REG - Greggs PLC - Preliminary Results
07/03/2023 07:00
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RNS Number : 0680S Greggs PLC 07 March 2023
7 March 2023
GREGGS PLC
("Greggs" or the "Company")
PRELIMINARY RESULTS FOR THE 52 WEEKS ENDED 31 DECEMBER 2022
Strong performance and good strategic progress with record shop openings
2022 Financial highlights
· Total sales* up 23% on 2021 level to £1,513 million (2021: £1,230
million)
· LFL** sales in company-managed shops up 17.8% year-on-year
· Pre-tax profit up 1.9% to £148.3 million (2021: £145.6 million)
· Robust cash position of £191.6 million supporting plans for future
investment in growth
· Diluted earnings per share 117.5p (2021: 114.3p)
· Final dividend of 44.0p per share recommended, taking total ordinary
dividend per share to 59.0p (2021: 57.0p ordinary dividend***)
* 52 weeks ended 31 December 2022 (2021: 52 weeks ended 1 January 2022)
** like-for-like sales in company-managed shops (excluding franchises)
with a calendar year's trading history
*** 2021 additional special dividend of 40.0p paid
Strategic progress
Growing and developing the Greggs estate:
· Record 186 new shop openings in 2022 and 39 closures (147 net
openings), growing the estate to 2,328 shops as at 31 December 2022
· Continued to expand our presence in retail parks, Central London as
well as key transport hubs, with shops opening in Leicester Square, Liverpool
Street Station and Birmingham and Liverpool airports
· Targeting 150 net openings in 2023; clear opportunity for
significantly more than 3,000 UK shops in time
· Relocated 25 existing shops to better sites in 2022 to support growth
and refurbished 86 existing shops to our latest format
Evening trade:
· 500 shops now open until 8pm or beyond; further development planned
for 2023
· Pizza sales and chicken goujons growing well, including sharing boxes
via delivery service
· Strongest growing daypart is now post-4pm
Digital channels:
· 1,270 shops now operating delivery services, circa 5% of sales
overall
· Delivery volumes normalising as in-store volumes recover post-Covid,
but longer-term opportunity remains intact
· Click + Collect on the Greggs App allows a customer to see our menu,
personalise their order, then skip any queue to pick it up
Broadening customer appeal and driving loyalty:
· Brand health and market share at an all-time high
· Strong growth in the use of the Greggs App as customers value rewards
for loyalty
‒ 1.1 million individual active users of the app in Q4 2022 (Q4
2021: 0.4 million)
· Provides a platform for more personalised engagement, with exclusive
offers and benefits
‒ 8.1% of company-managed shop transactions scanned the Greggs App
for benefits in Q4 2022
Supply chain investment:
· Supply chain investments laying the foundation for Greggs' next phase
of growth
· New pizza manufacturing plant opened in Enfield, additional pastry
savoury capacity at Balliol Park under construction
· Plans for expansion of logistics capacity progressing well
Greggs Pledge ESG targets:
· Near-term science-based emissions reduction targets based on a 1.5ºC
pathway approved by the Science Based Targets initiative
· First Eco-Shop opened, a brand new and bespoke format to test ways to
reduce the environmental impact of our estate
· 789 Breakfast Clubs supported in primary schools across the UK,
serving a free breakfast to 49,000 school children each day
· 30(th) Greggs Outlet shop opened, helping to tackle food waste by
redistributing unsold food items and investing back into local charities
working to tackle food insecurity
· National Equality Standard achieved, recognising progress on
diversity and inclusion
Current trading
· Like-for-like sales in company-managed shops up 18.8% in the first
nine weeks of 2023, in line with our expectations and reflecting the impact of
Omicron in the comparator period
· Confident in prospects for 2023, and the medium-term opportunity to
become a significantly larger multichannel business
Roisin Currie, Chief Executive commented:
"2022 has been a year of strong progress for Greggs, the result of committed
efforts to deliver our strategic growth plan. The significant opportunities
on which the plan is based will remain centre stage in the year ahead as we
make Greggs more accessible to even more customers. Although consumer
incomes remain under pressure, Greggs continues to offer exceptional value to
people looking for great tasting, high-quality food and drink on-the-go.
"We have an exciting, ambitious plan for the years ahead and, by continuing to
nurture what makes Greggs special, I believe we are extremely well-placed to
realise the opportunity to become a significantly larger, multi-channel
business."
ENQUIRIES:
Greggs plc (http://www.greggs.co.uk) Hudson Sandler (http://www.hudsonsandler.com)
Roisin Currie, Chief Executive Wendy Baker / Nick Moore /
Richard Hutton, Chief Financial Officer Sophie Miles / Emily Brooker
David Watson, Head of IR Email: greggs@hudsonsandler.com (mailto:greggs@hudsonsandler.com)
Tel: 0191 281 7721 Tel: 020 7796 4133
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
I am delighted to have taken over as Chair of Greggs, a business and brand
that I have long admired, and it's great to have joined a company that has,
once again, delivered a strong performance in a challenging trading
environment. Since joining the Board I have been struck by the capability of
the team, the organisational culture and values, and the customer-centric
focus across the breadth of the organisation. This puts Greggs in a strong
position to deliver on its strategic plan and the many growth opportunities
that lie ahead.
Overview
Despite challenging macroeconomic conditions Greggs delivered another strong
performance in 2022. The whole team has demonstrated its experience and
capability in responding as conditions changed rapidly over the year.
