2019 Preliminary Results For the 52 weeks ended 28 December 2019 - - PowerPoint PPT Presentation

2019 Preliminary Results

For the 52 weeks ended 28 December 2019

Highlights Financial performance Strategic progress Current trading & outlook

Agenda

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• 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

* 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)

2019: A year of record-breaking performance

Total sales up

13.5%

to £1,167.9m Pre-tax profit

£114.2m**

Company-managed shop LFL sales up

9.2%

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Richard Hutton

2019 Financial performance

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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 * **

2019 £m 2018 £m Sales 1,167.9 1,029.3 +13.5% Operating profit before property & exceptional items* 120.0 89.1 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

Record sales & profit

0% 2% 4% 6% 8% 10% 12% 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

Quarterly Company-managed shop LFL sales growth

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Sustained increase in customer visits driving LFL sales

7.5% YTD Strong start in January, significant storm impact in February

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

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Profit before tax bridge

Exceptionally strong LFL growth plus estate expansion

£89.8m

* PBT excluding exceptional items in both years ** Like-for-like growth in company-managed shops, franchised shops, and wholesale sales

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£114.2m £m

Exceptional charges almost complete

Supply chain investment programme

Expected charge through to 2020/21 broadly in line with previous guidance

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£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

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Investment programme expected to complete in mid-2021, already delivering capacity for next phase of growth and efficiencies ahead of initial plan

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 2013 2014 2015 2016 2017 2018 2019

Manufacturing & logistics cost as % of sales

• Initial cost step-down in 2014/15

related to removal of in-store bakeries

• Subsequent investment

programme has now delivered further net supply efficiencies of £9.5m compared with the 2015 base (vs expected £7.0 million)

• Improved product quality and

consistency already evident

Strong benefit delivery from supply chain investment programme

Cost headwinds & mitigation

Food & energy costs

• 2019: 3.5% ingredient

inflation, weighted to H2

• Some benefit from energy

cost reduction.

• 2020: expect c.7% overall

food input inflation (including pork costs contribution 4-5%)

• Aim for 4-6 months

forward cover on food inputs and energy (currently at short end)

40% 8% 29% 4% 6% 13% People costs Shop occupancy Food & packaging Energy/fuel Depreciation Other

People costs

• 2019: 4.3% overall

wage & salary inflation, inc. £3m additional for pensions

• 2020: expect c.4.0%

reflecting continued impact of National Living Wage increases

• 2020/21: expect

allergen labelling costs to start

Cost mitigation in 2020

• 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)

Cost base

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Tax, earnings and dividend

2019 2018

Tax charge*

• expect future charge at c.1.5% above headline rate

19.6% 20.2% 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

• * Includes property disposal gains but excludes exceptional items impact
• 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

Distribution approach

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2020 Plan £m 2019 Actual £m 2018 Actual £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 Number of gross new shops @ c.£200k* (incl. relocations, excl. franchises) c.100 93 87 Number of shop refits @ c.£80k^

* Shop fitting and equipment cost ^ Shop fitting cost only

c.90 57 89

Capital expenditure overview

14 20 40 60 80 100 2016 2017 2018 2019 2020 plan 2021 plan 2022 plan 2023 plan Retail IT & other Supply chain £m

New Company managed shops 88 86 87 93 c.100 c.100 c.100 c.100 Company managed refits 207 132 89 57 c.90 c.160 c.180 c.220

• Refurbishment of existing

shops to increase as we come out of current low point in cycle

• Supply chain transformation

programme nearing completion, will invest in further manufacturing & logistics capacity to meet increased demand for best-selling products

• Expect medium-term capex

requirement to be around £90 million per annum

Capital outlook: medium-term capex requirement to support growth

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• 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

Reporting affected by lease accounting adoption

* PBT (excluding exceptional items) divided by average total assets less current liabilities for the year

0% 5% 10% 15% 20% 25% 30% 35% 2015 2016 2017 2018 2019

Return on Capital Employed (ROCE)* 33.6% on pre-IFRS 16 basis 20.0% on IFRS 16 basis

Strong returns on capital

Continued strong cash generation in 2019:

• £169.5m net cash inflow from operating activities after lease

payments (2018: £136.1m)

• Capital expenditure, ordinary and special dividends, plus exceptional

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 net cash at year end (2018: £88.2m) reflecting

strength of trading performance and capital 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)

• Looking forward target = net cash position of c.£50m at year end
• Some cash likely to be surplus to requirements under existing plans.

