Greggs Regulatory News (GRG)

31 Jul 2007 07:02

Greggs PLC31 July 2007 31 July 2007 GREGGS plc INTERIM RESULTS FOR THE 24 WEEKS ENDED 16 JUNE 2007 Greggs is the UK's leading bakery retailer specialising in sandwiches, savouries and other baker-fresh food on the go. It has over 1,300 retail outlets throughout the UK, trading under the Greggs and Bakers Oven brands. • Record interim diluted earnings per share* of 91.8p (2006: 72.0p): up 27.5% • Record interim dividend of 46.0p (2006: 38.0p): up 21.0% • Building on 22 consecutive years of dividend growth • Sales up 5.2% to £256m (2006: £243m): like-for-like sales up 4.6% • Operating profit* up 24.5% to £14.2m (2006: £11.4m) • Pre-tax profit* up 18.3% to £14.8m (2006: £12.5m) • £7.6m returned to shareholders through share buybacks in 2007 to date • Realising planned benefits of Bakers Oven restructuring • Working to create more unified, customer-focused, national Greggs brand • Extending trials of innovative products and concepts • Good start to long-term brand-building campaign "I am pleased to report encouraging results for the first half which restoreoperating profit to the record level achieved in 2005. "Like-for-like sales in the first five weeks of the second half increased by 4.1per cent, despite the effects of very adverse weather. Comparatives growsteadily more demanding as the period progresses and we face significant costincreases in a number of our key ingredients, together with additional centraloverheads. Taking these factors together, we believe that our tradingperformance for the second half is likely to be closer to that of the comparableperiod in 2006. "Overall, we continue to expect that this will be a year of satisfactoryprogress for Greggs, and that the strategic changes we are implementing willprovide us with a strong platform for growth in the medium and longer term." - Sir Michael Darrington, Managing Director * Excluding £2.0m pre-tax property profit on bakery site disposals ENQUIRIES:Greggs plc Hudson SandlerSir Michael Darrington, Managing Director Wendy Baker / Jessica RouleauRichard Hutton, Finance Director Tel: 020 7796 4133Tel: 020 7796 4133 on Tuesday, 31 July only 0191 281 7721 thereafter High resolution images are available for the media to view and download from www.vismedia.co.uk MANAGING DIRECTOR'S INTERIM STATEMENT I am pleased to report encouraging results for the first half which restoreoperating profit to the record level achieved in 2005. Our progress reflectsimproved like-for-like sales growth and the benefits of the restructuring ofBakers Oven completed last year. It is particularly encouraging to be able toreport record earnings per share in a period during which we started toimplement our major strategic change programme. This is creating a stronger,more unified, national Greggs brand which will begin to deliver benefits in 2008and enhance the longer term growth potential of the Group. Results Group sales for the first half (24 weeks to 16 June 2007) increased by 5.2 percent to £255.9 million (2006: £243.1 million), including like-for-like salesgrowth of 4.6 per cent. As reported at our AGM in May, like-for-like sales forthe first 18 weeks of the period increased by 4.9 per cent; this slowed to 3.7per cent in the final six weeks, mainly reflecting the period of exceptionallywet weather in June. Core volumes over the first half as a whole rose by 0.6 percent, after retail selling price inflation of 4.0 per cent. Operating profit (excluding property gains) grew by 24.5 per cent to £14.2million (2006: £11.4 million), taking it back to the record level achieved in2005. An additional £2.0 million net property profit arises from the disposal ofbakery sites in Newcastle upon Tyne, Glasgow and Manchester. This principallyrelates to the sale of the redundant Carricks bakery site in Newcastle, formerlythe headquarters of Bakers Oven North, which was announced in December 2006. Theother disposals are linked to our relocation to improved facilities in Scotlandand the North West. Net finance income reduced by 47.6 per cent to £0.6 million (2006: £1.1 million)as our programme to return surplus cash to shareholders resulted in loweraverage cash balances during the period. Profit before taxation, excluding theproperty profit, grew by 18.3 per cent to £14.8 million (2006: £12.5 million),while diluted earnings per share on the same basis increased by 27.5 per cent toa record 91.8 pence (2006: 72.0 pence). Including the