Continued robust demand for Greggs, at a time when disposable incomes have
been under pressure, is testament to the quality and value of the products
that we offer and the broad appeal of the Greggs proposition.
I am grateful to my predecessor Ian Durant for facilitating such a smooth
handover to the role of Chair, and to my Non-Executive colleagues and Roisin,
Richard and the entire Greggs team for their welcome to the business. I have
had the opportunity over my first few months in role to visit a number of our
manufacturing and logistics sites, to work in a store and in our supply chain,
and to meet many Greggs colleagues and customers across the country. What
has struck me is the absolute commitment across the business to offering our
customers high-quality products at great value, and our customers' affection
and trust in the Greggs brand.
Greggs has a deeply-embedded belief in carrying out its business in a
responsible manner, for the benefit of all its stakeholders. When times get
tough this approach becomes even more important, so it has been encouraging to
see the progress made in delivery of the Company's environmental and social
commitments in 2022, set out in The Greggs Pledge. This is a crucial
foundation for the sustainable growth that we aim to deliver in the years
ahead.
Our people and values
I would like to thank all our colleagues for the part they have played in
successfully navigating the challenges of the past year. It has really
struck me how the people at Greggs are at the very core of our business.
They are skilled, passionate, incredibly dedicated, and real ambassadors for
the Greggs brand.
The Board devotes significant time to closely engage with Greggs colleagues
across the business and discusses the feedback received with the executive
management team. By spending time with colleagues in the business and
visiting our sites we receive direct feedback that makes for better Board
discussions. During the year the Board also spent time with the new Chair of
Greggs Foundation, Joanna Dyson. Greggs Foundation provides essential help
to the communities where Greggs operates and, at a time when this is needed
more than ever, it has both our support and admiration.
In the first half of 2022 Greggs achieved the National Equality Standard
accreditation, an industry-recognised standard for diversity and inclusion.
This was a significant achievement, following several years of improvement
activity. Being an inclusive employer is entirely consistent with Greggs'
values-driven approach and in line with our Greggs Pledge commitment for our
colleague population to reflect the communities in which we operate. The Board
is encouraged by the strong progress being made in this regard.
The Board
Roisin Currie was appointed to the Board as an Executive Director on 1
February 2022 and took over as Chief Executive at the end of the Company's
Annual General Meeting on 17 May 2022. Roger Whiteside stood down from the
Board at that point but remained available to support the transition process
until 5 January 2023. This process was expertly managed by my predecessor as
Chair, Ian Durant, and it has been a pleasure to see Roisin develop in the
role of Chief Executive. Roisin enjoys strong continuity in her executive
team who are alongside her driving delivery of the strategic plan.
As part of our ongoing plans to ensure smooth succession for board roles Lynne
Weedall, who joined the Board in May 2022, became Chair of the Remuneration
Committee on 1 September 2022.
Following my appointment to the Board in August 2022 I took on the role of
Chair on 1 November following Ian Durant's retirement. The Board had asked
Ian to stay in position longer than the UK Corporate Governance Code expects
in order to provide continuity of leadership as we addressed Chief Executive
succession. Under Ian's leadership Greggs has enjoyed a period of
outstanding performance, founded on a strong strategic plan, which I fully
support. Ian also championed significant improvements in diversity and
gender balance at senior levels, a legacy for which we are immensely grateful.
Looking forward we are now preparing for the planned retirement from the Board
of Sandra Turner, Senior Independent Director, and Helena Ganczakowski. In
anticipation of this we have today announced the appointment of Nigel Mills to
the Board. Nigel will take on the role of Senior Independent Director with
effect from the Annual General Meeting on 17 May 2023. The Nominations
Committee has commenced a process to recruit a further non-executive director
and we expect to report progress in the year ahead.
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 2022 the Board declared an
interim ordinary dividend of 15.0 pence per share (2021: 15.0 pence). In
line with our progressive ordinary dividend policy and our target for the
ordinary dividend to be twice covered by earnings, the Board intends to
recommend at the AGM a final dividend of 44.0 pence per share (2021: 42.0
pence), giving a total ordinary dividend for the year of 59.0 pence (2021:
57.0 pence).
Looking ahead
Greggs is a great business with a compelling value-driven proposition and
cash-generative business model. Despite the current inflationary pressures,
we have a clear strategy and robust financial position underpinning our plans
for long-term growth. We remain confident in the long-term potential of our
business.
Matt Davies
Chair
7 March 2023
Chief Executive's Report
Our purpose is to make great tasting freshly prepared food available to
everyone. We want to be the food-on-the-go retailer that is accessible to
everyone, whoever and wherever they are, and whatever the meal occasion. That
means offering the highest quality at the best possible price - something
Greggs does so well.
We have always been there for our customers and - perhaps now, more than ever
- they are relying on us to offer great value during these tough economic
times.
I'm proud of what our teams have done this year to deliver for them and want
to thank them for all their hard work, effort and commitment.
A year of growth
After two years of unprecedented disruption to trading caused by the Covid-19
pandemic, we started 2022 relieved to see what appeared to be a return to more
normal conditions. We knew we would come back stronger and better, having
learned to cope with extraordinarily challenging trading conditions and proved
our resilience through those tough years.
However, we did not foresee the war in Ukraine, and the significant
inflationary pressures it would cause. So many of our customers and colleagues
have been confronted with a cost-of-living squeeze.
