For the 52 weeks ended 29 December 2018 2 Total sales up 7.2% to - - PowerPoint PPT Presentation

For the 52 weeks ended 29 December 2018

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• Total sales up 7.2% to £1,029.3m
• Company-managed shop like-for-like sales* up 2.9%
• Operating profit excluding property profits** and exceptional items*** up

9.1% to £89.1m

• Ordinary dividend per share up 10.5% to 35.7p
• Strong cash generation supporting investment programme and shareholder

returns ‒ expect to declare special dividend with interim results

• Very strong start to 2019

‒ company-managed shop like-for-like sales up 9.6% in first seven weeks

* like-for-like sales in Company-managed shops (excluding franchises) with a calendar year’s trading history ** freehold property disposal gains of £0.7m in 2018 (2017:£0.5m) *** exceptional pre-tax charge of £7.2m in 2018 (2017: £9.9m charge)

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Richard Hutton

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2018

£m

2017

£m Sales Sales 1,029.3 1,029.3 960 960.0 .0 +7.2% +7.2% Op Operati erating ng profit t befo efore e property erty & ex & excepti ceptional nal items tems 89.1 89.1 81.7 81.7 +9.1% +9.1% Property disposal gains 0.7 0.5 EBIT BIT befo efore ex excepti ceptionals nals 89.8 89.8 82.2 82.2 +9.2% +9.2% Finance expense (0.0) (0.4) Net exceptional charge* (7.2) (9.9) Profit before taxation 82.6 71.9

* Exceptional items relate mainly to major supply chain investment and restructuring programme, and provision for the one-off costs of Guaranteed Minimum Pension equalisation.

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0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Weeks 1-7 '19

H2 4.2% H1 1.5%

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2018 2017

Sales Sales £1,029 £1,029m £960m £960m Gross margin 63.7 % 63.7 % Distribution & selling costs (49.9)% (49.6)% Admin expenses (5.1)% (5.5)% EBI EBIT (b T (befo efore ex exce cepti ptiona

• nals

ls) £89.8m £89.8m £82.2m £82.2m EBIT margin 8.7% 8.6%

• Steady gross margin as cost pressures mitigated/recovered
• Distribution costs rising as new supply strategy implemented
• Admin expenses reflect operational gearing and cost control

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40.0 50.0 60.0 70.0 80.0 90.0

2017* Cost inflation LFL growth** Cost savings Estate growth Other 2018*

£82.2m £89.8m

* Excluding exceptional items in both years ** Like-for-like growth in company-managed shop, franchised shop and wholesale sales

£m

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2018 2018

£m £m

2017

£m Supp Supply chai ly chain n res estruc tructur turing ng: Costs of structural change 5.9 5.9 10.5 Related property disposal gain

• (0.4)

5.9 5.9 10.1 Other: Other: GMP* equalisation 1.7 1.7

• Settlement of prior year costs

(0. (0.4) 4) (0.2) Net Net ex excepti ceptional nal char charge 7.2 7.2 9.9

* “Guaranteed Minimum Pension” - expected one-off impact of gender equalisation of guaranteed minimum pensions ("GMPs") for the Company’s legacy defined benefit pension scheme. A UK High Court ruling in October 2018 requires equalisation between men and women for the effect of unequal GMPs accrued between 1990 and 1997

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£m £m 2016 2017 2018 2018 2019 2020 Total tal Cash change costs 4.5 9.2 5.2 3.9 2.0 24.8 24.8 Non-cash (asset-related) charges 1.9 1.3 0.7 0.4 0.2 4.5 4.5 Exc xcepti eptional nal P&L &L char charge 6.4 6.4 10.5 10.5 5.9 5.9 4.3 4.3 2.2 2.2 29.3 29.3 Phasi hasing ng of ex expect ected ed cash f cash flo low 3.8 3.8 1.9 1.9 9.0 9.0 7.4 7.4 2.7 2.7 24.8 24.8 Latest expected phasing of cash and non-cash exceptional charges in respect

• f investment programme to reshape supply chain operations:

Expected charge through to 2020 remains largely in line with previous guidance Be Benefit nefits - £3m of the ultimate £7m net margin benefit delivered as at 2018

• no margin benefit in 2019, further £4m annual benefit by 2021

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• c.3% ingredient

inflation in 2018, weighted to H1

• Substantial energy cost

increases, H2 particularly

• 6 months forward

covered on food inputs and energy

• Physical stock positions

taken on key imports (not possible for fresh produce)

