Newcastle upon Tyne / UK. (gs) British Greggs PLC announced its interim results for the 26 weeks ended 04 July. The leading bakery food-on-the-go retailer with almost 1’700 retail outlets throughout the country reported a strong first half.
Financial highlights
- Total sales up 6.4 percent to 398 million GBP (2014: 374 million GBP)
- Own shop like-for-like sales up 5.9 percent (2014: 3.2 percent)
- Prior year restructuring benefits contributed 2.4 million GBP year-on-year
- Pre-tax profit 25.6 million GBP (2014: 16.9 million GBP excluding exceptional items)
- Diluted earnings per share 19.5p (2014: 12.5p)
- Continued strong cash generation
- Ordinary interim dividend per share of 7.4p (2014: 6.0p)
- Special dividend of 20.0p paid on 17 July 2015
Operational highlights
- Continued growth in average transaction value and customer visits
- Good results from sales initiatives:
- – extension of «Balanced Choice» range
- – further growth in breakfast sales
- Shop refurbishment programme progressing well:
- – 118 refits and 12 café conversions completed
- Return to net shop growth (44 new shops opened, 30 closures)
- 1,664 shops trading at 4 July 2015
- Further efficiencies from change programme
Chief Executive Roger Whiteside: «We have had a strong first half with good growth in sales reflecting improvements in our products and the reaction to our shop investment programme. Our offer of great tasting food-on-the-go is being well received by the consumer in market conditions that have remained favourable. In particular we have seen significant growth in breakfast sales as well as from the extension of our «Balanced Choice» range of sandwiches and flatbreads with fewer than 400 calories. With the shop refurbishment programme continuing to progress well and new additions to the product range including pizza slices, we are confident of delivering a year of good growth slightly ahead of expectations».
Financial performance
We continued to deliver a strong trading performance through the first half of the year. Our total sales for the 26 weeks to 4 July 2015 grew by 6.4 percent to 398 million GBP. Like-for-like sales in our own shops grew by 5.9 percent over the same period and our franchised estate grew to 70 shops (28 June 2014: 39). Our focus on offering great tasting food-on-the-go and investing in our shop estate continued to drive growth in average transaction value and customer visits.
Operating margin benefited from the impact of strong like-for-like sales in the period and a 2.4 million GBP year-on-year cost reduction as a result of last year’s restructuring of our in-store bakeries and support operations. Most of this restructuring benefit has now annualised, with a further 0.6 million GBP year-on-year benefit to come in the second half of 2015. Property disposals realised profits of 0.1 million GBP in the period (2014: 1.4 million GBP). Including these gains, operating profit was 25.6 million GBP in the first half of the year (2014: 16.8 million GBP, excluding exceptional items).
With no net finance income (2014: 0.1 million GBP) pre-tax profit was 25.6 million GBP (2014: 16.9 million GBP before exceptional items). Diluted earnings per share for the period were 19.5 pence (2014: 12.5 pence before exceptional items).
Dividend
The Board has declared an interim dividend of 7.4 pence per share (2014: 6.0 pence). This is in line with our progressive dividend policy, which targets a full year ordinary dividend that is two times covered by earnings. The interim dividend will be paid on 2 October 2015 to those shareholders on the register at the close of business on 4 September 2015.
As announced at the time of our AGM a special dividend of 20.0 pence per share was paid on 17 July 2015. As a result the Board expects to maintain an appropriate net cash position over the rest of the year which allows for seasonality in the Group’s working capital cycle.
Financial position
Capital expenditure during the first half was 31.3 million GBP (2014: 20.4 million GBP) with a continued strong performance from our investment in shop refurbishments and relocations. We expect capital expenditure in 2015 to be around 65 million GBP (2014: 48.9 million GBP) as we prioritise investment in our core estate (c. 40 million GBP) and the upgrading of our process and systems platform (about eight million GBP).
The Group continues to generate a strong cash flow and has maintained a robust financial position. Net cash inflow from operating activities in the period was 34.6 million GBP (2014: 30.5 million GBP). We ended the period with a cash balance of 41.4 million GBP (28 June 2014: 21.8 million GBP including 5.0 million GBP invested in a short-term deposit). As noted above a special dividend of 20.2 million GBP was paid following the end of the period.