Despite this, 2022 has been a year of strong growth for Greggs. One year into
our ambitious five-year plan to double sales, our sales were up 23% on 2021.
We opened a record number of new shops, and can already see the benefits of
our multi-channel approach to growth, with great progress made in developing
our digital offer, as discussed further below.
As every individual, household, and business grapples with rising costs, we
have worked hard to protect our reputation for exceptional value, and this has
been central to our success. Customers come back to us again and again because
we offer great quality and great value. To maintain that positioning, we have
focused on driving efficiencies to offset external cost pressures wherever
possible and to mitigate the need for price rises. We regularly monitor our
prices and our customer reputation for value to make sure that we maintain
this important competitive position. In 2022, Greggs retained its #1 rank for
Value within YouGov's QSR, coffee shop and delivery services sector, a
position it has held since the index started in 2013.
Through the year, customer numbers continued to increase towards pre-pandemic
levels. Our most loyal customers are increasingly recognising the benefits
of using the Greggs App when they shop with us, including free products and
the convenience of Click + Collect.
In addition to the tough economic climate, another challenge has been ongoing
travel disruption which has displaced customers from their usual routines. We
have successfully navigated this thanks to our diverse portfolio of shops,
which meant, as it did during the pandemic, that we were able to serve
customers in different locations - many of those who were unable to make it to
their workplace chose to visit a Greggs in their local high street or nearby
shopping centre instead.
People are at the heart of Greggs, and we continue to nurture our friendly,
welcoming culture. Our ambitious new shop opening programme and extended
opening hours have required our teams to increase the focus on recruitment. In
a full employment economy, we have had to work creatively to find the right
people to fill these roles. For example, during 2022, we invested in our
recruitment processes to improve the candidate experience and give new joiners
an easier start to their journey with Greggs.
Financial results
Total sales grew to £1,513 million in 2022 (2021: £1,230 million), a 23.0%
increase on the level seen in 2021. Within this, company-managed shop
like-for-like sales were 17.8% higher than the equivalent period in 2021.
Pre-tax profit for the year increased to £148.3 million (2021: £145.6
million), reflecting strong sales growth in the face of significant cost
inflation and the removal of Government pandemic support, as detailed further
in the Financial Review, below.
Saying thank you
Our continued financial success depends on the amazing service provided by the 28,400 colleagues who make, transport, or sell our products. One of the things that makes Greggs so special is our long tradition of sharing 10% of our profits with our people. Our strong performance in 2022 means we will share £16.6 million with them.
Our strategic growth drivers
Our strong financial performance in 2022 was the result of the continued
delivery of our strategic growth plan: growing and developing our estate,
extending our offer into the evening, maximising our use of digital services,
broadening customer appeal, and driving loyalty. These objectives are
underpinned by investment in our supply chain and technology in preparation
for being a bigger business.
Growing and developing the Greggs estate
We want our shops to be the best that they can be, with better access, more
space, and providing a brilliant customer experience.
We opened a record 186 new shops (including 70 franchised units) in 2022 and
closed 39, growing the estate to 2,328 shops as at 31 December 2022, 441 of
which are franchised shops operated by our partners, mainly in roadside
locations. We continued to expand our presence in retail parks, in Central
London and key transport hubs, with shops opening in Leicester Square and
Liverpool Street Station, as well as Birmingham and Liverpool airports. As
a result, 1,600 new shop team jobs were created during the year.
Our ambition is to have significantly more than 3,000 shops across the UK, and
we are expanding in new locations to achieve this - setting up shops inside
supermarkets, in travel hubs like airports and railway stations, as well as in
retail parks and shopping centres. The versatility of our shop format is one
of our greatest strengths, operating in anything from a kiosk to a
full-service drive-thru unit.
We relocated 25 existing shops to better sites in 2022, allowing us to
increase coffee shop seating as well as expand our food preparation space so
we can meet the demand of our home delivery and Click + Collect services. In
addition, we refurbished 73 existing company-managed shops and 13 franchised
shops to our latest format.
We are also reaping the benefits of maintaining strong relationships. The
trust that landlords place in us, backed by our financial strength, is making
it easier to find good sites at a reasonable price.
In 2023, we plan to refurbish a further 150 company-managed shops, relocate 40
shops to new, larger sites, and open around 150 net new shops, including
around 50 with franchise partners.
Evening trade
We want to be able to serve our customers wherever, whenever, and however they
choose. That's why we extended the opening hours of 500 shops until 8pm or
beyond - this has given us the opportunity to compete for food-on-the-go sales
in the evening. The evening daypart is now the strongest growing segment of
the day, albeit from a relatively low base - in 2022 our share of post-4pm
visits was only 1.2% (source: NPD Crest).
In the evening many of our existing favourites such as chicken goujons and
pizza slices have proved popular, including sharing boxes via our delivery
service. We also introduced warm versions of some of our core products, with
Hot Yum Yums and salted caramel dipping sauce going viral on TikTok! We have
expanded our range to include salad meal boxes which can be eaten hot or cold
- such as our vegan sweet potato bhaji - and continue to grow our popular
vegan-friendly offering. Whether our customers follow a vegan diet or not, we
know many more people are choosing to eat less meat for ethical, environmental
or health reasons, and we are meeting that need.
