REG - Greggs PLC - Preliminary Results
08/03/2022 07:00
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RNS Number : 9324D Greggs PLC 08 March 2022
8 March 2022
GREGGS PLC
("Greggs" or the "Company")
PRELIMINARY RESULTS FOR THE 52 WEEKS ENDED 1 JANUARY 2022
Strong team, brand and financial position;
well placed to execute ambitious strategic plan
2021 Financial highlights
· Total sales up 5.3%* on 2019 level to £1,229.7 million** (2020:
£811.3 million, 2019: £1,167.9 million)
· LFL*** sales in company-managed shops 3.3% down on 2019 level
· Pre-tax profit of £145.6 million (2020: £13.7 million loss, 2019:
£108.3 million profit)
· Strong cash position supporting planned capital investment programme
and special dividend
· Diluted earnings per share 114.3p (2020: 12.9p loss per share, 2019:
85.0p earnings per share)
· Final dividend of 42.0p per share recommended, taking total ordinary
dividend per share to 57.0p (2020: nil, 2019: 11.9p****)
· Special dividend of 40.0 pence per share declared
· Colleague profit-sharing recommenced, will share £16.6 million with
our people
* comparison with 2019 sales considered more helpful as 2020 figures
include the period of shop closure in Q2 2020
** 52 weeks ended 1 January 2022 (2020: 53 weeks ended 2 January 2021,
2019: 52 weeks ended 28 December 2019)
*** like-for-like sales in company-managed shops (excluding franchises)
with a calendar year's trading history
**** 2019 dividend reflects only the interim dividend, the final dividend of
33.0p was proposed but not paid
Strategic progress
Growing and developing the Greggs estate:
· 131 new shops opened in 2021, 28 closures (103 net openings); 2,181
shops trading as at 1 January 2022
· From 2022, targeting 150 annual net new shop openings, with the
potential for at least 3,000 shops in the UK over time
· Improving the quality of our estate - 200 refurbishments planned in
2022 to support growth in additional channels
Evening trade:
· Plan to extend late opening to 500 shops in year ahead, offering core
menu plus hot food trials
Delivery and digital channels:
· Extending delivery reach from 1,000 to 1,300 shops to complement
evening availability
· Further recruitment of, and engagement with, Greggs App customers
Supply chain investment:
· Identifying optimal locations for future investment in supply
capacity to facilitate growth ambition
ESG:
· Majority of year one Greggs Pledge targets met, including:
- food waste reduction both in our shops and our manufacturing sites;
and
- extending the proportion of items on our shelves that are healthier
choices
Current trading
· In first nine weeks of 2022, LFL sales in company-managed shops up
3.7% compared to the 2020 level
· For same period LFL sales in company-managed shops up 44.2% against
lockdown-affected period in 2021
"Our results and achievements in 2021 show that we have emerged from the
pandemic both stronger and better as a business. I would like to thank, once
again, all of our teams across the country who rose so well to meet the
challenges of the last two years.
"We have started 2022 well, helped by the easing of restrictions. Cost
pressures are currently more significant than our initial expectations and, as
ever, we will work to mitigate the impact of this on customers, however given
this dynamic we do not currently expect material profit progression in the
year ahead.
Despite these near-term pressures, we continue to believe that the
opportunities for Greggs have never been more exciting. Our investment over
recent years has left the business well-placed to move quickly as the economy
recovers and we drive our ambitious plans to become a larger, multi-channel
business."
- Roger Whiteside OBE, Chief Executive
ENQUIRIES:
Greggs plc (http://www.greggs.co.uk) Hudson Sandler (http://www.hudsonsandler.com)
Roger Whiteside, Chief Executive Wendy Baker / Hattie Dreyfus / Nick Moore
Richard Hutton, Finance Director Tel: 020 7796 4133
Tel: 0191 281 7721
An audio webcast of the analysts' presentation will be available to download
later today at http://corporate.greggs.co.uk/ (http://corporate.greggs.co.uk/)
Chair's statement
Greggs returned to the front foot in 2021. With a strong team, brand and
financial position we are well placed to embrace the many strategic
opportunities ahead of us. We have an ambitious plan and the resources to
pursue it for the benefit of all of our stakeholders.
Overview
2021 was a year of further recovery for Greggs as we navigated the ongoing
challenges posed by the pandemic and set out a clear strategic plan to address
the opportunities that lie ahead. An ability to react quickly to changing
conditions has been crucial in recent years and the Greggs team has
demonstrated this agility, delivering a strong 2021 financial result in the
face of ongoing disruption to demand and in our supply chain.
At the same time we have remained focused on our responsibilities to
colleagues and the broader stakeholder community. By publishing The Greggs
Pledge we set out clear environmental and social commitments in those areas
where we believe we can make the most impact as we seek to build on Greggs
strong reputation as a responsible business.
The Board's strategy review was of particular importance in 2021 as we
reflected on the learnings of the past year and their implications for our
plans. The result is an ambitious strategic plan, founded on broadening
access to Greggs across the day and also through new shops and channels. We
believe that Greggs' brand strength and the breadth of its customer offer
makes the business well-placed to grow quickly as the economy recovers.
Our people and values
The Board makes considerable efforts to stay close to the Greggs team, making
sure that we are in tune with the business challenges and issues that they
encounter. In the face of continued challenges from a pandemic-affected
trading environment our colleagues, once more, responded magnificently, and
the Board does not take this for granted. We were pleased to support
proposals to bring forward by five months the annual pay award for colleagues
to thank them for their contribution in 2021.
A particular focus for the business in recent years has been the desire to
progress the equality and diversity agenda. As part of Greggs' ambition to
achieve the National Equality Standard (NES) the Board engaged in a training
session and reviewed business progress across a wide range of inclusivity
initiatives. Directors also attended special interest groups designed to
represent the needs of colleagues and promote equality of opportunity.
Whilst there is more to do to reach the NES standard the Board is encouraged
by the strong progress being made from a solid base, given Greggs'
values-driven approach.
In the face of the challenges of the past two years the Board considers it
more important than ever to support the work of the Greggs Foundation in the
communities where we operate. The charity, independent of, but supported by,
the Company has been working to build stronger, healthier communities for 35
years. The Greggs Foundation has been chaired for the past 20 years by
Andrew Davison OBE, who retired from this voluntary role in 2021. I would
like to record the Board's immense gratitude to Andrew for his leadership and
commitment over so many years, and for the impact that this has had on so many
people. We look forward to working with Andrew's successor, Joanna Dyson
OBE, to further the work of the Greggs Foundation over the years ahead.
Another important relationship has been with the trustee of the Company's
legacy defined benefit pension scheme. Richard Bottomley OBE has recently
retired from chairing the trustee group, a position he held for twelve years,
and leaves the scheme in a very strong position. On behalf of the Company
and the scheme's members I would like to thank Richard for the great progress
made under his period of stewardship.
The Board
The Board has a plan in place for succession for both Executive and
Non-Executive Directors. In March 2021 I explained that, although under the
UK Corporate Governance Code I would have normally been expected to step down
as Chair, the Board had asked me to remain in place to provide continuity of
leadership as we addressed the Chief Executive's succession.
In 2021 the Company's Nominations Committee commenced a recruitment process to
address Chief Executive succession as Roger Whiteside approached retirement
age. The Committee appointed an executive search firm to conduct a
comprehensive search, which considered internal and external candidates. The
quality of candidates was strong and, following a rigorous process, the
Committee recommended the appointment of Roisin Currie, Greggs Retail and
Property Director, as Chief Executive to succeed Roger Whiteside. Roisin was
appointed as Chief Executive Designate and as an Executive Director on 1
February 2022 and will take over as Chief Executive at the end of the
Company's Annual General Meeting on 17 May 2022. Roger Whiteside will step
down from the Board at the close of the AGM but will remain available to
support the transition process until 5 January 2023.
Roger has led Greggs through a period of extraordinary and sustained success
and I would like to thank him for his exceptional leadership since his
appointment in 2013. His straightforward, personable and engaging style has
engendered great trust within the business and an enthusiastic following
amongst all our stakeholders. I would like to wish Roger a long and happy
retirement.
As part of our plan to phase succession of Non-Executive Directors the Board
announced the appointment of Mohamed Elsarky as an independent Non-Executive
Director in June 2021, and Peter McPhillips retired as an independent
Non-Executive Director in July 2021. Sandra Turner, Senior Independent
Director, took over from Peter as the Non-Executive Director responsible for
overseeing colleague engagement.
In the second half of 2022 the Nominations Committee will commence activity to
identify my successor as Chair of the Board. As previously communicated, I
expect to remain in position only as long as is necessary to ensure a good
transition to the new Chief Executive and whilst the process of identifying my
successor takes place.