• Expect 2-3% overall

food input inflation in 2019

40% 9% 29% 4% 6% 12%

People costs Shop occupancy Food & packaging Energy/fuel Depreciation Other

• 3.6% overall wage &

salary inflation in 2018, plus £2m additional pensions

• Expect 4.1% in 2019,

plus £3.3m additional for pensions auto enrolment increase

• Good rent reductions in traditional locations at lease renewal
• Generally taking on larger new shops – average new rent in 2018

£40k vs estate average £33k

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2018 2018 2017

Tax charge*

• expect 20.75% charge for 2019, continuing thereafter at c.1.75%

above headline rate

20 20.2% .2% 20.7% Underlying diluted earnings per share* 70 70.3 .3p 63.5p +10.7% Underlying basic earnings per share* 71 71.1p .1p 64.5p +10.3% Full year ordinary dividend per share 35.7p 5.7p 32.3p +10.5%

* Includes property disposal gains but excludes exceptional items impact

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

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£m £m

2019

Plan

2018 2018

Ac Actual tual

2017

Actual

New shops and relocations (fitting & equipment) 20.0 19.4 19.4 18.1 Shop fitting – refurbishment 4.0 5.9 5.9 8.8 Shop equipment (additional and replacement) 13.0 7.8 7.8 13.9 Supply chain 46.0 32.9 2.9 23.4 I.T. 6.0 6.8 6.8 4.4 Other 1.0 0.2 0.2 1.8

Total capit ital expendit iture c.£90.0 .0 £73.0 £73.0 £70.4 .4

Sh Shop

• p nu

numb mber ers Number of gross new shops @ c.£220k* (incl. relocations, excl. franchises) c.90 87 87 86 Number of shop refits @ c.£65k^

* Shop fitting and equipment cost ^ Shop fitting cost only

c.55 89 89 132

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10 20 30 40 50 60 70 80 90 100 2016 2017 2018 2019 plan 2020 plan 2021 plan 2022 plan

Retail IT & other Supply chain

£m

New company- managed shops 88 86 87 c.90 c.95 c.95 c.95 Company-managed refits 207 132 89 c.55 c.80 c.160 c.180

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£’000 per shop (annual) Company- managed Franchise Aver verage ge sho hop income i p income in n 20 2018 18 568 568 211 211 Shop-level cash contribution 113 42 Allocation of support costs (29) (16)

Shop contrib ibutio ion net of su support costs 84 84 26 26

Shop capital investment 200

• Allocation of supply chain capital employed

80 80 Working capital impact per shop* (54) 9

Total ca capit ital employed per sh shop 226 226 89 89

Average cash return 37% 29%

* Company-managed shops generate a working capital inflow, whereas income from franchised stores is received on credit terms

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• £136.2m net cash inflow from operating activities (2017: £116.9m)
• Capital expenditure, dividends and exceptional costs all funded from

internally-generated cash flow

• £88.2m net cash at year end (2017: £54.5m), reflects strength of performance,

some short-term changes to working capital and the phasing of capex

• Looking forward, target = net cash position of c.£40m at year end
• Strong cash position sensible given current political and economic
• uncertainties. Additional stocks of key ingredients and equipment currently

being held

• Keeping plans under active review, currently expect to declare special

dividend at the time of our interim results (July 2019)

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• Purely an accounting change, no impact on cash flows or how we manage the

business

• Balance sheet asset and corresponding liability have been created for relevant

leases

• Income statement rent costs being replaced by depreciation on the asset and

interest on the reducing liability

• H1 2019 will be the first accounting period to be reported under IFRS16, no

restatement of prior periods

• £270m of assets and liabilities added to balance sheet at start of 2019
• 2019 net profit expected to decrease by £4.2m as rental charge is replaced by

depreciation and interest charges

• No cash impact

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Roger Whiteside OBE

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• Breakfast-on-the-go continues to grow

strongly

• Hot drinks - reputation for quality,

value and service continues to build

• Options for customers widening -

adding gluten-free and vegan products alongside Balanced Choice range

• Beginning hot food cabinet roll out

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• “The Greggs Way” best practice programme

releasing more time to serve customers

• Beginning roll out of ‘click and collect’

and home delivery

• Marketing driving customer reappraisal

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* Source: YouGov BrandIndex ** Source: Greggs research & Greggs Rewards data

• Launch built on progressive increase in

advertising awareness* throughout 2018

• Customer insight** suggests 1 in 8 vegan

sausage roll buyers are new customers

• Prompting customer reappraisal of the

brand and frequency of visits

• Resulting ad awareness* at

a seven-year high

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• “The Greggs Way” best practice programme

releasing more time to serve customers

• Beginning roll out of ‘click and collect’

and home delivery

• Marketing driving customer reappraisal
• 99 net openings in 2018, estate now

1,953 (inc. 262 franchised)