We are able to offer home delivery from around 80% of our late opening stores,
which is extending our reach further and will, in time, make more of our
estate viable for evening trading. During 2023, we plan to extend opening
hours in 300 shops to 9pm and will trial 24-hour drive-thru shops.
Digital channels
Our multi-channel development strategy has allowed us to increase our reach
and build customer loyalty, while making it easier for us to compete at all
times of the day.
The Click + Collect service on the Greggs App allows a customer to see our
menu, personalise their order, and then skip the queue to pick it up.
Customisation started with our breakfast menu; we have now built on that
success by introducing customisable pizzas and are now testing whether we can
offer the same with sandwich baguettes. The convenience of Click + Collect is
key and our focus in 2023 will be on further improving the collection
experience for our customers.
Home delivery continues to be a growth area for the business, allowing us to
reach more people, including those who aren't on the go, or who are in a
location where they can't access us easily. Our partnership with Just Eat
continued to strengthen, and we worked together to optimise the menu, and
reduce complexity - for both our shops, and our customers. Delivery remains a
growing market; the delivery share of overall 'out of home market' visits
increased to 10.8% in 2022, up on the pre-pandemic level of 7.7% from 2019 and
reflecting normalisation when compared to the Covid peak of 16.2% in 2020
(source: NPD Crest). 1,270 of our shops now offer a delivery service, and
this accounts for circa 5% of sales overall. Consistent with the market
trend, our delivery volumes have been normalising as in-store volumes recover
post-Covid, but the longer-term opportunity remains intact and we are
committed to developing this further in the year ahead, both by broadening the
reach of the service and by raising operational standards.
Broadening customer appeal and driving loyalty
We continue to be successful in further enhancing perceptions of the Greggs
brand and, for the 5th consecutive year, ranked #1 in YouGov's BrandIndex
within the QSR, coffee shop & delivery services sector, achieving our
highest ever score in 2022. Brand health has never been higher; our marketing
investment is increasing the number of food-to-go shoppers considering the
Greggs brand and intending to purchase with us - now converting at a record
level of 42%. Greggs has also seen its highest share of the food-to-go market,
now at 7.7% of visits (as measured by NPD CREST, Q4 2022).
We want Greggs to be the food-on-the-go brand of choice for more people, more
of the time. Effective customer relationship management is crucial for this:
our emails, text messages, web and app personalisation, and targeted social
adverts help us to keep our customers informed and engaged. We continue to
invest in and improve these as part of our digital workstream. The Greggs App
offers our customers a much more engaging and user-friendly experience, as
well as allowing them to earn stamps and redeem rewards for their purchases.
In Q4 2022 we had 1.1 million individual active users of the app (up from 0.4
million in Q4 2021) and customers scanned the Greggs App in 8.1% of
company-managed shop transactions.
Investing in our supply chain and technology for a bigger business
Underpinning the four strategic growth drivers is our ongoing programme of
investment in our supply chain and technology to ensure we can grow our
business efficiently. As we work towards our target of having significantly
more than 3,000 shops in the UK, we are making significant investments in
manufacturing and logistics to increase capacity and reduce the carbon
footprint of our operations.
In 2022, we undertook preparatory works at Balliol Park in Newcastle ahead of
adding a fourth line that will extend production capacity of our iconic
savoury products in 2023. We also commissioned a new pizza manufacturing line
at our Enfield manufacturing site, tripling our national capacity for this
popular range. Our logistics team completed a programme of route optimisation
for our radial fleet and are in the process of switching our primary fleet to
double-deck trailers to allow us to move more goods per journey - examples of
projects which are helping to reduce our carbon emissions in line with our
Greggs Pledge commitment to become a Net Zero business.
Looking forward we plan to commence the redevelopment of our distribution
centres in Birmingham and Amesbury in 2023 in order to add additional
logistics capacity to our network by the end of 2024. Further investment in
the Midlands area will follow across 2024 to 2026 as we develop a national
distribution centre and a manufacturing and frozen storage facility, which
will support the capacity requirements of our growth plans.
We have now completed the initial deployment of SAP across our supply chain, a
crucial part of building a centralised business model. We continue to invest
in technology transformation and improving our digital capabilities as well as
making sure our new channels are fully integrated into our core systems.
We are also investing in making our processes simpler and more streamlined,
whether that's allowing our customers to interact with us digitally,
automating back-office activities, or improving the software for our tills.
Having good data allows us to make better decisions, and the introduction of
Microsoft Business Information tools has made a real difference. Improved data
visualisation and availability across the organisation has made it easier to
analyse the numbers, understand trends, and glean insights.
Making the world a better place
The Greggs Pledge
We are committed to our products tasting good, but what sets us apart is our
dedication to doing good. Our sustainability strategy has three objectives: to
help build stronger, healthier communities; to make our planet safer; and to
be a better business.
We launched The Greggs Pledge in 2021, setting out ten areas to focus on to
deliver these three objectives by the end of 2025 and beyond. We are making
good progress against our targets and will publish a separate sustainability
report that provides a detailed progress report.
Stronger, Healthier Communities
As our customers and communities grapple with rising costs, our work to get
food to those most in need is as important as ever.
There are now 789 Breakfast Clubs up and running across the UK, serving a free
breakfast to 49,000 primary school children each school day. We plan to have
1,000 clubs open by 2025.
