2013 Interim Results 2013 Interim Results for the 26 weeks ended 29 June 2013
2013 Interim Results2013 Interim Resultsfor the 26 weeks ended 29 June 2013
Agenda
• First half financial performance
• Strategy
• Outlook
• Questions
22
First half headlines
• Total sales up 3.4% to £362m:
- 19 net new shops opened
- B2B sales contributed 2.0% to sales growth
- Like-for-like sales down 2.9%
• Pre-tax profit down £4.6m to £11.4m• Pre-tax profit down £4.6m to £11.4m
• Diluted EPS down 3.4p to 8.5p
• Good cash generation
• Dividend per share maintained at 6.0p
33
Financial performanceRichard Hutton, Finance DirectorRichard Hutton, Finance Director
44
2013
£m
2012
£m
Sales £361.7 £349.7 +3.4%
Operating profit* 11.5 16.2
Finance expense (0.1) (0.2)
Group sales and profits
Finance expense (0.1) (0.2)
Profit before taxation 11.4 16.0
Diluted earnings per share* 8.5p 11.9p
Dividend per share 6.0p 6.0p
* Restated to reflect amendment to IAS19 (Employee Benefits):- Additional charge in H1 2013 £0.1m (H1 2012: £0.5m)- Expected additional charge for full year 2013 £0.2m (2012: £1.0m)
55
Sales growth driven by new shops and B2B
Net new shops +4.3% (+£15.3m)
New B2B +2.0% (+£6.8m)
LFL -2.9% (-£10.1m)
• B2B growth from annualising of Iceland ‘bake at home’ range extension
• Further Moto franchises, now in 21 locations (June 2012; 2)
• Own shop numbers up 67 vs. June 2012
6
+3.4% total sales (+£12.0m)
6
H1 LFL - an improving trend
7
Wet weather ’12
& Diamond
JubileeTough start to ‘13
7
Significant Q1 profit impact£
m p
rofi
t
8
Incl. benefit of
Diamond Jubilee
comps
Incl. impact of
earlier Easter
£m
pro
fit
8
First half operating profit bridge
99
First half margin
2013
£m
2012
£m
Sales £361.7 £349.7
Gross margin % 59.0% 60.6%
Distribution & selling % 51.0% 51.0%
Admin % 4.8% 5.0%Admin % 4.8% 5.0%
Operating profit 11.5 16.2
Operating margin % 3.2% 4.6%
• GM change: 0.6% mix impact from B2B growth plus increase in
promotional participation & input costs
• D&S costs supported by efficiency projects & one less public holiday
• Admin expenses well controlled
1010
Input costs
First half cost inflation:
2013 H2 outlook:
• Protein & dairy prices driving additional 30bps overall inflation in H2
• Flour position largely open pending wheat harvest
• Business rates increases continue to offset rent reductions
• Currently circa 5 months forward cover
1111
• In recent years savings have averaged c.£8m annually due to:
‒ Supply chain productivity plan (£15m cumulative annual
savings target by 2015)
‒ Step change cost reduction activity
• 2013 on track for similar full year savings
Cost savings on target
• 2013 on track for similar full year savings
• H1 examples:
‒ Simplifying shop operations £0.5m
‒ Better buying £0.8m
‒ Refrigeration maintenance £0.5m
1212
Tax and dividend
2013 2012
H1 tax charge 23.8% 25.3%
Diluted earnings per share 8.5p 11.9p
Dividend per share 6.0p 6.0pDividend per share 6.0p 6.0p
Taxation:
• Effective tax rate reflects 1.25% reduction in headline
Corporation Tax rate
• Guidance for full year now 23.8%, falling to 22.0% from 2016
1313
2013 2012
£m £m
Refits and additional equipment 7.5 8.0
New shops and re-sites 3.5 5.1
Manufacturing capacity 0.2 0.9
Other 7.9 6.4
First half capital expenditure
Other 7.9 6.4
Total capital expenditure 19.1 20.4
Full year capex now expected to be circa £50m
Number of gross new shops opened
(excluding franchises)
25 35
Number of refits 90 64
1414
Cash flow and balance sheet
• Net cash of £12.0m at half year (2012: £1.8m)
• Good capital discipline in H1
• Net £24.7m cash generated from operating activities
(2012: £14.2m)
• Continuing to fund investment from cash generation• Continuing to fund investment from cash generation
1515
StrategyRoger Whiteside, Chief Executive
16
Roger Whiteside, Chief Executive
16
Agenda
• Executive summary
• Market context
• Greggs performance
• Strategic changes
• Impact of strategic changes on 2013• Impact of strategic changes on 2013
1717
Executive summary
• Greggs must complete the transition from traditional bakery retailer to the
growing ‘food on the go’ (FOTG) market
• Focus must be on core FOTG customer and core operations
• Medium term priority is to improve quality of the estate:
- Increased rate of shop relocations
- One `Bakery FOTG’ shop format
- Limited net shop additions for 2-3 years
18
- Limited net shop additions for 2-3 years
• Scope to increase efficiency and capacity of existing supply network – new
savoury plant build postponed
• Developing new markets not a short term priority
• Major investment in processes and systems required to complete centralisation
program
• Re-shaping the business over the next 2-3 years as we build a platform to