Further details of the Board's work are included in the governance and
committee sections of the annual report.
Dividend
At the time of the interim results in August 2021 the Board declared an
interim ordinary dividend of 15.0 pence per share and stated its intention to
return to a full-year ordinary dividend that is around two times covered by
underlying earnings after taxation (profit after tax excluding exceptional
items). In line with this ordinary dividend policy, the Board intends to
recommend at the AGM a final dividend of 42.0 pence per share (2020: nil),
giving a total ordinary dividend for the year of 57.0 pence (2020: nil).
Going forward our dividend policy will continue to target a progressive
ordinary dividend, normally around two times covered by profit after taxation,
with further surplus cash being returned to shareholders as appropriate.
Having taken into account our strong balance sheet position and the Company's
investment and working capital requirements, and the intention to maintain our
progressive ordinary dividend policy, the Board has declared an additional
special dividend of 40.0 pence per share (2020: nil), to be paid in April.
Our Finance Director, Richard Hutton, outlines the expected application of the
distribution policy in more detail in the financial review.
Looking ahead
Greggs has once again demonstrated its resilience and the cash-generative
nature of its business model. It is a great business with an excellent team,
and although short-term trading conditions remain challenging we have great
confidence in the opportunities that lie ahead and strong liquidity to support
our investment plan that will unlock further growth.
Ian Durant
Chair
8 March 2022
Chief Executive's Report
In a second year dominated by disruption due to Covid, our teams once again
coped magnificently with unprecedented and rapidly-changing conditions. We
set out at the beginning of the year to show that we could not only cope with
Covid, but emerge from this crisis both stronger and better as a business.
Our results and achievements in 2021 show that we achieved both those
ambitions, and I would like to take this opportunity to, once again, thank all
of our teams across the country who rose so well to meet these challenges.
Adapting to the unexpected
We began the year with the country in lockdown, but with safe operating
practices in place we were able to continue trading, albeit with restricted
customer footfall in many areas. In a foretaste of things to come we faced
the first of many unpredictable disruptions when new regulations in Scotland
left us with no option but to close our shops there as we developed new
solutions to protect our colleagues, who were required to serve from our
doorways. Our Scottish teams worked tirelessly to redesign our operating
procedures so that we could open again.
Thankfully, conditions eased in the spring as first non-essential retail, and
subsequently the seated hospitality sector, were allowed to open their doors
again. In that period we saw customer footfall returning in traditional
locations, although not to pre-Covid levels, with customers remaining
cautious. Nevertheless, demand in our walk-in channel rose sufficiently
alongside strong delivery sales to see us return to positive total
like-for-like sales growth in the second quarter when compared to 2019, which
was ahead of our expectations. We had done well to accelerate our services
in the delivery channel as Covid struck and, now that walk-in footfall was
returning, delivery demand was proving to be largely incremental to this,
extending the reach of our shops beyond customers passing by.
Our battle with Covid took a new turn in the summer, when employee absence
climbed dramatically as the test and trace system imposed increased levels of
isolation for those encountering the virus. Pressure on our teams increased
again with high levels of absence combined with a tightening labour market,
making recruitment more difficult as we sought to fill vacancies and create
new teams for our shop opening programme. While absence levels settled down
later in the autumn, the recruitment challenge became more difficult with key
skill shortages, particularly for drivers in our supply chain.
Employee absence and skill shortages also contributed to the broader
challenges we were experiencing in our supply chain. With a recovering
global economy seeing demand exceed supply in many areas, unpredictable supply
shortages became a daily feature of our operations. Part of our response was
to return to focusing on our best-selling lines, and to restrict our programme
of new product launches.
Despite all these challenges we continued to deliver positive
like-for-like-sales growth with travel restrictions creating a 'staycation'
tailwind in the summer. Some of that momentum fell back in the autumn as VAT
support reduced, followed by a step back in customer footfall approaching
Christmas as new Covid guidance saw a return to working from home.
In my long retail career I have never experienced such high levels of
prolonged disruption to operations, and we owe our success last year to the
commitment and willingness of our teams to work around these problems. We
chose to recognise that effort by bringing forward our annual pay award for
all our operational teams by five months from 2022 into 2021, both as a
special thank you, but also to help us recruit additional support for them by
increasing our attraction in the labour market as we entered the new year.
Financial results
Total sales grew to a record £1,229.7 million in 2021 (2020: £811.3 million,
2019: £1,167.9 million), a 5.3% increase on the level seen in 2019. Within
this, company-managed shop like-for-like sales were 3.3% lower than the
equivalent period in 2019, with sales growth returning following the lifting
of restrictions seen in the first quarter.
Pre-tax profit for the year was £145.6 million (2020: £13.7 million loss,
2019: £108.3 million profit). As a result of the return to profitability we
are able to recommence our long tradition of sharing ten per cent of our
profits with colleagues each year and in March 2022 we will share £16.6
million with our people as a result of our performance in 2021. We finished
2021 with a very strong cash position that will support our ambitious plans to
invest for further growth, as outlined below, as well as the recommencement of
dividend payments to our shareholders.
Coming back stronger
Having demonstrated our resilience in coping with all that these two years of
crisis have thrown at us, we were determined to demonstrate that we could come
back stronger as a business. While Greggs has enjoyed tremendous success in
recent years as we sought to become the customer's favourite for
food-on-the-go, our journey is far from over. In October we held a Capital
Markets Day for shareholders and investors in which we set out our ambitious
plan to double sales over the next five years. The fundamental strategic
pillars of our business model have not changed but we have identified four key
growth drivers which will become the focus of our plan to reach our full
potential in the years ahead.
Growing and developing the Greggs estate
In restarting our shop opening programme following the initial impact of
Covid, we set out a new ambition to reach at least 3,000 shops as the next
target against which to plan supply chain capacity. Covid has led to a
significant increase in the availability of retail property, creating an
opportunity for Greggs to accelerate its shop opening programme. In 2021
Greggs opened 131 new shops and closed 28, growing the estate to 2,181
shops. Our new shop pipeline is in good shape and we have increased our
annual shop-opening target to 150 net new shops, effective from the start of
2022, to take advantage of these conditions.
The versatility of our brand allows us to operate a full range of formats, and
new digital channels enable us to extend the reach of each location to more
customers. We have good representation in traditional towns and suburban
locations and are therefore continuing to focus our efforts on new on-the-go
locations where people work, travel and/or access by car. Central London is
one geographic region where lower rents now allow entry for value-led brands,
and we have a strong pipeline in development. Openings in 2021 included our
first shops in Canary Wharf and Kings Cross Station, together with several
standalone 'drive thru' shops.
Franchise partners play an important role in providing access to otherwise
restricted locations. We currently have 375 franchise locations with twelve
corporate partners, and expect franchise shops to account for around 20% of
our estate in the years ahead. Our wholesale partnership with Iceland sits
outside of our shop estate, but increases the reach of our brand to compete in
the at-home grocery market where we have enjoyed strong sales growth, with
further scope for range development.
In 2022 we will also begin our next generation of shop refits, which will see
us create dedicated space for digital channels and increased capabilities in
food preparation in around 200 shops. We will also continue to improve the
quality of our estate through relocations, seeking larger, better premises
offering more channels, and coffee shop seating where appropriate.
Evening trade
In addition to new shops, we have a strategic opportunity to extend the
trading hours in many of our shops to compete for food-on-the-go sales in the
evening. Market research shows that sales after 4pm accounted for 35% of
food-to-go sales in 2021, the largest proportion of the market by time of
day. Greggs shops typically close at around 6pm and therefore we currently
account for just 1% by value of this 'dinner time' market compared with nearly
8% of the lunchtime market and 11% of the breakfast market (source: NPD/Crest
2021).
With 86% of demand in this dinner time market being 'take out' in nature,
Greggs is well positioned to compete for sales provided we can tailor our menu
to meet customer expectations at that time of day. Market research shows
that we are not starting from a zero base, with over 30% of customers surveyed
believing our existing menu has options suited to the evening.
Initial trials in 100 shops show that by combining walk-in with delivery
sales, offering the existing menu, we can already grow the evening daypart to
an average of 17% of daily sales. In 2022 we will extend late opening (with
delivery service) to a total of 500 shops, including our hot food menu trials
and supported with marketing activity.
Digital channels
We set out to develop digital channels to market in 2019, which meant that
when the pandemic hit in 2020 we were in a position to rapidly accelerate our
plans. During the year we rolled out delivery with our partners Just Eat
from 600 to 1,000 shops nationwide. While there is some small level of
switching between channels, delivery sales remained strong and accretive when
walk-in sales increased again, extending the reach of our shops beyond just
customers who are passing by. Delivery offers the added attraction of
serving multiple customers in one order, with average basket sizes at three
times the walk-in levels.