Redistributing unsold food - a key part of our food waste reduction strategy -
is helping thousands of families to make ends meet. At the end of every day,
we clear our shelves of fresh food and aim to pass it on. In 2022, we donated
1,165 tonnes to local and national charities and sold 1,060 tonnes of heavily
discounted food to our customers via the Too Good To Go app.
We also use our expanding network of Greggs Outlet Shops - a companywide
initiative originally set up in 1972 to support socially deprived areas and
help reduce food waste by redistributing unsold food items. We have committed
to have 50 Outlet Shops nationwide by 2025 and, in 2022, opened our 30th, in
Newham, East London. A proportion of the profits from each of these shops is
given to local charities that are working to tackle food insecurity.
Making our planet safer
A key highlight in 2022 was the setting of near-term science-based emissions
reduction targets based on a 1.5°C pathway, which have been approved by the
Science Based Targets initiative. These targets will support our ambition to
be Net Zero in Scopes 1 and 2 by 2035, and in Scope 3 by 2040.
Achieving Net Zero in our operations will require a switch to renewable energy
sources (already, we only buy green electricity and have begun the switch to
biogas), and investments in more efficient equipment. In July, we opened our
first Eco-Shop in Great Billing, Northampton. It is a brand new and bespoke
format where we test innovative solutions and initiatives aimed at reducing
the environmental impact of our entire estate.
Better business
In May, we were accredited with the prestigious National Equality Standard, an
industry recognised standard for diversity and inclusion. There is more to do
- and Commitment 8 of The Greggs Pledge is dedicated to that - but this
evidences the good progress that we are making.
I am proud of our reputation for bringing the best talent through the business
regardless of gender. We have a balanced Board, and women make up half of the
management population of Greggs. Overall, 67% of our total workforce is
female.
Fundraising
Every year, our colleagues and customers show extraordinary generosity and a
genuine willingness to support people who need help.
We donate around 1% of our profits to Greggs Foundation; in 2022 this totalled
£1.5 million, providing funding for Greggs Breakfast Clubs, community
organisations and individual hardship grants. Greggs Foundation also receives
funding from a number of other sources, including dedicated Greggs products,
colleague fundraising and collection boxes in our shops.
The war in Ukraine is a human tragedy that has shaken us all. Throughout March
and April our instore donation buckets were turned over to collect money for
the Disasters Emergency Committee (DEC) Ukraine Humanitarian Appeal, raising
over £280,000. Most recently our shops have been supporting the DEC
Turkey-Syria Earthquake Appeal.
In November, we celebrated our 'sweet sixteen' as a BBC Children in Need
partner, helping to improve the lives of children and support our communities
across the UK - raising over £782,000 this year alone.
Looking forward
Focused on growth
Our four strategic growth drivers will remain a key focus in the year ahead.
While the widely publicised economic challenges are not expected to go away,
we are well positioned to successfully navigate them and remain confident in
our ability to deliver continued success. Although consumer incomes will
remain under pressure, Greggs continues to offer exceptional value to people
looking for great tasting, high-quality food and drink on-the-go.
Keeping our people at the heart of what we do
Our people are what makes our business successful, and it is important that we
provide a great place to work, where they feel valued, so that they choose to
stay with us.
We take time to listen to the views of our colleagues. More than 21,000 of our
28,400 colleagues took part in our engagement survey in 2022, telling us what
is working well and what they think could be improved. With an overall
engagement score of 77%, we know our people are motivated, and committed to
Greggs. However there is always room for improvement, and we will continue
to stay focused on our colleague engagement agenda.
Recruiting great new people to join our growing team is crucial too: our work
in 2022 to upgrade our recruitment platform means we are better positioned to
attract new colleagues in a tight labour market in the year ahead.
Greggs' secret sauce
Since I joined Greggs in 2010, I have felt privileged to be part of such an
amazing team. As Chief Executive, and leader of the team, I am more aware than
ever of how our success is the result of everyone's contribution; our magic
comes from us exceeding the sum of our parts.
Our culture and values are what makes Greggs, Greggs. As we grow, we will keep
these at the heart of every decision we make. We talk about our unique culture
being our 'secret sauce' because when people enjoy coming into work, they do a
better job, and that makes Greggs a stronger, better business. Continuing to
treat people well, and valuing everyone's contribution, are central to our
success.
Becoming Chief Executive has reminded me of the importance of offering the
right support and guidance so that everyone is empowered to do the best job
possible: from the newest member of the team, who might be in their first ever
job; to the shop manager who has just been promoted and is still finding their
feet; to the new production operative who needs some encouragement.
My ambition is to ensure that we continue to nurture and evolve that 'secret
sauce' and enable everyone to be the best version of themselves. For me, it's
one of the most important parts of my job.
Current trading and outlook
We have started 2023 well, with like-for-like sales in company-managed shops
growing by 18.8% in the first nine weeks, in line with our expectations and
reflecting the impact of Omicron in the comparator period. Cost inflation will
continue to be a challenge in the year ahead, driven particularly by pay
awards and energy costs, but we are confident that our outstanding value
proposition will remain compelling as customers look to make their money go
further. As such, we remain confident in the prospects for the business in
2023.
We have an exciting, ambitious plan for the years ahead and, by continuing to
nurture what makes Greggs special, I believe we are extremely well-placed to
realise the opportunity to become a significantly larger, multi-channel
business.
