2019 Preliminary Results For the 52 weeks ended 28 December 2019
Agenda Highlights Financial performance Strategic progress Current trading & outlook 2
2019: A year of record-breaking performance • Total sales up 13.5% to £1,167.9m (2018: £1,029.3m) • Company-managed shop like-for-like sales* up 9.2% (2018: 2.9%) • Pre-tax profit excluding exceptional items** up 27.2% to £114.2m (2018: £89.8m) • Pre-tax profit £108.3m (2018: £82.6m) • Strong cash generation, supporting our capital investment programme as well as additional returns to both employees and shareholders • Total ordinary dividend per share up 25.8% to 44.9p (2018: 35.7p) • Overall strong start to 2020: company-managed shop LFL sales up 7.5% in first nine weeks Total sales up Pre-tax profit Company-managed 13.5% shop LFL sales up £114.2m ** to £1,167.9m 9.2% * like-for-like sales in Company- managed shops (excluding franchises) with a calendar year’s trading history ** excluding exceptional pre-tax charge of £5.9m in 2019 (2018: £7.2m charge) 3
2019 Financial performance Richard Hutton 4
Record sales & profit 2019 2018 £m £m Sales 1,167.9 1,029.3 +13.5% Operating profit before property & exceptional 120.0 89.1 items* Property disposal gains 0.7 0.7 EBIT before exceptionals* 120.7 89.8 Finance expense (inc. leases) (6.5) (0.0) PBT before exceptional items* 114.2 89.8 +27.2% Net exceptional charge** (5.9) (7.2) Profit before taxation* 108.3 82.6 * 2019 figures reflect the adoption of IFRS16 (lease accounting) and are not directly comparable with 2018, which has not been restated. The overall result for 2019 reflects net additional costs as a result of the change in accounting ** Exceptional charges relate to costs of previously-announced restructuring of supply chain operations 5
Sustained increase in customer visits driving LFL sales Quarterly Company-managed shop LFL sales growth 7.5% YTD Strong start 12% in January, significant storm impact 10% in February 8% 6% 4% 2% 0% Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Wks 1-9 2020 6
Improved net margin (before exceptionals) 2019 2018 Sales £1,167.9m £1,029.3m Gross margin 64.7% 63.7% Distribution & selling costs (49.0)% (49.9)% Admin expenses (5.3)% (5.1)% EBIT (before exceptionals) £120.7m £89.8m Finance expense (£6.5m) (0.0m) PBT £114.2m £89.8m PBT margin 9.8% 8.7% • Gross margin – benefitting from investment in internal manufacturing operations, plus impact of strong volume growth • Distribution & selling costs – operational gearing and IFRS16 adoption (right-of-use asset depreciation lower than previous rental charge) • Admin expenses – incentive costs associated with strong performance • Finance expense – introduction of IFRS16 interest charge on lease liabilities 7
Profit before tax bridge Exceptionally strong LFL growth plus estate expansion £m £114.2m £89.8m * PBT excluding exceptional items in both years ** Like-for-like growth in company-managed shops, franchised shops, and wholesale sales 8
Supply chain investment programme Exceptional charges almost complete £m 2016 2017 2018 2019 2020/1 Total Cash change costs 4.5 9.2 5.2 5.8 2.2 26.9 Non-cash (asset-related) charges 1.9 1.3 0.7 0.1 0.1 4.1 Exceptional P&L charge 6.4 10.5 5.9 5.9 2.3 31.0 Phasing of cash flow 3.8 1.9 9.0 9.1 3.1 26.9 Expected charge through to 2020/21 broadly in line with previous guidance 9
Strong benefit delivery from supply chain investment programme Investment programme expected to complete in mid-2021, already delivering capacity for next phase of growth and efficiencies ahead of initial plan Manufacturing & logistics cost as % of sales 20.0% • Initial cost step-down in 2014/15 18.0% related to removal of in-store bakeries 16.0% • 14.0% Subsequent investment programme has now delivered 12.0% further net supply efficiencies of 10.0% £9.5m compared with the 2015 8.0% base (vs expected £7.0 million) 6.0% • Improved product quality and 4.0% consistency already evident 2.0% 0.0% 2013 2014 2015 2016 2017 2018 2019 10