We can reach more customers still by rolling out delivery to more shops,
increasing capacity and improving our operational procedures to fulfil
demand. In 2022 we plan to roll out this service to a further 300 shops,
resulting in 1,300 shops offering delivery by the end of the year. The
increased reach from delivery will also be key to accelerating our plans for
later opening. A significant proportion of market demand for delivery comes
post-5pm, and we estimate that the combination of walk-in and delivery will
make two thirds of our shops viable for late trading over time.
Beyond delivery, we believe digital channels open new opportunities for Greggs
to compete more effectively at all times of day. As a daily sell-out fresh
food business, Click + Collect offers customers the ability to easily browse
our menu, guarantee availability, skip the queues and ultimately personalise
their order. In 2021, we integrated our Click + Collect service with our new
Greggs App, and 2022 will see us begin to promote these services to our
customers.
Greggs already offers a made-to-order service which is the core of our
breakfast sandwich offer. Digital channels will allow us to extend this option
to other categories. In 2022, we will begin trials with pizza toppings
before moving onto baguettes. Made-to-order will extend product choice from
the existing ingredient list, encourage customers to trade up, speed up
service by removing payment at the till and has the potential to reduce waste.
Making Greggs mean more to more people
We have successfully repositioned the Greggs brand in recent years to become
recognised as the customers' favourite for food-on-the-go. Market research
shows that we operate in a growing market, but that we account for less than
7% of customer visits (source NPD/ Crest) and that three quarters of our App
customers visit Greggs less than once a week. Digital engagement with
customers can help us communicate how Greggs can mean more things to more
people, so that we can be a brand considered by more people, more of the time,
in more places and at all times of day when they need food-on-the-go.
In 2021, we launched our new Greggs App offering a market-leading reward
scheme and integrating Click + Collect services. Downloads of the new App
are now in excess of one million and digital engagement tools will be deployed
at scale in 2022 to drive visit frequency and average transaction values.
Existing customers will be encouraged to sign up to the App and in addition,
we will partner with strategic brands to grow our customer base.
Investing in our supply chain and systems for a bigger business.
Over recent years, Greggs has transformed its supply chain and systems
infrastructure to become a centralised food-on-the-go business. By making
better use of space and investing in centralised automation we have delivered
a step-change improvement in the quality of our products and our supply chain
cost structure. This has created a template on which to build additional
capacity as the business continues to grow.
Our ambition to double sales revenues will require investment in both our
manufacturing and logistics capacity. In 2021 we successfully opened our new
automated frozen distribution centre in Newcastle, completed the building
extension work at our Treforest bakery in Wales and increased capacity in our
savoury plant at Balliol Park in Newcastle. In addition, new SAP systems
were successfully rolled out to an additional six of our manufacturing and
distribution centres, with the final two locations to be completed this year.
Work is now underway to confirm optimal locations for future investment in
capacity including considering a southern-based manufacturing centre and
additional primary and radial logistics capacity.
Building a centralised business model has required a transformational
investment in systems. Our multi-year implementation of SAP is almost
complete, and we have accelerated our digital transformation programme. In
2021, we increased capacity and resilience in our IT network and migrated our
business intelligence solution to Microsoft Power BI. With this new platform
in place, we see significant opportunities to grow our digital capabilities
and enable more efficient operations, which will drive a programme of
continuous improvement as the business grows.
In 2021 we successfully implemented our new sandwich labelling system to
comply with Natasha's Law, safeguarding customers with allergies. This was a
massive cross-functional team effort deployed on time across all shops,
despite major supply chain and Covid disruption. It will now provide the
platform to develop our made-to-order services offering product
personalisation.
Coming back better - The Greggs Pledge
In addition to coming back stronger as a business, we were determined that we
should also come back better, so in February 2021 we launched The Greggs
Pledge. Ever since John Gregg founded the business in 1939, we have always
tried to do the right thing by our people, customers, suppliers and
communities. These values are at the heart of our culture and so it is natural
that we want to conduct our business in a responsible manner.
The Greggs Pledge commits us to ten things that we're doing to help make the
world a better place by 2025 - and beyond. We arrived at these pledges by
talking with our own people and our external stakeholders, and by considering
the issues that are most relevant to our business. Our pledges align with the
ambitions of the UN Sustainable Development Goals (SDGs).
We have chosen to concentrate our efforts on the challenges where we think we
can make the most difference:
We want to help build stronger, healthier communities
Even before the pandemic ravaged our economy, far too many people were
struggling with poverty and hunger in this country. The Greggs Breakfast
Clubs feed around 44,000 children every school day and we will continue to
grow the scheme. We are also doing what we can to ensure that perfectly good
food doesn't get wasted, but instead gets to people who need it. We
recognise that poor nutrition is another issue where we have a role to play
and are doing more to guide our customers towards healthier choices.
We want to make our planet safer
The impact of unchecked climate change would be catastrophic. We want to make
Greggs a carbon-neutral, zero-waste business. We actively support the BRC's
Climate Action Roadmap which aims to make the UK's retail industry net zero,
well ahead of the Government's 2050 target. In addition, we are reducing our
use of packaging, looking at how we can apply 'circular economy' thinking to
our business and working with our suppliers to make efficient use of
resources.
We want to be a better business
The corporate world can be a powerful force for good when it is guided by a
moral compass. As well as continuing to support our communities by paying our
taxes and providing thousands of fairly-paid jobs, we are redoubling our
efforts to make Greggs a great place to work. We are also setting high
standards for what we purchase, encouraging our suppliers to raise their game
too.
We will give back to the communities that support us and take less from the
environment that we all rely on. We want Greggs to play a meaningful role, not
just in getting Britain back on its feet but in getting us to a better
place. We made good progress in 2021 achieving the majority of the targets
set out in our pledge which are reported in detail in our separate
sustainability report
Looking forward
As I approach retirement, this will be my final year as Chief Executive of
Greggs and it has been my privilege to have led this business for the past
eight years, setting us on a new course to become the customers' favourite for
food-on-the-go. In that time, I have tried my best to change the things that
needed changing but more importantly to protect and nurture those things that
shouldn't change - most importantly, the culture: the 'what makes Greggs,
Greggs'.
Every business needs to constantly evolve to stay relevant for its customers
and for that it needs the right strategic plan, but that is only part of the
story. The main risk in leading a growing business is that change is poorly
managed, resulting in the organisation undermining its culture and values that
have taken decades to develop, earning the trust of colleagues and customers
alike. That is why I am delighted that Roisin Currie has been appointed as
my successor, because in working alongside her for many years, I know that she
embodies our values and will continue to protect them as she leads the
business to meet the exciting growth opportunities that lie ahead.
We have started 2022 well, helped by the easing of restrictions. Against a
very low base in 2021, when the UK was in a more restrictive period of
lockdown, company-managed like-for-like sales in the first nine weeks of 2022
have grown by 44.2%. On a two-year basis, which we reported throughout 2021,
company-managed like-for-like sales in the first nine weeks were 3.7% higher
than the equivalent period of 2020.
Cost pressures will be a particular feature of the year ahead, with inflation
impacting on raw materials, energy and people costs, and these pressures are
currently more significant than our initial expectations. As ever, we will
work to mitigate the impact of this on customers, protecting Greggs'
reputation for exceptional value in the freshly-prepared food-to-go market.
Given this dynamic, we do not currently expect material profit progression in
the year ahead.
Despite these near-term pressures, we continue to believe that the
opportunities for Greggs have never been more exciting. Our investment over
recent years has left the business well-placed to move quickly as the economy
recovers and we drive our ambitious plans to become a larger, multi-channel
business.
Roger Whiteside OBE
Chief Executive
8 March 2022
Financial review
Greggs came back strongly in 2021, restoring profitability and increasing the
pace of growth in the shop estate. With comparatively modest capital
expenditure in 2021 the Group's cash position is very strong. This will be
put to use in 2022 as we pursue our ambitious growth plans whilst investing
further in the sustainability of the business and enhancing returns to
shareholders.
2021 2020 2019
£m £m £m
Revenue 1,229.7 811.3 1,167.9
Operating profit / (loss) 153.2 (7.0) 114.8
Net finance expense (7.6) (6.7) (6.5)
Profit / (loss) before tax 145.6 (13.7) 108.3
Income tax (28.1) 0.7 (21.3)
Profit / (loss) after tax 117.5 (13.0) 87.0
Sales
Total Group sales for the 52 weeks ended 1 January 2022 were £1,229.7 million
(2020: £811.3 million, 2019: £1,167.9 million). Sales continued to be
affected by Government restrictions in the first quarter of the year but
progressively improved as conditions eased. The comparative sales results
for 2020 were significantly impacted by the closure of the Greggs shop estate
for most of the second quarter therefore we have continued to report 2021
financial performance relative to the 2019 level.