deliver long term sustainable growth
18
Market context
• Greggs is pre-eminent in specialist bakery market but this market is
migrating to Grocers
19
1. Specialists made up of Independents and Craft Bakers. Source: BB75; Mintel, Company Reports;
19
Market context
• Greggs has therefore
moved to compete in
the FOTG market,
with the majority of
customer visits now
‘on the go’
20
‘on the go’
1. Other visits include food to be consumed later, or destination food visits
Source: Allegra Strategies: Eating Out in the UK 2012, OC&C Consumer
Survey June 2013, OC&C analysis
20
Market context
• The FOTG market is in growth but Greggs has lost market share
Market Value: FOTG 1vs Eating Out2, 2007-12
Indexed vs 2007 Market Value = 100
21
Source: Allegra Strategies: Easting Out in the UK 2012, BRC
1. Based on coffee shop, sandwich shop and fast food chain purchases
2. Based on restaurant and pub purchases
21
Greggs’ performance
Greggs performance
relative to the FOTG
market has been impacted
by a number of factors:
• Rapidly expanding new
entrants and existing
competitor shop
Greggs sales mix
22
competitor shop
numbers
• Exposure to declining
traditional bakery
categories such as
bread
• Exposure to locations
unsuitable for FOTG
• Recent impact from
Iceland sales
22
Strategic changes - focus on core FOTG market
• Accessing new markets no longer a priority
• Replaced by…
Bakery Food
on the Go
Me
eti
ng
co
nsu
me
r
Inv
est
ing
in
ou
r
Imp
rov
ing
op
era
tio
na
l
eff
ect
ive
ne
ss
Co
mp
eti
tiv
e a
dv
an
tag
e
thro
ug
h s
up
ply
ch
ain
Keeping people, communities and values at the heart of the business
Me
eti
ng
co
nsu
me
r
ne
ed
s
Inv
est
ing
in
ou
r
sho
ps
Imp
rov
ing
op
era
tio
na
l
eff
ect
ive
ne
ss
Co
mp
eti
tiv
e a
dv
an
tag
e
thro
ug
h s
up
ply
ch
ain
23
Investing in our shops
Strategic changes:
• Long term opportunity to increase shop numbers
• Medium term focus on improving quality not growing shop
numbers
• Long term consumer trends require re-shaping of estate
2424
1
25
More investment in successful ‘Bakery food on the go’ format
Faster rate of relocation to stronger locations
= Overall shop numbers to be relatively stable over the next 2-3 years
2
1
2
25
Investing in our shops
Strategic changes:
• Long term opportunity to
increase shop numbers
• Medium term focus on
improving quality not
growing shop numbers
26
growing shop numbers
• Long term consumer
trends requires re-shaping
of estate
• Simplify refits into one
format ‘Bakery Food on
the Go’
26
2. Investing in our shops
Strategic changes
• Simplify refits into one format ‘Bakery Food on the Go’ Before
Before
2727
2. Investing in our shops
Strategic changes
• Simplify refits into one format ‘Bakery Food on the Go’ Before
Before
2828
2. Investing in our shops
Strategic changes
• Simplify refits into one format ‘Bakery Food on the Go’ Before
After
2929
Investing in our shops
Strategic changes:
• Long term opportunity to increase shop numbers
• Medium term focus on improving quality not growing shop
numbers
• Long term consumer trends requires re-shaping of estate
• Simplify refits into one format ‘Bakery Food on the Go
30
• Simplify refits into one format ‘Bakery Food on the Go
• Better use of space and flow to create ‘Greggs with seats’
30
3131
Investing in our shops
Strategic changes:
• Long term opportunity to increase shop numbers
• Medium term focus on improving quality not growing shop
numbers
• Long term consumer trends requires re-shaping of estate
• Simplify refits into one format ‘Bakery Food on the Go
32
• Simplify refits into one format ‘Bakery Food on the Go
• Better use of space and flow to create ‘Greggs with seats’
• Strong sales from new formats (130 planned for second half)
32
Investing in our shops
Strategic changes:
• Long term opportunity to increase shop numbers
• Medium term focus on improving quality not growing shop
numbers
• Long term consumer trends requires re-shaping of estate
• Simplify refits into one format ‘Bakery Food on the Go
33
• Simplify refits into one format ‘Bakery Food on the Go
• Better use of space and flow to create ‘Greggs with seats’
• Strong sales from new formats (130 planned for second half)
• Moto franchise going well and to be extended
33
Accessing new markets - no longer a priority
Strategic changes:
• Iceland wholesale to continue but
not extended to new retailers
• Moment by Greggs trial to be
halted. Existing shops to be
34
halted. Existing shops to be
integrated into main chain,
wherever possible
• International not a priority
34
Improving operational effectiveness
New strategic initiative:
• Significant progress in recent years to centralise the business.