Operational highlights
Whilst the food-on-the-go market overall remains highly competitive, we have shown that Greggs is a winning brand in this sector and can share in market growth. Trading conditions have remained favourable with low inflation boosting real incomes and helping us to keep our prices low. We have continued to make good progress in delivering the actions that support our strategic plan:
- Great tasting fresh food: In the first half we have driven increased customer transaction numbers and higher average transaction values through our product initiatives and value deals. All of our food-on-the-go categories delivered like-for-like growth in the first half with sandwiches in particular benefiting from the range relaunch in June last year.
Our «Balanced Choice» range grew strongly with successful new additions including «no added sugar» drinks and new and improved salad options. All Balanced Choice products contain fewer than 400kcal and rate as either green or amber on the FSA traffic light system. Breakfast continues to be our fastest growing part of the day and we have successfully extended our breakfast menu, adding new porridge and breakfast sandwich options. These include a free-range egg option that has attracted the «Good Egg Award».
We continue to invest in the value of our food and drinks, and now offer «any savoury product plus a drink» for two GBP. This has quickly established itself alongside our two GBP «sweet and drink» offer as a favourite with customers.
- A great shopping experience: We have extended further the times at which our shops are available to customers with three quarters now open by 7am and more than two thirds open on Sundays. Our investment in operational planning systems is helping to ensure that we deliver great service by deploying the right level of staffing across the day and we have started to introduce new replenishment processes targeted at improving product availability.
We have also made good progress on the significant programme of investment in upgrading our estate. During the first 26 weeks we completed 118 shop refurbishments to our latest «bakery food-on-the-go» format and have commenced the conversion of our larger bakery cafés, with 12 completed in the first half. This is in line with our plan to update 200 to 220 shops during 2015.
The overall quality of our shop estate has continued to improve through our shop opening and closure programme and we have returned to net shop growth. We opened 44 new shops (including 25 franchise units) and closed 30 shops, giving a total of 1,664 shops (of which 70 are franchise units) trading at 4 July 2015. We expect shop numbers for the full year to increase by a net 20-30 shops overall.
- Simple and efficient operations: The first half result benefited from the restructuring of our in-store bakeries and support operations carried out in 2014. The year-on-year benefit of this was 2.4 million GBP and a further 0.6 million GBP benefit will accrue in the second half of 2015 as the impact of this annualises fully.
Our other ongoing structural cost reduction plans are progressing well and are on track to save five to six million GBP in the year as a whole. Better processes around procurement and product management have delivered lower costs and reduced waste and we continue to consolidate production activity by focusing on centres of excellence in our supply chain.
The proposed increases to the minimum wage are likely to drive inflationary pressure in the broader sector over the coming years. We have consistently paid rates of pay above this level, with our standard rate for hourly-paid shop staff at 7.11 GBP, currently nine percent higher than the national minimum wage. We are assessing the medium-term impact of further increases on our business.
- Improvement through change: We are making good progress with the major overhaul of our processes and systems and remain on track to introduce new ways of working in central forecasting and replenishment and customer relations. Plans are also well advanced for the next major phase of change which will focus on core elements such as finance, purchasing and retail back office administration.
Keeping our people, communities and values at the heart of our business
We continue to invest in making Greggs a great place to work as well as a good neighbour to the communities in which we operate. In the first half of the year we were delighted to achieve a three-star rating in Business in the Community’s Corporate Responsibility Index 2015.
In the current year we are making the donation of unsold food a major priority within our social responsibility plan. We work with a number of charities across the country, including over 150 smaller charities such as soup kitchens, food banks and shelters for homeless and vulnerable people. We also work in partnership with FareShare and The Trussell Trust who support hundreds of charities through their UK network. Several hundred of our shops now donate unsold food and we are looking to extend this.
Outlook
Our strong first half performance reflects improvements in our product offer and investment in our shops together with structural cost reductions. In the second half we will come up against progressively stronger sales comparatives. That said we have a strong pipeline of product initiatives, and market conditions are expected to remain favourable with ingredient cost deflation expected to continue for the balance of the year. Overall, we expect to deliver a year of good growth, slightly ahead of our previous expectations, and further progress against our strategic plan.
