2017 Preliminary Results: For the 52 weeks ended 30 December 2017 1
Agenda • Highlights • Financial performance • Strategic progress • Current trading & outlook 2
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) 3
2017 Financial performance Richard Hutton 4
Group sales and profit 2017 2016 £m £m Sales 960.0 894.2 +7.4% Operating profit before property & 81.7 78.1 +4.6% exceptional items 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 5 activity across others.
Exceptional charge 2017 2016 £m £m Supply chain restructuring: Costs of structural change 10.5 6.4 Related property disposal gain (0.4) - See following page for detail 10.1 6.4 and guidance on phasing Other: Support function restructuring - 0.4 Settlement of prior year costs (0.2) (1.6) Net exceptional charge 9.9 5.2 6
Detail - supply chain restructuring charges Latest expected phasing of £25m cash and £5m non-cash exceptional charges in respect of investment programme to reshape supply chain operations: £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 7
Continued growth in LFL sales Quarterly company-managed shop LFL sales growth 7% 2 6% 5% 1 4% 1 3% 2 2% 1% 0% Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Weeks 1-8 '18 1 Underlying LFL level excluding Christmas & New Year trading pattern 2 Reported level 8
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 9
EBIT bridge – mitigating significant inflation headwind £m 90.0 £82.2m £80.3m 80.0 70.0 60.0 50.0 40.0 * Excluding exceptional items in both years 10
Significant cost inflation in 2017, now easing Wage & salary inflation Ingredient inflation 7.0% 7.0% 6.0% 6.0% 5.0% 5.0% 4.0% 4.0% range 3.0% 3.0% 2.0% 2.0% 1.0% 1.0% 0.0% 0.0% 2016 2017 E 2018 2016 2017 E 2018 -1.0% -1.0% -2.0% -2.0% People costs Food & packaging inputs • • 3.1% overall wage & salary inflation in Significant, largely currency-driven 2017 (2016: 3.5%) ingredient inflation in 2017 • 2018 expected to be 3.6% including • Proteins & dairy most affected impact of National Living Wage • 2018 inflationary, but at a lower level • Additional costs from Apprenticeship • Currently hold 5- 6 months’ forward Levy in 2017 (+£1.2m) and Pensions in 2018 (+£2.0m) cover 11
Tax, earnings and dividend 2017 2016 Tax charge* 20.7% 22.5% - expect 21.25% charge for 2018, continuing thereafter at c.2% above headline rate 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% 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 * Includes property disposal gains but excludes exceptional items impact 12
Capital expenditure £m 2018 2017 2016 Plan 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* c.95 86 89 (incl. relocations, excl. franchises) Number of shop refits @ c.£60k^ c.105 132 208 * Shop fitting and equipment cost ^ Shop fitting cost only 13
Supply chain investment entering peak phase £m Latest plan 100 90 80 70 60 50 40 30 20 10 0 2016 2017 2018 plan 2019 plan 2020 plan Retail IT & other Supply chain 14
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 - 5 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 Gross investment £100m Incremental depreciation £3m Alternative for same capacity -£50m Net P&L benefit £7m Expected disposal proceeds -£20m Net incremental investment £30m 15
Managing retail return on capital New shop payback Relocated shop payback £k £k 500 500 400 400 300 300 200 200 100 100 0 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 1 Yr 2 Yr 3 Yr 4 Cumulative shop contribution Cumulative shop contribution Shop capital payback achieved Shop capital payback achieved Shop + supply chain payback Shop + supply chain payback • 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
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, ordinary 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 17
Strategic progress Roger Whiteside 18
PURPOSE: Making good, freshly prepared food accessible to everyone VISION: Customers’ favourite for food -on-the-go 19
• 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. 20
• 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. 202 nd Franchise shop opened. • • New Drive-Thru format opened. 21
Flexing shop formats for different locations 22
Reshaping the estate 2013-17 2012 shop estate – 1,671 shops ( 20% travel & workplace) +319 new -333 shop +197 new co. shops closures franchises 2017 shop estate – 1,854 shops ( 34% travel & workplace) Franchise Travel & workplace High street 2018 plan - aim to open 110-130 net new shops: • 90-100 new company-managed shops • c.70 new franchise stores • 40-50 closures 23
• Good start in 2017 with our supply chain investment programme. • Completed transfer of our Edinburgh operations 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. 24
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