) Net exceptional charge* (9.9) (5.2) Profit before taxation 71.9 75.1

* Exceptional items relate mainly to major supply chain investment programme resulting in closure of some bakery manufacturing sites and restructuring of manufacturing activity across others.

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Exceptional charge

2017 £m 2016 £m Supply chain restructuring: Costs of structural change 10.5 6.4 Related property disposal gain (0.4)

• 10.1

6.4 Other: Support function restructuring

• 0.4

Settlement of prior year costs (0.2) (1.6) Net exceptional charge 9.9 5.2

See following page for detail and guidance on phasing

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Detail - supply chain restructuring charges

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£m 2016 2017 2018 2019 2020 Total Redundancy costs 4.1 7.4

• 11.5

Transfer of operations 0.4 1.3 5.0 3.0 3.0 12.7 Property-related

• 0.5
• 0.5

Cash costs charged to P&L 4.5 9.2 5.0 3.0 3.0 24.7 Depreciation and asset write-offs 1.9 1.3 1.0 0.8

• 5.0

Property disposal gains

• (0.4)

TBC (0.4) Net P&L charge 6.4 10.1 6.0 3.8 3.0 29.3 Phasing of expected cash flow 3.8 1.9 12.5 3.5 3.0 24.7 Latest expected phasing of £25m cash and £5m non-cash exceptional charges in respect of investment programme to reshape supply chain operations:

Continued growth in LFL sales

8 0% 1% 2% 3% 4% 5% 6% 7% Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Weeks 1-8 '18

Quarterly company-managed shop LFL sales growth

1 Underlying LFL level excluding Christmas & New Year trading pattern 2 Reported level

1 1 2 2

Net margin (before exceptionals)

2017 2016 Sales £960m £894m Gross margin 63.7 % 63.7 % Distribution & selling costs (49.6)% (49.5)% Admin expenses (5.5)% (5.5)% Operating margin before property gains 8.6% 8.7% Property disposal gains 0.0% 0.3% EBIT (before exceptionals) £82.2m £80.3m EBIT margin 8.6% 9.0%

• Ingredient cost pressure on gross margin mitigated by cost reductions
• Distribution & selling costs reflect increased wage rates and training costs,

mitigated by operational gearing impact of sales growth

• Admin expenses increasing with systems investment
• Property gains insignificant this year, unusually high level in 2016

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40.0 50.0 60.0 70.0 80.0 90.0

EBIT bridge – mitigating significant inflation headwind

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£82.2m £80.3m

* Excluding exceptional items in both years

£m

Significant cost inflation in 2017, now easing

Food & packaging inputs

• Significant, largely currency-driven

ingredient inflation in 2017

• Proteins & dairy most affected
• 2018 inflationary, but at a lower level
• Currently hold 5-6 months’ forward

cover 11 People costs

• 3.1% overall wage & salary inflation in

2017 (2016: 3.5%)

• 2018 expected to be 3.6% including

impact of National Living Wage

• Additional costs from Apprenticeship

Levy in 2017 (+£1.2m) and Pensions in 2018 (+£2.0m)

• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 2016 2017 E 2018

Wage & salary inflation

• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 2016 2017 E 2018

Ingredient inflation

range

Tax, earnings and dividend

2017 2016 Tax charge*

• expect 21.25% charge for 2018, continuing thereafter at

c.2% above headline rate

20.7% 22.5% Underlying diluted earnings per share* 63.5p 60.8p +4.4% Underlying basic earnings per share* 64.5p 62.0p +4.0% Full year ordinary dividend per share 32.3p 31.0p +4.2%

* Includes property disposal gains but excludes exceptional items impact

Distribution approach

• Interim ordinary dividend set at 1/3 level of previous year’s total ordinary dividend
• Full year dividend 2x covered by underlying earnings
• Special dividends if material surplus capital

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Capital expenditure

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£m 2018 Plan 2017 2016 New shops and relocations (fitting & equipment) 20 18.1 17.3 Shop fitting – refurbishment 6 8.8 15.1 Shop equipment (additional and replacement) 15 13.9 18.2 Supply chain 45 23.4 21.1 I.T. 7 4.4 7.0 Other 2 1.8 1.7 Total capital expenditure c.95 70.4 80.4 Number of gross new shops @ c.£205k* (incl. relocations, excl. franchises) c.95 86 89 Number of shop refits @ c.£60k^