one-off net property profit, pre-tax profit was £16.7 million(2006: £12.5 million) and diluted earnings per share were 104.0 pence (2006:72.0 pence). Cash flow, dividend and share buyback programme The Group remains strongly cash generative and ended the first half with cashbalances of £26.3 million (2006: £25.5 million). The Board remains committed todelivering value to shareholders through the return of surplus cash through botha progressive dividend policy and a continuing share buyback programme. In accordance with this policy, the Board has declared an increased interimdividend of 46.0 pence per share (2006: 38.0 pence), a rise of 21.0 per cent.This is covered 2.0 times by diluted earnings per share excluding the propertyprofit. The interim dividend will be paid on 1 October 2007 to thoseshareholders on the register at the close of business on 7 September 2007. During the first half of the financial year, the Company purchased forcancellation 66,172 of its ordinary shares at an average price of £50.80 and atotal cost of £3.4 million. Since the beginning of the second half, it haspurchased a further 85,000 ordinary shares at an average price of £49.70 and atotal cost of £4.3 million. It is the Board's intention to continue buying backshares in the market when it considers it to be in the interests of ourshareholders to do so. Trading highlights We enjoyed positive trading conditions for most of the first half, with improvedfootfall on the high street and generally favourable weather. Somewhat slowergrowth towards the end of the period reflected the impact of exceptionally highrainfall in June, at a time when many retailers were also beginning to reportsome impact on consumer confidence from rising interest rates. We have benefitedfrom an increase in the number of our shops trading on Sundays, and from theextension of our weekday opening hours in appropriate locations. Greggs brand UK. Like-for-like sales under the Greggs brand in the UK increasedby 4.8 per cent, including core volume growth of 0.4 per cent. We are steadilyprogressing the many initiatives arising from our strategic review in 2006,including the recruitment of additional senior personnel and the redeployment ofsome divisional management to create a much more unified and centrally drivennational brand. We are continuing trials of a number of innovative products and concepts,seeking to cater for more aspirational demands while retaining our traditionalstrengths in classic bakery products that deliver great taste and enjoyment atcompetitive prices. These trials are being extended to an increased number oflocations with a view to embarking on their roll-out in 2008. Our HealthierOptions range of wraps, rolls and sandwiches continues to meet the needs of ourcustomers seeking to reduce their intake of fat, saturated fat and salt, and therange will be further developed during the second half. Work has begun with the aim of creating a much more unified product offerthrough harmonisation across our divisions, and the application of best practicenationwide. We have been encouraged by the early results of the first phase of our £3million integrated marketing campaign, using national TV and radio, posters andthe internet to build awareness of the Greggs brand. The second phase of thisnationwide campaign, building on the lessons of our initial burst ofadvertising, will be launched in September. All the actions we are taking to increase our customer focus and to build astronger and more unified Greggs brand are expected to begin delivering theirreal benefits in 2008 and beyond. Bakers Oven brand. Like-for-like sales under the Bakers Oven brand grew by 3.6per cent, including core volume growth of 1.5 per cent after selling priceinflation of 2.1 per cent. We are achieving all the expected benefits of therestructuring of this business announced a year ago, which has deliveredsignificant cost savings and allowed the Bakers Oven management team to focus onthe development of their profitable operations in the Midlands and South. Greggs Continental Europe. Our Belgian operations in Antwerp and Leuven havecontinued to progress as planned. Since the beginning of the second half, wehave taken the opportunity to purchase a small chain of five shops in Brussels,enabling us to extend our operations into the capital. These will becomprehensively refurbished in the Greggs format over the next 12-18 months. Shop openings and refurbishments We opened 22 new