Cost headwinds & mitigation Cost base 13% People costs 4% 6% 40% Food & energy costs • 2019: 4.3% overall • 2019: 3.5% ingredient wage & salary inflation, weighted to H2 inflation, inc. £3m 29% additional for pensions • 8% Some benefit from energy cost reduction. • 2020: expect c.4.0% reflecting continued • 2020: expect c.7% overall impact of National food input inflation People costs Shop occupancy Living Wage increases Food & packaging Energy/fuel (including pork costs Depreciation Other contribution 4-5%) • 2020/21: expect allergen labelling costs • Aim for 4-6 months to start forward cover on food Cost mitigation in 2020 inputs and energy (currently at short end) • Stronger-than-normal cost headwinds in 2020 • Continue to target mitigating cost efficiencies (£9.9m achieved in 2019) • Expect some margin investment to protect customers (partially offset by non-recurrence of £10m one-off costs incurred in 2019) 11
Tax, earnings and dividend 2019 2018 Tax charge* 19.6% 20.2% - expect future charge at c.1.5% above headline rate Underlying diluted earnings per share* 89.7p 70.3p +27.6% Underlying basic earnings per share* 91.0p 71.1p +28.0% Full year ordinary dividend per share 44.9p 35.7p +25.8% Special dividend per share 35.0p - Distribution approach • Progressive policy - aim for ordinary dividend to progress in line with earnings • Earnings cover - ordinary dividend normally 2x covered by underlying earnings • Interim ordinary dividend set at 1/3 level of previous year’s total ordinary dividend • Special dividend if material surplus capital * Includes property disposal gains but excludes exceptional items impact 12
Capital expenditure overview 2020 2019 2018 Plan Actual Actual £m £m £m New shops and relocations (fitting & equipment) 21.0 18.6 19.4 Shop fitting – refurbishment 7.0 4.5 5.9 Shop equipment (additional and replacement) 14.0 12.9 7.8 Supply chain 51.0 42.2 32.9 I.T. and other 7.0 7.8 7.0 Total capital expenditure c.100.0 86.0 73.0 c.100 93 87 Number of gross new shops @ c.£200k* (incl. relocations, excl. franchises) Number of shop refits @ c.£80k^ c.90 57 89 * Shop fitting and equipment cost ^ Shop fitting cost only 13
Capital outlook: medium-term capex requirement to support growth £m Retail IT & other Supply chain • Refurbishment of existing 100 shops to increase as we come out of current low point 80 in cycle • Supply chain transformation 60 programme nearing completion, will invest in 40 further manufacturing & logistics capacity to meet 20 increased demand for best-selling products 0 • Expect medium-term capex 2016 2017 2018 2019 2020 2021 2022 2023 requirement to be around plan plan plan plan New £90 million per annum Company 88 86 87 93 c.100 c.100 c.100 c.100 managed shops Company managed 207 132 89 57 c.90 c.160 c.180 c.220 refits 14
Strong returns on capital Reporting affected by lease accounting adoption Return on Capital Employed (ROCE)* 35% 33.6% on pre-IFRS 16 basis 30% 25% 20.0% on IFRS 16 basis 20% 15% 10% 5% 0% 2015 2016 2017 2018 2019 • Lease accounting adds a net £218m to 2019 capital employed in respect of ‘right -of- use’ assets less current liabilities. Also reduces PBT by an estimated £4.2m, as previously disclosed • 2019 ROCE reported as 20.0% on an IFRS 16 basis, excluding exceptional items • On a pre-IFRS 16 basis 2019 we estimate that ROCE would have been reported as 33.6%, reflecting strength of performance in the year relative to the capital base * PBT (excluding exceptional items) divided by average total assets less current liabilities for the year 15
Cash flow and balance sheet Continued strong cash generation in 2019: £169.5m • £169.5m net cash inflow from operating activities after lease payments (2018: £136.1m) net cash • Capital expenditure, ordinary and special dividends, plus exceptional inflow costs all funded from internally-generated cash flow • Dividends totalling £72.6m paid (£37.3m ordinary plus £35.3m special), £7m one- off ‘thank you’ payment to colleagues Strong balance sheet position: £91.3m • £91.3m net cash at year end (2018: £88.2m) reflecting net cash at strength of trading performance and capital year end expenditure phasing • Significant capex programme in 2020 • New Corporation Tax instalment rules will result in 18 months' tax payable in 2020 (additional outflow of around £11.0 million in first half) Consider scope for special • Looking forward target = net cash position of c.£50m at year end dividend at time • Some cash likely to be surplus to requirements under existing plans. of interim results Expect to be in a position to consider scope for special dividend at the time of interim results 16
Strategic progress Roger Whiteside OBE 17
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