Reporting 'like-for-like' sales (sales in company-managed shops with more than
one calendar year's trading history) is a key alternative performance measure
for Greggs, as it shows underlying estate sales performance excluding the
impact of new shop openings and closures. In reporting like-for-like sales
in 2021 we have compared our performance with the equivalent period of 2019,
generating a 'two year like-for-like' KPI. The results across 2021 reflected
the difficult conditions at the start of the year, followed by a strong
recovery and then the impact of the Omicron variant and VAT increase in the
fourth quarter:
Q1 Q2 Q3 Q4 2021
Company-managed like-for-like sales compared with 2019 level (21.5%) 2.8% 3.5% 0.8% (3.3%)
Total group revenue reflects sales from company-managed shops, which include
delivery sales, and sales through business-to-business (B2B) channels with our
franchise and wholesale partners. Whilst year-on-year comparisons are
distorted by the closure period in Q2 2020, both company-managed and B2B sales
developed through the year as customer numbers recovered and we grew the size
of the shop estate. We are still learning how delivery sales behave
seasonally and under different trading conditions. Absolute delivery sales
were strongest in the second quarter of the year and reduced slightly in the
fourth quarter. The primary driver of B2B sales growth continues to be
expansion of the franchised shop estate.
Q1 Q2 Q3 Q4 2021
£m £m £m £m £m
Company-managed shop sales 209 280 299 311 1,099
[£m relating to delivery channel] 19.7 21.8 20.9 18.5 80.7
B2B sales 27 30 35 39 131
Total revenue 236 310 334 350 1,230
Profit for the year
Profit before tax in 2021 was £145.6 million (2020: £13.7 million loss,
2019: £108.3 million profit). There were no exceptional items (2020: £0.8
million charge, 2019: £5.9 million charge).
Overall wage and salary cost inflation was 3.0% in 2021. The planned 2022
pay increase for operational teams was brought forward by five months, adding
£4.5 million to costs in 2021. Looking forward, as a result of the latest
pay awards overall wage and salary inflation is expected to be approximately
4.3% in 2022. In addition, the rate of National Insurance on wages and
salaries is due to increase by 1.25% from April 2022.
As expected, the rate of food, packaging and energy cost inflation increased
towards the end of the second half of 2021 as forward contracts were renewed,
and in the year ahead we expect that cost inflation in these areas will
increase further. In addition the restoration of the full rate of VAT on hot
food and drink sales will be effective from the start of April 2022.
Shop occupancy costs continue to improve as we negotiate rent reductions on
renewal of our commitment to leased properties. Greggs strong covenant is
attractive to the landlords of shop premises and this is an important factor
in gaining access to new catchments as well as improving our cost ratios where
we already trade. In 2021 the ratio of IFRS16 'right of use' charges on
leased property assets to company-managed shop sales was 4.9%, down from 5.1%
in 2019, and we expect this ratio to improve further in the year ahead.
Taken together, the impact of inflation in employment and other input costs is
expected to result in a cost inflation headwind of around 6-7% in 2022. A
proportion of this is forward-covered but the outlook for many commodity costs
remains uncertain. This has necessitated some price increases, which were
made at the start of this year, and further changes are expected to be
necessary. Our competitive pricing position is strong and, as ever, we will
be protective of Greggs reputation for outstanding value for money in managing
this inflationary environment.
As we reported at the half year stage, the improved performance and trading
outlook of our shops resulted in us deciding to repay all Coronavirus Job
Retention Scheme ('CJRS') support claimed in the first half of 2021, a total
of £4.9 million. The sector-wide business rates relief for retail,
hospitality and leisure businesses temporarily reduced costs by £14.9 million
in the first half of the year.
The improved performance and trading outlook for our shops resulted in the net
reversal of £2.2 million of previously-provided shop asset impairment
charges. A further £1.3 million of impairment has been released in respect
of land and bakery plant & machinery which is no longer considered to be
impaired.
Financing charges
The net financing expense of £7.6 million in the year (2020: £6.7 million,
2019: £6.5 million) comprised £6.3 million in respect of the IFRS 16
interest charge on lease liabilities, £1.1 million of facility charges under
the Company's (undrawn) financing facilities and £0.2m relating to the
Company's defined benefit pension scheme and foreign exchange losses.
Taxation
The Company has a simple corporate structure, carries out its business
entirely in the UK and all taxes are paid here. We aim to act with integrity
and transparency in respect of our taxation obligations.
The Group's overall effective tax rate on profit in 2021 was 19.3% (2020: 5.2%
rate on losses, 2019: 19.7% rate on profit). The effective rate on profit in
the year reflects the revaluation of deferred tax balances resulting from the
expected increase in the Corporation Tax rate from April 2023 and additional
"super-deductions" relating to capital expenditure in 2021.
The impact of super-deduction capital allowances will affect the Group's
effective rate of taxation in 2022. We expect the effective rate for 2022 to
be around 17.5% and the effective rate for 2023 to be around 24.0%. Going
forward the effective rate is expected to be around 1.0% above the headline
corporation tax rate; this is principally because of disallowed expenditure
such as depreciation on non-tax-deductible qualifying properties and costs of
acquisition of new shops.
Earnings per share and dividend
Diluted earnings per share in 2021 were 114.3 pence (2020: 12.9 pence loss per
share, 2019: 85.0 pence earnings per share).
The Board recommends a final ordinary dividend of 42.0 pence per share (2020:
nil). Together with the interim dividend of 15.0 pence (2020: nil) paid in
October 2021, this makes a total ordinary dividend for the year of 57.0 pence
(2020: nil). This is covered two times by diluted earnings per share in line
with our progressive ordinary dividend policy, which aims to increase the
dividend in line with growth in earnings per share.
The ordinary dividend is set at a level designed to provide capacity for the
Group to invest in the many attractive opportunities for further growth. In
situations where the Board concludes that the cash position is above the level
required to support the Group's investment and working capital needs its
policy is to make an additional return to shareholders by way of a special
dividend. In application of this policy the Board has declared a special
dividend of 40.0 pence per share, to be paid on 29 April 2022 to shareholders
on the register at 25 March 2022.
Subject to the approval of shareholders at the Annual General Meeting, the
final dividend will be paid on 20 May 2022 to shareholders on the register at
19 April 2022.
Balance sheet
Capital expenditure
We invested a total of £57.4 million (2020: £58.7 million, 2019: £86.0
million) in capital expenditure during 2021. In addition to expenditure on
new shops, key projects included the roll out of new coffee machines as we
extend our capabilities in hot drinks, the completion of the Balliol Park
automated cold store and investments in increased capacity for savoury and
pizza production. Retail estate expenditure continued to be relatively low
and will increase in 2022 as we increase the rate of company-managed shop
openings and recommence the shop refurbishment programme.
Depreciation and amortisation on property, plant and equipment and intangibles
in the year was £58.7 million (2020: £60.8 million, 2019: £59.9 million).
A further £48.7 million (2020 £51.9 million, 2019: £50.8 million) of
depreciation was charged in respect of right-of-use assets as a result of
capitalised leases.
At our Capital Markets Day event in October 2021 we outlined ambitious targets
to double turnover over the next five years. As well as investing in a
faster rate of estate growth the plans require additional capacity in our
manufacturing and logistics network. Our plans for 2022 include capital
expenditure of around £170 million as we increase the pace of shop
investment, invest in a new site to be the focus of our capacity expansion for
southern England, and add further manufacturing capacity to our savoury
manufacturing plant at Balliol Park in Newcastle upon Tyne. The required
investment is planned to be funded from our existing cash reserves and future
operational cash generation.
Management of return on capital
We manage return on capital against predetermined targets and monitor
performance through our Investment Board, a management committee where all
capital expenditure is subject to rigorous appraisal before and after it is
made. For investments in new shops we target an average cash return on
invested capital of 25%, with a hurdle rate of 22.5%, over an average
investment cycle of eight years. Other investments are appraised using
discounted cash flow analysis. With market conditions for the acquisition of
shop sites being favourable we have been active in sourcing opportunities in
locations such as transport hubs and in central London. Some of these sites
will trade below their mature level in the short term but are expected to
strengthen as the impact of the pandemic recedes.
Working capital
We ended the year with Group net current assets of £59.2 million (2020: net
current liabilities of £45.4 million, 2019: net current liabilities of £66.4
million), the result of carrying a closing cash and cash equivalents position
of £198.6 million (2020: £36.8 million, 2019: £91.3 million). Excluding
cash and cash equivalents, net current liabilities have increased from £82.2
million to £139.4 million over the year. This reflects the increase in
trade and other payables as turnover levels have recovered over the past year,
reversing the outflow experienced in 2020.