shops during the first half and closed 17, giving us a netaddition of five outlets making a total of 1,341 at 16 June. The whole of thenet addition was to the Greggs brand in the UK, which comprised 1,170 units atthe end of the first half. Greggs Belgian shop numbers at this date wereunchanged at six though, as noted above, the chain has since been expanded to 11units through a small acquisition. There was no change to Bakers Oven shopnumbers at 165. We remain on track to add a net 20-25 new shops to our portfolio over the yearas a whole. During the first half we gave priority to refreshing a significant proportion ofthe Greggs chain, comprising some 350 shops. This has involved softening thesomewhat strident colours of our previous takeaway-orientated design, using apalette more in keeping with our bakery image. At a relatively low cost perunit, this has created a significantly more attractive shopping environment forour customers. In addition to this major programme of improvements, we completed 12comprehensive shop refurbishments and nine minor refits during the period underreview. Capital investment There was a substantial increase in our capital expenditure during the firsthalf to £20.5 million (2006: £13.5 million). This principally reflected the mainphase of construction of our new Glasgow bakery, which is scheduled forcompletion in September and will be commissioned in the latter part of the year.We also increased our expenditure on shop refurbishment. As previouslyannounced, we expect total capital expenditure for the year to be £39 million,compared with £30 million in 2006. People, the community and the environment This is a time of considerable change for everyone in Greggs, as we implementthe programme arising from our strategic review. All these initiatives areintended to deliver benefits over the next two to three years rather thanimmediately, and it is a particular credit to our staff that they have deliveredimproved results against this background. We remain committed to playing an active and positive role in the communitieswhere we operate, through the continuing work of the Greggs Trust and GreggsBreakfast Clubs, and long-established fund-raising efforts such as our regionalfun runs for children's cancer charities. Following our successful firstparticipation in the BBC's Children in Need appeal in 2006, our staff arealready making plans for a significantly increased fund-raising effort in thecurrent year. Business efficiency and environmental awareness go hand in hand in ourcontinuing initiatives to make the most effective use of energy and to reduceour carbon emissions in our production facilities and shops, as well asincreasing recycling and reducing the amount of food waste sent to landfill. Outlook Like-for-like sales in the first five weeks of the second half increased by 4.1per cent, despite the effects of very adverse weather including a number of shopclosures due to flooding. Operating profit for these five weeks was ahead of thecomparable period in the previous year. While this is an encouraging start, it should be noted that it compares with aperiod of negligible like-for-like growth last year, and that comparatives willgrow steadily more demanding as the second half progresses. In addition, we facesignificant cost increases in a number of our key ingredients, including flour,dairy products and other fats, together with additional central overheads as westrengthen the senior team charged with building and leading the more unified,national Greggs brand. We shall be seeking to recover these higher costs in aclimate where consumer confidence has been dampened by rising interest rates.Finally, we will incur some short term commissioning and double running costs inScotland as our new Glasgow bakery comes on stream. Taking these factors together, we believe that our trading performance for thesecond half is likely to be closer to that of the comparable period in 2006. Overall, we continue to expect that this will be a year of satisfactory progressfor Greggs, and that the strategic changes we are implementing will provide uswith a strong platform for growth in the medium and longer term. Sir Michael Darrington Managing Director 31 July 2007 Consolidated income statementFor the 24 weeks ended 16 June 2007 24 weeks 24 weeks ended 16 June 2007 ended 52 weeks ended 30 December 2006 17 June 2006 Excluding Excluding Bakers Property Property Bakers Oven Oven disposals disposals Total