* Shop fitting and equipment cost ^ Shop fitting cost only

c.105 132 208

Supply chain investment entering peak phase

14 10 20 30 40 50 60 70 80 90 100 2016 2017 2018 plan 2019 plan 2020 plan

Retail IT & other Supply chain

£m

Latest plan

Supply chain investment programme return on capital

Expected investment phasing: 2016 2017 2018 2019 2020 £m Capital investment 3 17 25 22 8 75 One-off change costs 4 2 12 4 3 25 Expected cash phasing 7 19 37 26 11 100

Expected offset from disposal proceeds (c.£20m)

Expected P&L phasing: One-off change costs 5 9 5 3 3 25 Asset-related charges 2 1 1 1

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Expected exceptional charges 7 10 6 4 3 30 Cumulative net benefit to P&L 1 2 3 5 7 Ongoing annual cash benefit £10m Incremental depreciation £3m Net P&L benefit £7m

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Gross investment £100m Alternative for same capacity

• £50m

Expected disposal proceeds

• £20m

Net incremental investment £30m

Managing retail return on capital

• Shop relocations mature quickly and grow catchment profitability
• Shop investments targeted with ROI hurdles designed to reflect vertical

integration – equates to 25% cash return on shop capex

• Strong performance currently – new shops maturing faster and giving

higher returns than historically

16 100 200 300 400 500 Yr 1 Yr 2 Yr 3 Yr 4

New shop payback

Cumulative shop contribution Shop capital payback achieved Shop + supply chain payback

£k

100 200 300 400 500 Yr 1 Yr 2 Yr 3 Yr 4

Relocated shop payback

Cumulative shop contribution Shop capital payback achieved Shop + supply chain payback

£k

Cash flow and balance sheet

• Continued strong cash generation in 2017:
• £116.9m net cash inflow from operating activities (2016: £117.6m)
• Capital expenditure, dividends and exceptional costs all funded from

internally-generated cash flow

• Strong balance sheet position:
• £54.5m net cash at year end (2016: £46.0m)
• Looking forward target = net cash position of c.£40m at year end
• Expect to meet this in 2018 whilst funding record capital expenditure,
• rdinary dividends and outlays in respect of exceptional costs
• Board continues to consider capital structure appropriate given

leverage in leasehold estate and obligations to all stakeholders

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Strategic progress Roger Whiteside

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PURPOSE:

Making good, freshly prepared food accessible to everyone

VISION:

Customers’ favourite for food-on-the-go

• Breakfast-on-the-go remains fastest

growing daypart.

• Hot drinks reputation for quality, service

and outstanding value continues to build.

• Healthier options increasingly popular

with Balanced Choice over £100m of sales.

• Hot food sales growing well.
• Greggs offers customers food they can

trust.

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• Continued investment to help our shop

teams deliver fast and friendly service.

• Greggs Rewards growing rapidly.
• Increased shop numbers targeting

convenient locations and new territory including Devon and further shops in Northern Ireland.

• 90 net shops opened in 2017.
• 202nd Franchise shop opened.
• New Drive-Thru format opened.

Flexing shop formats for different locations

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Reshaping the estate 2013-17

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2012 shop estate – 1,671 shops (20% travel & workplace) 2017 shop estate – 1,854 shops (34% travel & workplace)

Franchise Travel & workplace High street

+319 new

• co. shops
• 333 shop

closures +197 new franchises

2018 plan - aim to open 110-130 net new shops:

• 90-100 new company-managed shops
• c.70 new franchise stores
• 40-50 closures

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• Good start in 2017 with our supply chain

investment programme.

• Completed transfer of our Edinburgh
• perations to our Glasgow facility to

create a centre of excellence for Yum Yum production.

• Extended our Leeds bakery to create a

centre of excellence for cake and muffin production.

• 2018 – a peak year of investment.

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• Successful deployment of our largest

ever systems roll out.

• Already seen benefits in improved

product availability for customers.

• Pilots in both logistics and manufacturing

deployed, roll out programme starting this year.

• Work has begun on our human

resources, payroll and property management systems.

Having a positive impact on people’s lives

• Customer health

We encourage healthier food-on-the-go choices

• Responsible sourcing

We care about where our products come from

• Community

We share our success with the community around us

• Environment

We aim to use energy efficiently and minimise waste

• People

We are committed to creating a great place to work

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• Encouraged by the start to the year:

– total sales up 6.2% in first 8 weeks of 2018 – company-managed shop LFL sales up by 3.2%

• 2018 will be the peak year for investment in our supply chain as we

create the platforms for further growth

• Plan to open a record number of new shops as we implement our

plan to grow Greggs as a leading food-on-the-go brand

Current trading & outlook

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Questions