Pension scheme
The net liability shown on the balance sheet for the Company's closed defined
benefit pension scheme was £2.4 million at the end of 2021 (2020: £11.9
million net liability). The improvement in the balance sheet position was
mainly as a result of the increase in the discount rate applied to future
liabilities. The scheme underwent a full actuarial revaluation in 2020, the
results of which showed a deficit in funding. The Company is making
additional contributions of £2.5 million each year from 2022 to 2026 to
ensure that any funding requirements are met over the medium term as the
scheme works towards full de-risking.
Cash flow and capital structure
The net cash inflow from operating activities after lease payments in the year
was £236.5 million (2020: £1.5 million, 2019: £169.5 million). At the end
of the year the Group had net cash and cash equivalents of £198.6 million
(2020: £36.8 million, 2019: £91.3 million).
In normal circumstances the Group aims to maintain a year-end net cash
position of around £50 million to allow for seasonality in our working
capital cycle and to protect the interests of all creditors. The current
cash position is clearly above this level, reflecting the strength of
performance in 2021 and some short-term beneficial changes to working
capital. With a significant capital expenditure programme ahead it is
appropriate to carry an above-normal level of cash into 2022; however the
Board's assessment is that the Group is in a position to make an additional
distribution to shareholders of £40.6 million. As indicated above, the
Board proposes to do so by way of a special dividend.
The Company's revolving credit facility, which runs to December 2024, allows
it to draw up to £100 million in committed funds, subject to it retaining a
minimum liquidity of £30 million (i.e. maximum net borrowings are £70
million). This facility is designed to provide protection to the business
should it experience significant interruptions to trading.
With a strong cash position and committed facilities the Company is in a
position to invest in its growth plans whilst supporting its many stakeholders
and enhancing shareholder returns.
Richard Hutton
Finance Director
8 March 2022
Greggs plc
Consolidated income statement
for the 52 weeks ended 1 January 2022 (2020: 53 weeks ended 2 January 2021)
2021 2020
£m £m
Revenue 1,229.7 811.3
Cost of sales (447.7) (300.4)
Cost of sales excluding exceptional items (447.7) (299.6)
Exceptional items - (0.8)
________ ___________
Gross profit 782.0 510.9
Distribution and selling costs (567.6) (465.8)
Administrative expenses (61.2) (52.1)
________ ________
Operating profit/(loss) 153.2 (7.0)
Finance expense (net) (7.6) (6.7)
________ ________
Profit/(loss) before tax 145.6 (13.7)
Income tax (28.1) 0.7
________ ________
Profit/(loss) for the financial year attributable to equity holders of the
Parent
117.5 (13.0)
======= =======
Basic earnings/(loss) per share 115.7p (12.9p)
Diluted earnings/(loss) per share 114.3p (12.9p)
Greggs plc
Consolidated statement of comprehensive income
for the 52 weeks ended 1 January 2022 (2020: 53 weeks ended 2 January 2021)
2021 2020
£m £m
Profit/(loss) for the financial year 117.5 (13.0)
Other comprehensive income
Items that will not be recycled to profit and loss:
Remeasurements on defined benefit pension plans 7.1 (11.2)
Tax on remeasurements on defined benefit pension plans (1.7) 2.1
________ ________
Other comprehensive income for the financial year, net of income tax 5.4 (9.1)
________ ________
Total comprehensive income for the financial year 122.9 (22.1)
======= =======
Greggs plc
Consolidated Balance Sheet
at 1 January 2022 (2020: 2 January 2021)
2021 2020
£m £m
ASSETS
Non-current assets
Intangible assets 14.9 15.6
Property, plant and equipment 343.8 345.3
Right-of-use assets 263.6 270.1
________ ________
622.3 631.0
Current assets
Inventories 27.9 22.5
Trade and other receivables 37.6 39.4
Assets held for resale 1.6 -
Current tax 0.4 -
Cash and cash equivalents 198.6 36.8
________ ________
266.1 98.7
________ ________
Total assets 888.4 729.7
________ ________
LIABILITIES
Current liabilities
Trade and other payables (153.4) (91.1)
Lease liabilities (49.3) (48.6)
Provisions (4.2) (4.4)
________ ________
(206.9) (144.1)
Non-current liabilities
Other payables (3.2) (3.7)
Defined benefit pension liability (2.4) (11.9)
Lease liabilities (233.9) (243.1)
Deferred tax liability (10.0) (2.3)
Long-term provisions (2.8) (3.0)
________ ________
(252.3) (264.0)
________ ________
Total liabilities (459.2) (408.1)
________ ________
Net assets 429.2 321.6
======= =======
EQUITY
Capital and reserves
Issued capital 2.0 2.0
Share premium account 20.0 15.7
Capital redemption reserve 0.4 0.4
Retained earnings 406.8 303.5
________ ________
Total equity attributable to equity holders of the Parent 429.2 321.6
======= =======
Greggs plc
Statements of changes in equity
for the 52 weeks ended 1 January 2022 (2020: 53 weeks ended 2 January 2021)
53 weeks ended 2 January 2021
Attributable to equity holders of the Company
Issued capital Share premium Capital redemption reserve Retained earnings Total
£m £m £m £m £m
Balance at 29 December 2019 2.0 13.5 0.4 325.2 341.1
Total comprehensive income for the year
Loss for the financial year - - - (13.0) (13.0)
Other comprehensive income - - - (9.1) (9.1)
________ ________ ________ ________ ________
Total comprehensive income for the year - - - (22.1) (22.1)
Transactions with owners, recorded directly in equity
Issue of ordinary shares - 2.2 - - 2.2
Sale of own shares - - - 1.5 1.5
Purchase of own shares - - - (0.5) (0.5)
Share-based payment transactions - - - 0.9 0.9
Dividends to equity holders - - - - -
Tax items taken directly to reserves - - - (1.5) (1.5)
________ ________ ________ ________ ________
Total transactions with owners - 2.2 - 0.4 2.6
________ ________ ________ ________ ________
Balance at 2 January 2021 2.0 15.7 0.4 303.5 321.6
======= ======= ======= ======= =======
Greggs plc
Consolidated statement of changes in equity (continued)
52 weeks ended 1 January 2022
Attributable to equity holders of the Company
Issued capital Share premium Capital redemption reserve Retained earnings Total
£m £m £m £m £m
Balance at 3 January 2021 2.0 15.7 0.4 303.5 321.6
Total comprehensive income for the year
Profit for the financial year - - - 117.5 117.5
Other comprehensive income - - - 5.4 5.4
________ ________ ________ ________ ________
Total comprehensive income for the year - - - 122.9 122.9
Transactions with owners, recorded directly in equity
Issue of ordinary shares - 4.3 - - 4.3
Sale of own shares - - - 0.3 0.3
Purchase of own shares - - - (10.0) (10.0)
Share-based payment transactions - - - 2.2 2.2
Dividends to equity holders - - - (15.3) (15.3)
Tax items taken directly to reserves - - - 3.2 3.2
________ ________ ________ ________ ________
Total transactions with owners - 4.3 - (19.6) (15.3)
________ ________ ________ ________ ________
Balance at 1 January 2022 2.0 20.0 0.4 406.8 429.2
======= ======= ======= ======= =======
Greggs plc
Consolidated statement of cashflows
for the 52 weeks ended 1 January 2022 (2020: 53 weeks ended 2 January 2021)
2021 2020
Restated
(see Note 1)
£m £m
Operating activities
Cash generated from operations (see page 23) 312.1 61.6
Income tax paid (19.2) (10.7)
Interest paid on lease liabilities (6.3) (6.5)
Interest paid on borrowings and other related charges (1.1) (0.8)
________ ________
Net cash inflow from operating activities 285.5 43.6
________ ________
Investing activities
Acquisition of property, plant and equipment (50.5) (58.8)
Acquisition of intangible assets (3.8) (2.8)
Proceeds from sale of property, plant and equipment 0.3 1.8
Interest received - 0.6
________ ________
Net cash outflow from investing activities (54.0) (59.2)
________ ________
Financing activities
Proceeds from issue of share capital 4.3 2.2
Sale of own shares 0.3 1.5
Purchase of own shares (10.0) (0.5)
Proceeds from loans and borrowings - 150.0
Dividends paid (15.3) -
Repayment of loans and borrowings - (150.0)
Repayment of principal on lease liabilities (49.0) (42.1)
________ ________
Net cash outflow from financing activities (69.7) (38.9)
________ ________
Net Increase/(decrease)in cash and cash equivalents 161.8 (54.5)
Cash and cash equivalents at the start of the year 36.8 91.3
________ ________
Cash and cash equivalents at the end of the year 198.6 36.8
======= =======
Cash flow statement - cash generated from operations
2021 2020
£m £m
Profit/(loss) for the financial year 117.5 (13.0)
Amortisation 4.5 4.0
Depreciation - property, plant and equipment 54.2 56.9
Depreciation - right-of-use assets 48.7 51.9
Impairment reversal - property, plant and equipment (1.9) 5.2
Impairment reversal- right-of-use assets (1.6) 8.8
Loss on sale of property, plant and equipment 0.9 0.5
Release of Government grants (0.5) (0.5)
Share-based payment expenses 2.2 0.9
Finance expense 7.6 6.7
Income tax expense 28.1 (0.7)
(Increase)/decrease in inventories (5.4) 1.4
Decrease/(increase) in receivables 1.8 (12.3)
Increase/(decrease) in payables 58.9 (48.2)
Decrease in provisions (0.4) -
Decrease in pension liability (2.5) -
________ ________
Cash from operating activities 312.1 61.6
======= =======
Greggs plc
Notes
1. Basis of preparation and accounting policies
The preliminary announcement has been prepared in accordance with
international accounts standards in conformity with the requirements of the
Companies Act 2006 and, as regards the Group accounts, UK-adopted
International Accounting Standards. It does not include all the information
required for full annual accounts.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 1 January 2022 or 2 January 2021 but is
derived from these accounts. Statutory accounts for the 53 weeks ended 2
January 2021 have been delivered to the registrar of companies, and those for
the 52 weeks ended 1 January 2022 will be delivered in due course. The
auditor has reported on those accounts; the audit reports were (i)
unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
The preliminary announcement has been prepared using the accounting policies
published in the Group's accounts for the 53 weeks ended 2 January 2021, which
are available on the Company's website www.greggs.co.uk
(http://www.greggs.co.uk) . From 3 January 2021 the following amendments
were adopted by the Group:
• Amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16: Interest Rate
Benchmark Reform - Phase 2.