• Number of high-profile transport

hub openings

• 37% of estate now in travel, leisure and

work-centred catchments

• Strong pipeline, expect to add at least

100 net new shops in 2019 (c.50 franchised)

• Quality of estate improving

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• Openings focused on travel, leisure and work-centred catchments (offer

higher average sales, margins & ROC)

• Closures consolidate presence in traditional high streets
• Franchise model offers reach into closed catchments

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2013 (1,671 shops) 2018 (1,953 shops) Future? (2,500 shops) Franchise (mainly travel) Work/travel High street 24

• Investing for shop growth by increasing

logistics capacity to c.2,500 shops & consolidating manufacturing operations

• Significant progress commissioning new

manufacturing platforms at Newcastle, Manchester and Leeds sites in 2018

• Work commencing to build new southern

distribution centre (DC) at Amesbury, Wiltshire (opening late 2019)

• Plans for 2020/21 include conversion of

Birmingham site to dedicated DC and construction of automated frozen distribution facility in North East.

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• Investment programme to modernise

processes and IT systems nearing completion

• 2018 progress included processes for

managing product ranging & pricing, plus HR & estate management SAP modules

• 2019 priorities are payroll replacement

and further integration of logistics and manufacturing

• Now turning our attention to

development of digital capabilities

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We encourage healthier food-on-the-go choices We care about where our products come from We share our success with the community around us We aim to use energy efficiently and minimise waste We are committed to creating a great place to work

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– total sales up 14.1% in first 7 weeks of 2019 – company-managed shop like-for-like sales up by 9.6%

• Strong sales growth, particularly in January, helped in

part by the publicity surrounding the launch of our vegan-friendly sausage roll

• Hope to continue benefiting from this strong momentum

during the first half of 2019 before facing stronger comparatives later in the year

• Another significant year for investment in our supply

chain, creating capacity and platforms for further growth

• Contingency plans in place for Brexit uncertainty
• Strong financial position enabling investment in further

growth, alongside good returns for shareholders

• Currently expect to declare special dividend with

interim results

Total sales up first 7 weeks of 2019

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Investing for

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Example le: 15 year lease with fixed rentals Income stat atement impa pact – reduces profit at beginning of lease, and increases profit at the end. Ba Bala lance she heet impa pact – asset depreciates evenly

• ver life. Liability decreases as cash rental

payments are made, net of interest charge.

• This is an accounting change only. It will not

impact cash flows or how we manage the business

• A balance sheet asset and corresponding liability

will be created for relevant leases

• In the income statement rent costs will be replaced

by: ‒ straight-line depreciation over the lease term; and interest which reduces over the lease term

• The modified approach to transition has been
• adopted. Initial asset values equal to the present

value of the future lease payments

• Results for H1 2019 will be the first to be reported

under this basis. Comparatives will not be restated

£'000 Time Depreciation Interest Cash rental £'000 Time Lease liability Right of use asset

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• IFRS 16 primarily impacts c.1,650 property

leases on company-managed shops

• Also impacts other leased assets, for

example company cars

• Property leases typically have 10 year terms

(15 in Scotland)

• Average 6.5 year unexpired lease term on

transition Key Key judgemen udgements: ts:

• Break clauses not assumed to be exercised
• Where a lease has expired we assume that

the lease will be renewed on the same terms, unless the shop has been identified for closure or relocation

• A specific discount rate is set at the

inception of each lease

50 100 150 200 250 300

• No. of leases

Contractual Lease End Date

50 100 150 200 250 300

• No. of leases

Probable End Date for IFRS 16

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50 100 150 200 250 300 Operating lease commitment Include periods beyond the break date Include held over leases Impact of discounting Estimated opening IFRS16 lease liability

£m

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1 Discount rate applied to leases on transition will be between 2.25% - 2.78%, depending on remaining lease term. 2 Due to modified approach to transition the opening lease liability will be equal to the opening value of the right of use assets.

Liability due in

• ne year

2

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2019 2019 £m £m 2020 2020 £m £m 2021 2021 £m £m Incom ncome statem tatement ent Operating profit 2.6 2.8 3.8 Finance expense (6.8) (7.9) (8.5) Reducti Reduction n in n profit t befo efore e tax tax (4.2) (4.2) (5.1) (5.1) (4.7) (4.7) Bala Balance nce sheet heet Right of use assets 275 295 305 Lease liabilities (current) (55) (60) (60) Lease liabilities (non-current) (225) (245) (260) Re Reducti duction

• n in

n net net ass assets ets (5) (5) (10) (10) (15) (15)

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