Expect to be in a position to consider scope for special dividend at the time of interim results

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£169.5m

net cash inflow

£91.3m

net cash at year end

Consider scope for special dividend at time

• f interim results

Cash flow and balance sheet

Strategic progress

Roger Whiteside OBE

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Strategic Roadmap

1671 shops 80% High Street Regional structure 1960 shops 65% High Street Shop food to go transformation Breakfast daypart c.2150 shops 55% High Street Manufacturing centres

• f excellence

>2500 shops/ franchise <50% High Street Shop Multi-format Click and collect – customised Evening Daypart – Hot Food Delivery Greggs Rewards CRM Explore development:

• International?
• Brand reach?

INTERNATIONAL/ MULTI-BRAND FOOD-ON-THE-GO NATIONAL BAKERY

2012 2018 2020 2023 Beyond 2025

Dedicated logistics solution Integrated systems Greggs sustainability platform

NEXT GENERATION GREGGS

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Best customer experience

Brand health continuing to strengthen

• Transformational multi-year investment driving

reappraisal of the Greggs Brand

• Brand awareness has been consistently high
• Brand consideration on an upward trajectory
• Brand purchase intent rising alongside this
• Quality and value perception also improving
• Leading to rising likelihood to recommend
• Culminating in strong increase in customer visits

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Best customer experience

Brand marketing improving perceptions

• Marketing refocused on quality and range
• Improved perceptions of range are a key driver
• 14% of customers new to Greggs
• Largest gains amongst ‘young free and social’

typology and ABC1 demographic

• 24% of all customers have bought vegan
• Convenience remains key to choice of brand

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Market growth opportunities

Greggs is only 5% of the food-on-the-go market (market estimated at £24bn, 3.7% growth in 2019*)

Grab and Go New Shops Drive Thru Delivery Evening Day Part Click + Collect Made to Order Sit In Greggs Rewards

Single channel Multichannel

wherever, whenever, however customers choose 22

* source: NPD Crest FY2019

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2013 (1,671 shops) 2019 (2,050 shops) Future? (2,500+ shops)

Franchise (mainly travel) Work/travel High street 23

• 97 net openings in 2019, estate now 2,050 (inc. 302 franchised)
• Strong pipeline, expect to add c.100 net new shops in 2020 (c.40 franchised)
• Building supply chain capacity for 2,500 UK shops and beyond (see greater
• pportunity than this)
• New pipeline opportunities opening up: drive-thru, railway stations, airports and major

supermarkets

• Opportunity to increase seated offer by extending and relocating appropriate shops
• Modest refurbishment costs currently due to transformational programme in recent years
• Demand in new channels will inform decisions on next phase of shop refurbishment

Estate evolution

• Bakery food-on-the-go sales growth from new customers
• So much more than sausage rolls:

(source: NPD Crest, share of visits, FY2019)

• Product innovation:
• sugar reduction
• vegan options
• hot drinks
• hot food
• healthy options

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Great tasting, freshly prepared food

Number 1

for sandwiches

Number 2

for breakfast & lunch

Number 3

for coffee

Plans for 2020/21 include:

• Conversion of Birmingham site to become

dedicated DC

• Bringing forward plans to increase savoury

manufacturing capacity and building a new automated frozen distribution facility at Balliol Park site, Newcastle

• Driving increased efficiency by picking from stock

Key developments included:

• Opening new dedicated DC in Amesbury
• New doughnut platform at Gosforth bakery
• New automated roll plant at Enfield bakery
• Creation of vegan-friendly production facility for

doughnuts at Treforest bakery

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Competitive supply chain

Significant progress made in investment programme to support shop growth

2019 progress included:

• Deployment of SAP payroll
• Further integration across logistics and manufacturing sites
• Benefits to availability, waste and stock planning
• Supporting trials and increasing investment in

digital capabilities for next phase of development

Plans for 2020/21:

• Roll-out of SAP to remaining logistics

and manufacturing sites

• Developing multi-channel platform

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First class support teams

Investment programme to modernise core processes and IT systems almost complete

Greggs and sustainability

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Environment

We aim to use energy efficiently and minimise waste

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

People

We are committed to creating a great place to work

• Very strong start to 2020 in January, significant slowdown in

February due to storms

• Nine weeks to 29 February 2020:

– total sales up 13.7% – company-managed shop LFL sales up by 7.5%

• Cost increases likely to present

stronger-than-normal headwind in 2020

• Some uncertainty in outlook, particularly given

potential impact of Coronavirus

• This aside, we expect to make year-on-year

progress in line with our expectations

• Strong financial position, supporting investment for further

growth + good returns for all stakeholders

• Will consider declaration of special dividend

at time of interim results first 9 weeks of 2020 Cost headwinds & uncertainties

Strong financial position

Current trading & outlook

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Company-managed shop LFL sales up

7.5%

Any questions?