Their adoption did not have a material effect on the accounts.
Restatement of comparatives
Due to a drafting error in the preparation of the accounts for the 53 weeks
ended 2 January 2021 the figures in the cash flow statement for the proceeds
from and the repayment of loans and borrowings were incorrectly stated as
£100.0 million. These figures should have been stated as £150.0 million. The
comparative financial information within financing activities for the 53 weeks
ended 2 January 2021 has been restated. The restatement does not impact upon
the overall cash out flow from financing activities or on the net decrease in
cash and cash equivalents for the 53 weeks ended 2 January 2021 as previously
presented.
Going concern
The Directors have considered the adoption of the going concern basis of
preparation for these accounts in the context of recent trading performance,
the impact of the latest variant of Covid-19 and the trading outlook of the
Group. At the end of the reporting period the Group had available liquidity
totalling £268.6 million, comprised of cash and cash equivalents of £198.6
million plus an undrawn revolving credit facility (RCF) (which is committed to
December 2024) of £70.0 million. The RCF includes financial covenants the
Group must comply with related to maximum leverage and a minimum fixed charge
cover.
The RCF was originally put in place in December 2020 to provide liquidity,
specifically in the event of further lockdowns due to the Covid-19 pandemic.
Performance has recovered through 2021 and the Group has not needed to utilise
the RCF at any point.
The Directors have reviewed cash flow forecasts prepared for the period up to
December 2023 as well as covenant compliance for that period. In reviewing the
cash flow forecasts the Directors considered the current trading performance
of the Group and the likely capital expenditure and working capital
requirements of its growth plans. The main uncertainty for the review period
is the possibility of further lockdowns that would limit or prevent the
business from trading. Should such scenarios arise the Directors consider
that the RCF provides significant additional liquidity based on their
experience through the pandemic. The Directors consider the likelihood of a
complete closure scenario to be remote given the widespread vaccination
programme and the demonstrated ability of the sector to operate successfully
in a Covid-secure environment.
After reviewing these cash flow forecasts and considering the continued
uncertainties and mitigating actions that can be taken, the Directors believe
that it is appropriate to prepare the accounts on a going concern basis. After
making enquiries, the Directors are confident that the Company and the Group
will have sufficient funds to continue to meet their liabilities as they fall
due for at least 12 months from the date of approval of the financial
statements. Accordingly, they continue to adopt the going concern basis in
preparing the annual report and accounts.
Judgements and estimates
In preparing this preliminary announcement, management have made judgements
and estimates that affect the application of accounting policies and the
reported amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
Impairment
Property, plant and equipment and right-of-use assets are reviewed for
impairment if events or changes in circumstances indicate that the carrying
value may not be recoverable. For example, shop fittings and right-of-use
assets may be impaired if sales in that shop fall. When a review for
impairment is conducted the recoverable amount is estimated based on either
value-in-use calculations or fair value less costs of disposal. Value-in-use
calculations are based on management's estimates of future cash flows
generated by the assets and an appropriate discount rate. Consideration is
also given to whether the impairment assessments made in prior years remain
appropriate based on the latest expectations in respect of recoverable amount.
Where it is concluded that the impairment has reduced, a reversal of the
impairment is recorded.
The Covid-19 crisis meant that during 2020 all shops had periods of no, or
reduced, sales and was deemed to be an impairment trigger and as a result
assets in company-managed shops were tested for impairment. Sales have
recovered during 2021 but in some locations the level of sales is still below
the 2019 level of sales. As recovery from the pandemic continues, there
remains inherent uncertainty in the rate of sales along with cost pressures
from increasing inflation.
As a result, an impairment review was carried out for the company-managed shop
estate using the following assumptions:
• Shops have been categorised into different catchment
areas (e.g. city centres, transport hubs) and assumptions made on the rate of
like-for-like sales recovery for each catchment;
• Like-for-like sales have been assumed to grow from
December 2021 levels to a level equivalent to the pre-Covid-19 levels (on
average across the estate) by the end of 2022 (excluding the incremental
impact of delivery). Like-for-like sales for the period 2023 to 2026 are
then assumed to grow by an average of 3% per annum.
• Where shops are currently used to fulfil orders for
delivery, or are planned to offer delivery in 2022, the net cash flows for
fulfilling these orders are included within the estimated cash flows for the
shop;
• Earnings before interest, tax, depreciation,
amortisation and rent ('EBITDAR') is used as a proxy for net cash flow
excluding rental payments;
• The discount rate is based on the Group's weighted
average cost of capital ('WACC') with an uplift for risk in the current
environment and at 1 January 2022 was 6.9% (2 January 2021: 6.7%); and
• Consideration of the appropriate period over which to
forecast cash flows, including reference to the lease term. Where considered
appropriate cashflows have been included for periods beyond the lease probable
end date (to a maximum of five years in accordance with IAS36).
On the basis of these calculations and given the improved outlook, a net
impairment release of £2.2 million has been recognised during the current
year (of which £0.6 million relates to fixtures and fittings and £1.6
million relates to right-of-use assets) resulting in an impairment provision
of £4.9 million being retained at 1 January 2022 in respect of 59 shops (of
which £1.6 million relates to fixtures and fittings and £3.3 million relates
to right-of-use assets).
Given the uncertainties of the current trading environment, the sensitivities
of these assumptions on the impairment calculation have been tested:
• A 1% increase in the discount rate would result in an
increased impairment of £0.3 million, with the same number of shops
impaired. A 1% decrease in the discount rate would result in a reduced
impairment of £0.4 million, with one fewer shop impaired.
• A 5% increase in the sales recovery assumption (per
annum) would result in a reduced impairment of £1.6 million with 15 fewer
shops impaired. A 5% decrease in the sales recovery assumption would result
in an increased provision of £2.1 million with an additional 11 shops
impaired.
In addition to the impairment movements resulting from the review of
company-managed shops noted above a further £1.3 million has been released to
the income statement in 2021 in respect of land and bakery plant &
machinery which is no longer considered to be impaired.
2. Segmental analysis
The Board is considered to be the 'chief operating decision maker' of the
Group in the context of the IFRS 8 definition. In addition to its
company-managed retail activities, the Group generates revenues from its
business to business (B2B) channel which includes franchise and wholesale
activities. Both channels were categorised as reportable segments for the
purposes of IFRS 8.
Company-managed retail activities - the Group sells a consistent range of
fresh bakery goods, sandwiches and drinks in its own shops or via delivery
channels. Sales are made to the general public on a cash basis. All results
arise in the UK.
B2B channel - the Group sells products to franchise and wholesale partners for
sale in their own outlets as well as charging a licence fee to franchise
partners. These sales and fees are invoiced to the partners on a credit basis.
All results arise in the UK.
All revenue in 2021 and 2020 was recognised at a point in time.
In the current period the Board has regularly reviewed the revenues and
trading profit of each segment. During 2020 the Board regularly reviewed the
revenues of each segment. However, a review of the trading profit for each
segment was not possible during 2020 as there was no basis on which
meaningfully to allocate costs during the period when company-managed shops
were closed. The Board receives information on overheads, assets and
liabilities on an aggregated basis consistent with the Group accounts.