restructuring restructuring Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue 255,878 - 255,878 243,135 550,849 - 550,849 Cost of sales (97,048) 1,960 (95,088) (94,058) (209,455) (68) (209,523) Gross profit 158,830 1,960 160,790 149,077 341,394 (68) 341,326 Distribution and (126,189) - (126,189) (120,241) (262,917) (2,947) (265,864)selling costs Administrative (18,414) - (18,414) (17,405) (36,232) (483) (36,715)expenses Operating profit 14,227 1,960 16,187 11,431 42,245 (3,498) 38,747 Finance income 561 - 561 1,065 1,579 - 1,579 Finance expenses (5) - (5) (3) (87) - (87) Profit before tax 14,783 1,960 16,743 12,493 43,737 (3,498) 40,239 Income tax (4,835) (640) (5,475) (3,998) (14,227) 1,049 (13,178) Profit for the period attributable to 9,948 1,320 11,268 8,495 29,510 (2,449) 27,061 equity holders of the parent Basic earnings per 104.9p 72.4p 241.2pshare Diluted earning per 104.0p 72.0p 239.9pshare Consolidated statement of recognised income and expenseFor the 24 weeks ended 16 June 2007 24 weeks ended 24 weeks ended 52 weeks ended 16 June 2007 17 June 2006 30 December 2006 £'000 £'000 £'000 Actuarial gains on defined benefit pension plans 2,817 1,323 2,741 Tax on items taken directly to equity (845) (397) (822) Net income recognised directly in equity 1,972 926 1,919 Profit for the period 11,268 8,495 27,061 Total recognised income and expense for the period 13,240 9,421 28,980attributable to equity holders of the parent Consolidated balance sheetAs at 16 June 2007 16 June 2007 17 June 2006 30 December 2006 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 189,583 183,289 184,325Defined benefit pension asset 934 - - 190,517 183,289 184,325 Current assetsInventories 8,467 7,913 8,429Trade and other receivables 19,424 22,085 16,026Cash and cash equivalents 26,319 25,496 19,585Asset held for sale - - 275 54,210 55,494 44,315 Total assets 244,727 238,783 228,640 LIABILITIESCurrent liabilitiesTrade and other payables (75,708) (72,231) (61,295)Current tax liabilities (6,092) (4,794) (5,467) (81,800) (77,025) (66,762)Non-current liabilitiesDefined benefit pension - (8,911) (1,883)liabilityOther payables (88) (98) (90)Deferred tax liability (15,859) (12,713) (15,014) (15,947) (21,722) (16,987) Total liabilities (97,747) (98,747) (83,749) Net assets 146,980 140,036 144,891 EQUITYCapital and reserves Issued capital 2,219 2,289 2,232Share premium account 13,533 13,471 13,533Capital redemption reserve 220 150 207Retained earnings 131,008 124,126 128,919 Total equity attributable toequity holders of the parent 146,980 140,036 144,891 Consolidated statement of cash flowsFor the 24 weeks ended 16 June 2007 24 weeks ended 24 weeks ended 52 weeks ended 30 16 June 2007 17 June 2006 December 2006 £'000 £'000 £'000 Operating activities Cash generated from operating activities (see below) 36,026 29,892 66,185Income tax paid (4,850) (6,901) (13,600) Net cash inflow from operating activities 31,176 22,991 52,585 Cash flows from investing activitiesAcquisition of property, plant and equipment (20,522) (13,545) (30,023)Proceeds from sale of property, plant and equipment 6,875 511 1,599Government grant received 200 - -Interest received 557 1,065 1,579 Net cash outflow from investing activities (12,890) (11,969) (26,845) Cash flows from financing activitiesDefined benefit pension scheme special contribution - - (5,500)Interest paid (5) (3) (74)Proceeds from issue of share capital - 31 93Sale of own shares 218 1,443 1,809Purchase of own shares - (16,437) (16,436)Shares purchased and cancelled (3,395) (28,183) (39,544)Dividends paid (8,370) (7,979) (12,105) Net cash outflow from financing activities (11,552) (51,128) (71,757) Net increase/ (decrease) in cash and cash 6,734 (40,106) (46,017)equivalents Cash and cash equivalents at the start of the period 19,585 65,602 65,602 Cash and cash equivalents at the end of the period 26,319 25,496 19,585 Cash flow statement - cash generated from operations 24 weeks ended 24 weeks ended 52 weeks ended 16 June 2007 17 June 2006 30 December 2006 £'000 £'000 £'000 Profit for the period 11,268 8,495 27,061Depreciation 11,022 10,674 23,884(Profit) / loss on sale of property, plant and equipment (1,875) (103) 753Release of government grants (2) (4) (8)Share based payment expenses 396 265 687Finance income (561) (1,065) (1,579)Finance expenses 5 3 87Income tax expense 5,475 3,998 13,178Increase in inventories (38) (200) (716)Increase in debtors (3,398) (6,224) (165)Increase in creditors 13,534 13,549 2,609Movement in pension liability 200 504 394 Cash from operating activities 36,026 29,892 66,185 Notes 1. Basis of preparation The interim financial information has been prepared on the basis of theaccounting policies adopted in the Company's statutory accounts for the 52 weeksended 30 December 2006, as revised for the implementation of specified new oramended endorsed standards or interpretations. 