Roisin Currie
Chief Executive
7 March 2023
Financial review
Greggs delivered a strong financial performance in 2022 in the face of
challenging economic conditions. Sales momentum was good and we opened a
record net number of new shops as we pursued our ambitious growth plan. Our
robust balance sheet will support our growth strategy, providing a strong
covenant to our partners as well as funding for our investment programme and
for shareholder returns.
2022 2021
£m £m
Revenue 1,512.8 1,229.7
Operating profit 154.4 153.2
Net finance expense (inc. leases) (6.1) (7.6)
Profit before tax 148.3 145.6
Income tax (28.0) (28.1)
Profit after tax 120.3 117.5
Sales
Total Group sales for the 52 weeks ended 31 December 2022 grew by 23.0% to
£1,513 million (2021: £1,230 million). Year-on-year growth was
particularly strong in the first quarter, reflecting comparison with pandemic
lockdown restrictions in the comparable period of 2021. Through the
remainder of the year we saw growth from new shop openings and like-for-like
transaction numbers as we made progress with our sales growth initiatives and
passed on necessary price increases in response to cost inflation. Total
Group revenue reflects sales from company-managed shops, which include
delivery sales, and sales through business-to-business channels with our
franchise and wholesale partners.
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. The like-for-like sales results
across 2022 reflected the impact of the pandemic on the first and fourth
quarters of 2021, and also the closure of our shops out of respect for the
funeral of Her Majesty the Queen in September. Overall there was strong
growth, with like-for-like sales 17.8% higher year-on-year and 14.6% higher
than the pre-pandemic level of 2019.
Q1 Q2 Q3 Q4 2022
Company-managed like-for-like sales vs. 2021 37.0% 11.3% 9.7% 18.2% 17.8%
Profit for the year
Profit before tax in 2022 was £148.3 million (2021: £145.6 million). This
was a strong performance in challenging conditions, with cost inflation
increasing at a significantly higher rate than had been expected and reduced
support from Government pandemic measures that had been present in 2021.
We started 2022 expecting higher than normal food cost inflation as supply
chains reacted to post-pandemic growth, but the war in Ukraine triggered a
dramatic increase in food and energy commodity costs. Our forward cover
positions for electricity and gas procurement meant that we were largely
protected from energy volatility in the year, but food costs rose
significantly as our forward positions rolled off over the second and third
quarter. Reluctantly we brought forward price increases whilst maintaining
our relative value position in the market. In doing so across the year as a
whole we under-recovered overall business cost inflation by around one
percentage point.
Overall wage and salary cost inflation was 4.9% in 2022 and is expected to be
approximately 8.0% in 2023. Food and packaging inflation increased
significantly in the second half of 2022 as forward cover for key inputs
expired. This will continue to annualise during the first half of 2023.
Shop occupancy costs continue to improve; in 2022 the ratio of IFRS16 'right
of use' charges on leased property assets to company-managed shop sales was
4.3%, down from 4.9% in 2021. Greggs' strong covenant is attractive to
landlords and this is an important factor in lease renewal, as well as
providing the good pipeline of shop opening opportunities that underpins our
planned estate growth. Across the business as a whole, cost inflation
totalled 9% in 2022, in line with previous guidance. The reintroduction of
business rates in the second half of 2021 resulted in a £15 million
year-on-year cost increase in 2022.
Looking forward we expect overall input cost inflation in 2023 to be in the
range of 9-10%. Uncertainty over commodity prices remains but we have been
able to secure forward cover for all of our electricity requirements through
to the end of the third quarter of the year and expect to extend this further
when opportunities present themselves. We also have forward purchase
agreements representing between four and five months of our food and packaging
needs.
Financing charges
The net financing expense of £6.1 million in the year (2021: £7.6 million)
comprised £6.8 million in respect of the IFRS 16 interest charge on lease
liabilities, £0.7 million of facility charges under the Company's (undrawn)
financing facilities, offset by £1.4 million relating to income on cash
deposits and foreign exchange gains.
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 2022 was 18.9% (2021:
19.3%) which reflects the benefit of 'super-deductions' relating to capital
expenditure in 2022, offset by the corresponding deferred tax movements being
taxed at 25% rather than 19%, ahead of the increase in the corporation tax
rate which takes effect on 1 April 2023.
We expect the effective tax rate for 2023 to be around 24.0% and for 2024 to
be around 26.0%. Going forward the effective rate is expected to remain
around 1.0% above the headline corporation tax rate; this is principally
because of disallowed expenditure such as depreciation on properties that do
not qualify for tax relief and acquisition costs relating to new shops.
Earnings per share and dividend
Diluted earnings per share in 2022 were 117.5 pence (2021: 114.3 pence per
share).
The Board recommends a final ordinary dividend of 44.0 pence per share (2021:
42.0 pence per share). Together with the interim dividend of 15.0 pence
(2021: 15.0 pence) paid in October 2022, this makes a total ordinary dividend
for the year of 59.0 pence (2021: 57.0 pence plus 40.0 pence special
dividend). This is covered two times by diluted earnings per share and is in
line with our progressive ordinary dividend policy, which aims to increase the
dividend in line with growth in earnings per share.
Subject to the approval of shareholders at the Annual General Meeting, the
final ordinary dividend will be paid on 26 May 2023 to shareholders on the
register at 28 April 2023.