2021 2021 2021 2020 2020 2020
Retail B2B Total Retail B2B Total
company-managed company-managed
shops shops
£m £m £m £m £m £m
Revenue 1,098.2 131.5 1,229.7 715.3 96.0 811.3
======= ======= ======== ======= ======= ========
Trading profit* 207.1 28.5 235.6 - - 66.4
Overheads including profit share (82.4) (73.4)
________ ________
Operating profit/(loss) 153.2 (7.0)
Finance expense (7.6) (6.7)
_______ _______
Profit/(loss) before tax 145.6 (13.7)
======= =======
* Trading profit is defined as gross profit less supply chain costs and
retail costs (including property costs) and before central overheads.
3. Taxation
Recognised in the income statement
2021 2020
Total Total
£m £m
Current tax
Current year 19.1 (0.6)
Adjustment for prior years (0.2) (0.6)
________ ________
18.9 (1.2)
________ ________
Deferred tax
Origination and reversal of temporary differences 10.2 0.4
Adjustment for prior years (1.0) 0.1
________ ________
9.2 0.5
________ ________
Total income tax expense in income statement
28.1 (0.7)
======= =======
4. Earnings per share
Basic earnings/(loss) per share
Basic earnings per share for the 52 weeks ended 1 January 2022 is calculated
by dividing profit attributable to ordinary shareholders by the weighted
average number of ordinary shares in issue during the 52 weeks ended 1 January
2022 as calculated below.
Diluted earnings/(loss) per share
Diluted earnings per share for the 52 weeks ended 1 January 2022 is calculated
by dividing profit attributable to ordinary shareholders by the weighted
average number of ordinary shares, adjusted for the effects of all dilutive
potential ordinary shares (which comprise share options granted to employees)
in issue during the 52 weeks ended 1 January 2022 as calculated below.
Potential ordinary shares can only be treated as dilutive when their
conversion to ordinary shares would decrease earnings per share or increase
loss per share. As the Group recognised a loss for the 53 weeks ended 2
January 2021, none of the potential ordinary shares were considered to be
dilutive for that period.
Profit/(loss) attributable to ordinary shareholders
2021 2020
Total Total
£m £m
Profit/(loss) for the financial year attributable to equity holders of the 117.5 (13.0)
Parent
======= =======
Basic earnings/(loss) per share 115.7p (12.9p)
Diluted earnings/(loss) per share 114.3p (12.9p)
Weighted average number of ordinary shares
2021 2020
Number Number
Issued ordinary shares at start of year 101,426,038 101,155,901
Effect of own shares held (221,851) (302,104)
Effect of shares issued 284,386 113,334
__________ __________
Weighted average number of ordinary shares during the year 101,488,573 100,967,131
Effect of share options in issue 1,261,311 -
__________ __________
Weighted average number of ordinary shares (diluted) during the year 102,749,884 100,967,131
========= =========
5. Dividends
The following tables analyse dividends when paid and the year to which they
relate:
2021 2020
Per share Per share
pence pence
2021 interim dividend 15p -
======= =======
The special dividend, declared on 8 March 2022, amounts to 40.0 pence (£40.6
million) and the proposed final dividend in respect of 2021 amounts to 42.0
pence (£42.8 million). These dividends are not included as a liability in
these accounts.
2021 2020
£m £m
2021 interim dividend 15.3 -
======= =======
6. Related parties
The Group has a related party relationship with its subsidiaries, associates,
Directors and executive officers and pension schemes.
There have been no related party transactions in the year which have
materially affected the financial position or performance of the Group.
7. Principal risks and uncertainties
Approach to risk management
Understanding and managing our key risks is essential to enabling us to
deliver our strategy and make sound decisions. Risk in the business cannot be
avoided, but should be actively managed to help us to achieve our
objectives. An effective and robust risk management process is fundamental
to protecting the business, our customers and colleagues, and shareholder
value.
Our Board has ultimate responsibility for risk management across the business,
and determines the nature and extent of risk we are prepared to take. The
Audit Committee fulfils elements of the Board's responsibility for risk which
are delegated to it, such as reviewing the effectiveness of the overall
approach, and receiving regular reports on assurance activity. Proactive risk
management is the responsibility of the Risk Committee, which is a committee
of our Operating Board and incorporates senior management representation from
across the business. Throughout the business, the responsibility for
operational management of risks sits within each function.
The Business Assurance function supports with the preparation and review of
the risk registers across the business. The function also supports the Audit
Committee in reviewing the effectiveness of our systems of internal control.
Changes in 2021
Although our risk management approach is well established and embedded in the
business, we have taken the opportunity this year to reflect on our
methodology and look for improvements. We appointed Marsh Advisory, who
helped us to redefine our key risks and update our risk management process.
We have refreshed our strategic risk listing, identifying anything which may
hinder the achievement of our strategic objectives, or our commitments under
the Greggs Pledge. Our risks are categorised into four broad groups -
strategic, operational, financial and legal / regulatory. Each risk is
also linked to the relevant strategic pillars of our plan (including the
Greggs Pledge) which would be impacted if the risk were to occur.
Our new strategic risk register describes the causes and consequences of each
risk, which is allocated to a risk owner from our Operating Board. Key
controls are recorded, and their effectiveness in terms of design and
implementation is assessed. Residual risk is scored in terms of likelihood and
impact, and we retain a trend of historic scoring. Actions taken and
potential further mitigations are also recorded.
We continue to review all of our key strategic risks at each Risk Committee
meeting, to discuss any movement in the risk level, and determine whether any
additional mitigating action is required. Risk owners provide an update on
current and planned activity which may impact on levels of risk. Committee
meetings take place at least three times a year. Where a significant risk is
identified or there is a marked change in exposure, this is raised directly
with the Operating Board to facilitate a timely assessment and response.
Plans for 2022
During the coming year, we plan to transfer our existing functional risk
registers into the same format as that used for our strategic risks, to ensure
consistency across the whole organisation. This will help us to ensure the
"bottom-up" approach for operational risk is clearly linked and aligned to the
"top-down" approach for principal risks. It will also provide a standardised
approach for identifying, measuring and managing risk.
We are developing a risk management tool which will enable us to produce a
series of dashboards and visual representations of our risks. It will also
allow us to capture future planned and potential mitigations more effectively,
to inform our decision making.
Risk appetite
Risk appetite is the level of risk which we are prepared to accept in working
towards our strategic priorities. Significant decisions taken by the
business will always involve an assessment of the level of risk to which we
may be exposed and the risk we are prepared to take.
We will reassess our appetite for risk and formalise our assessment process in
the coming months as part of our ongoing project. The Board will then include
a consideration and approval of our appetite as part of its annual review of
our risk management processes.
Changes to principal risks and our risk profile
Principal risks and uncertainties are those which could result in a threat to
our business model, future performance, solvency or liquidity, or
significantly erode the value of the business. The key changes to principal
risks and our risk profile identified by the Board are as follows:
• Our previously identified risk relating to business
transformation is no longer considered a principal risk, due to the project
nearing completion. The impact of any delay or disruption is therefore
significantly reduced.
• A previous risk relating to third-party relationships has been
refined to focus on our franchise, wholesale and delivery partners.
• We disclosed a risk relating to allergens and associated
labelling requirements in our 2020 Annual Report, in response to the increased
focus on this area and new legislation being introduced. These specific
requirements are now embedded within our standard procedures, and we have
redefined the risk more broadly to acknowledge this.
• The Brexit risk has reduced since our last annual report, when
there was significant uncertainty about the regulatory requirements and
operational disruption. Although we still suffer some operational
challenges, this is now treated as 'business as usual', so no longer merits
disclosure as a principal risk. Similarly, our response to the pandemic is
not a principal risk, as we have established ways of working safely.
However, its ongoing impact is felt through a number of the other principal
risks.
• We are working with our cyber security specialists and other
advisors to improve our management of our cyber and data security risk, due to
the rapidly evolving nature and complexity of the threat. Projects are in
progress across the business to increase our resilience, working towards the
implementation of globally accredited standards. We have robust security
measures in place to protect our network, and provide our teams with the
knowledge and equipment to manage our cyber risk effectively. However, we
consider our exposure to cyber and data security risk to be increased at the
present time compared to that disclosed previously.
Emerging risks
The identification and subsequent management of emerging risks forms a key
component of our risk process. Such risks are raised and discussed at our
Risk Committee meetings and, where appropriate, they are documented in the
strategic risk register and escalated to the Board if the potential impact is
significant.
Emerging risks are identified using the following approaches:
• Horizon scanning by the relevant subject matter
experts in the business;
• Monitoring consumer trends; and
• Taking advice from third parties with whom we work.