2. Status of financial information The interim information for the 24 weeks ended 16 June 2007 and 17 June 2006 hasnot been audited or reviewed by the auditors. The comparative figures for the 52 weeks ended 30 December 2006 are not theCompany's statutory accounts for that financial year. Those accounts have beenreported on by the Company's auditors and delivered to the Registrar ofCompanies. The report of the auditors was unqualified, did not include areference to any matters to which the auditors drew attention by way of emphasiswithout qualifying their report and did not contain a statement under section237(2) or (3) of the Companies Act 1985. 3. Dividends The following tables analyse dividends when paid and the year to which theyrelate: Dividend declared 24 weeks ended 24 weeks ended 52 weeks ended 16 June 2007 17 June 2006 30 December 2006 Pence per share Pence per share Pence per share 2005 final dividend - 70.0p 70.0p 2006 interim dividend - - 38.0p 2006 final dividend 78.0p - - 78.0p 70.0p 108.0p 24 weeks ended 24 weeks ended 52 weeks ended 16 June 2007 17 June 2006 30 December 2006 £'000 £'000 £'000 Total dividend payable 2005 final dividend - 8,013 8,013 2006 interim dividend - - 4,092 2006 final dividend 8,386 - - Total dividend paid in period 8,386 8,013 12,105 Dividend proposed at period end and notincluded as a liability in the accounts 2006 interim dividend (38.0p per share) - 4,085 - 2006 final dividend (78.0p per share) - - 8,706 2007 interim dividend (46.0p per share) 4,880 - - 4,880 4,085 8,706 The proposed interim dividend in respect of 2007 of 46.0p per share will be paidon 1 October 2007 to shareholders on the register at close of business on 7September 2007. 4. Share capital and reserves Reconciliation of movement in capital and reserves attributable to equityshareholders Share capital Share premium Capital Retained Total redemption earnings reserve £'000 £'000 £'000 £'000 £'000 At 31 December 2006 2,232 13,533 207 128,919 144,891 Total recognised income and expense - - - 13,240 13,240Shares purchased and cancelled (13) - 13 (3,395) (3,395)Sale of own shares - - - 218 218Share based payments - - - 396 396Equity dividends - - - (8,370) (8,370) At 16 June 2007 2,219 13,533 220 131,008 146,980 5. Earnings per share Adjusted earnings per share figures have been calculated for the 24 weeks ended16 June 2007 which exclude the effect of the property disposals. These have beencalculated by dividing profit attributable to ordinary shareholders excludingproperty disposals by the relevant weighted average number of shares. Profit attributable to ordinary shareholders 24 weeks ended 24 weeks ended 16 June 2007 17 June 52 weeks ended 30 December 2006 2006 Excluding Excluding Property Property Bakers Oven Bakers disposals disposals Total restructuring Oven Total restructuring £'000 £'000 £'000 £'000 £'000 £'000 £'000Profit for the periodattributable to equity 9,948 1,320 11,268 8,495 29,510 (2,449) 27,061holders of the parent Basic earnings per 92.6p 12.3p 104.9p 72.4p 263.0p (21.8)p 241.2pshare Diluted earning per 91.8p 12.2p 104.0p 72.0p 261.6p (21.7)p 239.9pshare The number of ordinary shares in issue at 16 June 2007 was 11,095,391 (17 June2006: 11,443,869, 30 December 2006: 11,161,563). The weighted average number ofordinary shares outstanding during the period was 10,741,124 (24 weeks ended 17June 2006: 11,733,251, 52 weeks ended 30 December 2006: 11,220,493). 6. Defined benefit pension scheme The valuation of the defined benefit pension scheme for the purposes of IAS19 asat 30 December 2006 has been updated as at 16 June 2007 and the movements havebeen reflected in this interim statement. 7. Interim report The interim report is being posted to all shareholders and copies are availableon application to the Company Secretary, Greggs plc, Fernwood House, ClaytonRoad, Jesmond, Newcastle upon Tyne, NE2 1TL. It will also be available on theCompany's website, www.greggs.plc.uk. This information is provided by RNS The company news service from the London Stock Exchange