Balance sheet
Capital expenditure
We invested a total of £110.8 million (2021: £57.4 million) in capital
expenditure during 2022. Retail estate expenditure increased in 2022 as we
accelerated the rate of company-managed shop openings and shop
refurbishment. In our supply chain we completed the investment in additional
pizza manufacturing capacity at our Enfield site and commenced work on the
construction of a fourth production line for our iconic savoury pastries at
Balliol Park in Newcastle.
Depreciation and amortisation on property, plant and equipment and intangibles
in the year was £62.7 million (2021: £58.7 million). A further £52.8
million (2021 £48.7 million) of depreciation was charged in respect of
right-of-use assets as a result of capitalised leases.
The level of capital expenditure will increase in coming years as we invest to
increase capacity in our supply chain to support our ambitious growth plans.
In 2023 we will commence work to expand capacity for radial distribution to
shops at our Birmingham and Amesbury distribution centres. We also expect to
progress plans for new manufacturing and logistics facilities in the Midlands,
the start of a multi-year development that will provide medium-term capacity
to allow our shop estate to grow to significantly more than 3,000 stores in
time, as well as supporting our plans to grow like-for-like sales in line with
our ambition.
Our shop opening and relocation plans mean we will invest in circa 160 new
company-managed shops in 2023 and refurbish around 150 existing stores as we
modernise older sites and introduce better facilities to support our growth
plans.
Overall we expect capital expenditure in 2023 to be around £200 million, and
anticipate that it will remain around that annual level through 2024 and 2025
as we invest to support our growth plans.
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 most new shop investments 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.
Managing return on capital well is an important discipline in Greggs. As
such, return on capital employed (ROCE) is embedded as a performance metric in
our long-term incentive plans. In 2022 ROCE was 21.0% (2021: 23.0% including
the benefit of relief from Business Rates), comparing favourably with the
pre-pandemic level (2019: 20.0%). As we grow the business in the years ahead
our ambition is to maintain the business' track record of delivering strong
returns on capital.
Working capital
We ended the year with Group net current assets of £38.9 million (2021 £59.2
million) as we continue to carry a robust cash and cash equivalents position
of £191.6 million (2021: £198.6 million) to support investment in our
capital expenditure programme. Excluding cash and cash equivalents, net
current liabilities increased from £139.4 million to £152.7 million over the
year. This reflects the impact of strong growth on trade and other payables.
Pension scheme
The Company's closed defined benefit pension scheme has moved to a net asset
position of £6.3 million at the end of 2022 (2021: £2.4 million net
liability). The improvement in the balance sheet position reflects
already-committed scheme contributions that were advanced to support the
scheme at the time of significant collateral calls on its Liability Driven
Investments ('LDI') in October 2022. The reduction in liabilities that
resulted from a significantly increased discount rate was largely offset by
performance of the scheme assets and LDI positions.
The scheme underwent a full actuarial revaluation in 2020, the results of
which showed a deficit in funding. The Company committed to making
additional contributions of £2.5 million each year from 2021 to 2026 to
ensure that any funding requirements are met over the medium term as the
scheme works towards full de-risking. As noted above, as a result of the
volatile market conditions in the autumn of 2022 the Company advanced an
additional payment of £5.5 million of these committed contributions (£8.0
million for the year), leaving £4.5 million of the original commitment to pay
in future years.
Cash flow and capital structure
The net cash inflow from operating activities after lease payments in the year
was £198.8 million (2021: £236.5 million including a significant working
capital inflow as sales recovered from the pandemic). At the end of the year
the Group had net cash and cash equivalents of £191.6 million (2021: £198.6
million).
In normal circumstances the Group aims to maintain a year-end net cash
position of around £50 million to allow for seasonality in its working
capital cycle and to protect the interests of all creditors. The cash
position will normalise in future years as we deploy resources to support our
ambitious growth plan.
The Company's undrawn revolving credit facility, which runs to December 2025,
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). Taking this into account, total available liquidity at the
end of 2022 was £261.6 million (2021: £268.6 million).
Looking forward
Our strong financial position will support our ambitious growth plans in the
year ahead. At the same time we will maintain the discipline that has
delivered profitable growth and excellent capital returns, to the benefit of
all of our stakeholders.