• Now need to begin final phase to invest in process and systems
• Independent review completed in first half
• Major investment required in process and systems
35
• Major investment required in process and systems
replacement:
‒ £25m investment over 5 years
‒ £38m direct benefits expected plus improved
responsiveness and flexibility for future developments
• £6m per annum net benefit as we complete the programme
35
Improving operational effectiveness
Practical examples:
• Integrated ERP-based stock system replacing legacy of
autonomous divisional manufacturing & warehousing systems
• New ordering processes to ensure better product availability
and reduced waste
36
and reduced waste
• Forecast-based manpower planning application to replace
manually generated staff rotas
• More transparent supplier management and purchasing
processes to drive full benefits of scale in buying
36
Competitive advantage through supply chain
Strategic changes:
• Focus on efficiency and
capacity from existing
network
• Postpone plans for new
37
• Postpone plans for new
frozen manufacturing
facility
• Continue development of
centres of excellence
37
Meeting consumer needs - focus on FOTG
3838
Meeting consumer needs - focus on FOTG
Strategic changes:
• Overhaul, simplify and re-launch existing categories, e.g. Sweet
3939
4040
Strategic changes:
• Overhaul, simplify and re-launch existing categories, e.g. Sweet
• Develop new reasons to visit e.g. Pizza
Meeting consumer needs - focus on FOTG
4141
4242
Strategic changes:
• Overhaul, simplify and re-launch existing categories, e.g. Sweet
• Develop new reasons to visit, e.g. Pizza
• Promote quality credentials not just price, e.g. improved bakes
Meeting consumer needs - focus on FOTG
4343
4444
Strategic changes:
• Overhaul, simplify and re-launch existing categories, e.g. Sweet
• Develop new reasons to visit, e.g. Pizza
• Promote quality credentials not just price, e.g. improved bakes
• Improve availability and service - early morning and Sunday
Meeting consumer needs - focus on FOTG
45
• Improve availability and service - early morning and Sunday
45
Strategic changes:
• Overhaul, simplify and re-launch existing categories, e.g. Sweet
• Develop new reasons to visit, e.g. Pizza
• Promote quality credentials not just price, e.g. improved bakes
• Improve availability and service - early morning and Sunday
Meeting consumer needs - focus on FOTG
46
• Improve availability and service - early morning and Sunday
• Build day part - extended trading hours
46
Strategic changes:
• Overhaul, simplify and re-launch existing categories, e.g. Sweet
• Develop new reasons to visit, e.g. Pizza
• Promote quality credentials not just price, e.g. improved bakes
• Improve availability and service - early morning and Sunday
Meeting consumer needs - focus on FOTG
47
• Improve availability and service - early morning and Sunday
• Build day part - extended trading hours
• Engage customers better through loyalty scheme
47
4848
Financial impact of strategic changes on 2013
• £6-8m of one–off exceptional charges in H2 2013:
- Sunk costs of plans for frozen manufacturing facility
- Impairment of Greggs Moment shop assets
- Provision for onerous leases on 9 accelerated closures
- Impairment of Southall development site value
49
• Financing facility no longer required
49
Current trading
and outlook
50
and outlook
50
Outlook
• Trading conditions remain challenging
• Improving LFL trend in Q2
• Momentum lost in recent heat wave
• 3.2% LFL decline in past 5 weeks to August 3rd
• Expectations for full year profits reduced by £3m
• Strategic plan has been changed to focus on core FOTG
51
• Strategic plan has been changed to focus on core FOTG
business
Re-shaping the business over the next 2-3 years as we build a
platform to deliver long term sustainable growth
51
QUESTIONSQUESTIONS
52