Current areas of emerging risks which we are monitoring include climate
change, our Environmental, Social and Governance (ESG) strategy and various
changes to regulation.
Principal risks and uncertainties
The Directors have carried out a robust assessment of the principal and
emerging risks facing the business, focussing on those which would impact our
business model or the achievement of our strategy, or threaten Greggs'
solvency or liquidity.
The following table sets out our principal risks, movement during the year,
and a summary of key developments and mitigations. This does not include all
of our risks, and is not in priority order. Additional risks not presently
known to us, or which we currently consider to be less significant, may also
have a negative impact on the business. The exposure to each of the risks
will change as we take mitigating actions, or as new risks emerge. The
position stated below is a summary of the status at the date of this
preliminary announcement.
What is the risk? Key mitigations Risk category Strategic pillars Movement
Supply chain disruption We have contingency plans in place for our sites which are tested Operational 1,2,3,4,5 Increased
periodically.
There is a risk that we could be subject to a significant business
interruption event impacting key operational locations. Examples include a Our new freezer facility has redundancy built into its design, allowing it to
physical damage incident, a prolonged power outage, or denial of access. continue operating in the event of a breakdown to one of its primary systems,
External supply could also be disrupted, which would have an impact on our If a distribution centre is impacted, we are able to flex up operations at
ability to operate our production sites. other centres to meet demand.
Either of these events would impact our ability to supply our customers. Insurance cover is in place, and we work closely with our insurers throughout
the year.
We avoid single source supply for key ingredients, and implement contingency
plans when necessary.
Deterioration of relationship with key partner We work with respected brands, and have an onboarding process. Strategic 1,2,3,4 Decreased
In addition to our company-managed shops, we also work with key franchise, We have widened the range of partners with whom we are working.
wholesale and delivery partners to help us broaden our service offer. For
this to be effective, we must be fully aligned in our strategy, goals and Contracts and service level agreements are in place.
operation.
Franchise partners are subject to the same audit process as our
company-managed shops.
Ability to attract / retain / motivate people We offer competitive remuneration and benefit packages, and flexible working Operational 1,2,3,4,5 Increased
arrangements.
In an increasingly competitive labour market, we need to be able to offer
opportunities which meet individual needs. Without the right people with Our teams are supported and developed through training and appraisal.
appropriate skills, we are unable to offer the range and service levels which
our customers expect. We may lose talented resource, resulting in increased Opinion surveys and listening groups help us to identify where we can improve
workloads and greater training needs. Our company culture may change as a our approach to recruitment and retention.
result.
Damage to reputation Strategic 2,3 No change
As the business grows, so does the risk of our brand reputation being damaged, Our company-managed shops and those of our franchise partners are subject to
and customer trust being lost if we fail to respond appropriately to an regular audits to make sure that appropriate standards are met.
incident.
We have a robust crisis management process in place.
Our greater digital presence increases this risk due to the speed of public
communication. We work with PR agencies to support us where appropriate.
Working with a wider range of partners also results in greater risk, as we
have less direct control.
Cyber & data security incident Third parties provide expertise and support, including penetration testing. Operational 2,3,4 Increased
A cyber security incident could impact our IT infrastructure, potentially Appropriate technical measures are in place and updated in line with changing
leading to the loss of data. This could cause operational disruption, requirements.
litigation and fines, and reputational damage
We have cyber insurance in place.
Training & education for colleagues, including a planned simulation
exercise for the Operating Board.
We are implementing recognised information security control sets.
Prolonged system downtime / interruption We continue to invest significantly in our IT infrastructure. Operational 2,3,4 No change
Our systems are becoming more integrated and interconnected as we streamline Multiple layers of resilience are built into our SAP system.
the business and increase our reliance on technology. Any system issues
therefore have a much greater impact, potentially resulting in disruption to We work with partners to provide additional expertise when required.
operations and supply into our stores.
Significant food safety incident / product quality issue Internal and external audit and quality assurance monitoring processes are in Operational 1,2,3,4,5 No change
place across our operations.
The products which we sell may be unsafe, or not of the expected quality.
This could be caused by contamination, incorrect allergen labelling, or We audit our key ingredient suppliers, based on the level of risk.
procedures not being followed correctly. This would damage our reputation as
a food retailer, could cause harm to our customers, and affect our financial Defined specifications are in place for all of our manufactured goods to
performance ensure consistency.
Training is provided on a regular basis to our teams.
Complaints are fully investigated to determine the root cause.
Stringent hygiene measures are in place.
Changes in regulatory landscape Regular horizon scanning activities are undertaken Legal / regulatory 1,2,3,4 No change
Our Trade Association involvement and government links allow us to monitor
In an increasingly challenging regulatory environment, we need to be ready to upcoming legislative changes.
adapt quickly to comply with any new legislation. In particular,
environmental and health concerns may result in new requirements being We also monitor new legal requirements including information from industry
implemented, which could require changes to our range. We have greater forums.
exposure in some areas than our competitors.
Significant fines for non-compliance Due diligence controls are in place across the business to monitor our Financial 1,2 No change
compliance.
We are potentially exposed to large fines for legislative breaches across many
parts of our business, such as Health and Safety, transport and environmental Audit processes confirm whether the correct procedures are being followed.
requirements. This would also damage the reputation of the business.
Modern slavery considerations are taken into account when we appoint new
suppliers.
Links to strategic pillars are as follows:
1 Great tasting, freshly prepared food 2 Best customer experience
3 Competitive supply chain 4 First class support teams
5 The Greggs Pledge
8. Alternative Performance Measures
The Group uses alternative performance measures ('APM's) which, although
financial measures of either historical or future performance, financial
position or cash flows, are not defined or specified by IFRSs. The Directors
use a combination of these APMs and IFRS measures when reviewing the
performance, position and cash of the Group. The APMs in respect of
pre-exceptional results are reconciled in the Income Statement and Notes 3 and
5.
Like-for-like (LFL) sales growth - compares year-on-year cash sales in our
company-managed shops, with a calendar year's trading history and is
calculated as follows:
Two-year LFL 2021 v 2019 2021 2020
£m £m £m
Current year LFL sales 981.5 981.5 665.2
Prior year LFL sales 1,015.0 643.9 1,042.2
________ ________ ________
(Decline)/growth (33.5) 337.6 (377.0)
======== ======== ========
LFL sales (decline)/growth percentage (3.3%) 52.4% (36.2%)
Return on capital employed - calculated by dividing profit before tax by the
average total assets less current liabilities for the year.
2021 2020
£m £m
Profit/(loss) before tax 145.6 (13.7)
======= =======
Capital employed:
Opening 585.6 576.8
Closing 681.5 585.6
------------- -------------
Average 633.6 581.2
======= =======
Return on capital employed 23.0% (2.3%)
Notional return on capital employed - calculated by dividing profit before tax
by the average total assets less current liabilities for the year and taking
into account the pre-agreed adjustments in respect of IFRS 16 used by the
Remuneration Committee for determination of incentive outcomes.
2021 2021
As reported IFRS 16 adjustments Notional
£m £m £m
Profit before tax 145.6 4.7 150.3
======= ======= =======
Capital employed
Opening 586.5 (235.4)* 351.1
Closing 681.5 (245.9)* 435.6
------------- -------------
Average 633.6 393.3
======= =======
Return on capital employed 23.0% 38.2%
2020 2020
As reported IFRS 16 adjustments Notional
£m £m £m
Loss before tax (13.7) 5.1 (8.6)
======= ======= =======
Capital employed 576.8 (219.2)* 357.6
Opening 585.6 (235.3)* 350.3
Closing ------------- -------------
581.2 354.0
Average ======= =======
(2.4%) (2.4%)
* These adjustments are based on forecasts made on transition and therefore
cannot be reconciled to the accounts.
Net cash inflow from operating activities after lease payments - calculated by
deducting the repayment of principal of lease liabilities from net cash flow
from operating activities
2021 2020
£m £m
Net cash inflow from operating activities 285.5 43.6
Repayment of principal of lease liabilities (49.0) (42.1)
------------- -------------
Net cash inflow from operating activities after lease payments 236.5 1.5
======= =======
Ratio of IFRS16 'right of use' charges on leased property assets to
company-managed shop sales - calculated by dividing land and buildings
right-of-use asset charges by company-managed shop turnover
2021 2019*
£m £m
Company-managed shop turnover 1,098.2 1,073.8
======= =======
Land and buildings right-of-use assets depreciation 47.7 48.9
Land and buildings right-of-use assets interest charge 6.3 6.5
------------- -------------
Right-of-use asset charges 54.0 55.4
======= =======
4.9% 5.1%
======= =======
*as disclosed in the 2019 annual report and accounts
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