Richard Hutton
Chief Financial Officer
7 March 2023
Greggs plc
Consolidated income statement
for the 52 weeks ended 31 December 2022 (2021: 52 weeks ended 1 January 2022)
2022 2021
£m £m
Revenue 1,512.8 1,229.7
Cost of sales (574.5) (447.7)
________ ________
Gross profit 938.3 782.0
Distribution and selling costs (713.2) (567.6)
Administrative expenses (70.7) (61.2)
________ ________
Operating profit 154.4 153.2
Finance expense (net) (6.1) (7.6)
________ ________
Profit before tax 148.3 145.6
Income tax (28.0) (28.1)
________ ________
Profit for the financial year attributable to equity holders of the Parent
120.3 117.5
======= =======
Basic earnings per share 118.5p 115.7p
Diluted earnings per share 117.5p 114.3p
Greggs plc
Consolidated statement of comprehensive income
for the 52 weeks ended 31 December 2022 (2021: 52 weeks ended 1 January 2022)
2022 2021
£m £m
Profit for the financial year 120.3 117.5
Other comprehensive income
Items that will not be recycled to profit and loss:
Remeasurements on defined benefit pension plans 0.7 7.1
Tax on remeasurements on defined benefit pension plans 1.8 (1.7)
________ ________
Other comprehensive income for the financial year, net of income tax 2.5 5.4
________ ________
Total comprehensive income for the financial year 122.8 122.9
======= =======
Greggs plc
Consolidated Balance Sheet
at 31 December 2022 (2021: 1 January 2022)
2022 2021
£m £m
ASSETS
Non-current assets
Intangible assets 13.5 14.9
Property, plant and equipment 390.0 343.8
Right-of-use assets 281.6 263.6
Defined benefit pension asset 6.3 -
________ ________
691.4 622.3
Current assets
Inventories 40.6 27.9
Trade and other receivables 50.2 37.6
Assets held for resale - 1.6
Current tax 0.6 0.4
Cash and cash equivalents 191.6 198.6
________ ________
283.0 266.1
________ ________
Total assets 974.4 888.4
________ ________
LIABILITIES
Current liabilities
Trade and other payables (191.7) (153.4)
Lease liabilities (48.8) (49.3)
Provisions (3.6) (4.2)
________ ________
(244.1) (206.9)
Non-current liabilities
Other payables (2.8) (3.2)
Defined benefit pension liability - (2.4)
Lease liabilities (252.5) (233.9)
Deferred tax liability (26.3) (10.0)
Long-term provisions (2.7) (2.8)
________ ________
(284.3) (252.3)
________ ________
Total liabilities (528.4) (459.2)
________ ________
Net assets 446.0 429.2
======= =======
EQUITY
Capital and reserves
Issued capital 2.0 2.0
Share premium account 23.1 20.0
Capital redemption reserve 0.4 0.4
Retained earnings 420.5 406.8
________ ________
Total equity attributable to equity holders of the Parent 446.0 429.2
======= =======
Greggs plc
Statements of changes in equity
for the 52 weeks ended 31 December 2022 (2021: 52 weeks ended 1 January 2022)
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 changes in equity (continued)
52 weeks ended 31 December 2022
Issued capital Share premium Capital redemption reserve Retained earnings Total
£m £m £m £m £m
Balance at 2 January 2022 2.0 20.0 0.4 406.8 429.2
Total comprehensive income for the year
Profit for the financial year - - - 120.3 120.3
Other comprehensive income - - - 2.5 2.5
________ ________ ________ ________ ________
Total comprehensive income for the year - - - 122.8 122.8
Transactions with owners, recorded directly in equity
Issue of ordinary shares - 3.1 - - 3.1
Purchase of own shares - - - (11.0) (11.0)
Share-based payment transactions - - - 3.6 3.6
Dividends to equity holders - - - (98.5) (98.5)
Tax items taken directly to reserves - - - (3.2) (3.2)
________ ________ ________ ________ ________
Total transactions with owners - 3.1 - (109.1) (106.0)
________ ________ ________ ________ ________
Balance at 31 December 2022 2.0 23.1 0.4 420.5 446.0
======= ======= ======= ======= =======
Greggs plc
Statements of cashflows
for the 52 weeks ended 31 December 2022 (2021: 52 weeks ended 1 January 2022)
Group
2022 2021
£m £m
Operating activities
Cash generated from operations (see below) 272.3 312.1
Income tax paid (13.3) (19.2)
Interest paid on lease liabilities (6.8) (6.3)
Interest paid on borrowings and other related charges (0.7) (1.1)
________ ________
Net cash inflow from operating activities 251.5 285.5
________ ________
Investing activities
Acquisition of property, plant and equipment (100.0) (50.5)
Acquisition of intangible assets (3.3) (3.8)
Proceeds from sale of property, plant and equipment 0.9 0.3
Proceeds from sale of assets held for sale 1.6
Interest received 1.4 -
________ ________
Net cash outflow from investing activities (99.4) (54.0)
________ ________
Financing activities
Proceeds from issue of share capital 3.1 4.3
Sale of own shares - 0.3
Purchase of own shares (11.0) (10.0)
Dividends paid (98.5) (15.3)
Repayment of principal on lease liabilities (52.7) (49.0)
________ ________
Net cash outflow from financing activities (159.1) (69.7)
________ ________
Net (decrease)/increase in cash and cash equivalents (7.0) 161.8
Cash and cash equivalents at the start of the year 198.6 36.8
________ ________
Cash and cash equivalents at the end of the year 191.6 198.6
======= =======
Cash flow statement - cash generated from operations
2022 2021
£m £m
Profit for the financial year 120.3 117.5
Amortisation 4.7 4.5
Depreciation - property, plant and equipment 58.0 54.2
Depreciation - right-of-use assets 52.8 48.7
Net impairment charge/(reversal) - property, plant and equipment 1.2 (1.9)
Impairment reversal - right-of-use assets 0.0 (1.6)
Loss on sale of property, plant and equipment 1.0 0.9
Release of Government grants (0.4) (0.5)
Share-based payment expenses 3.6 2.2
Finance expense 6.1 7.6
Income tax expense 28.0 28.1
Increase in inventories (12.7) (5.4)
(Increase)/decrease in receivables (12.4) 1.8
Increase in payables 30.8 58.9
Decrease in provisions (0.7) (0.4)
Decrease in pension liability (8.0) (2.5)
________ ________
Cash from operating activities 272.3 312.1
======= =======
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 31 December 2022 or 1 January 2022 but
is derived from these accounts. Statutory accounts for the 52 weeks ended 1
January 2022 have been delivered to the registrar of companies, and those for
the 52 weeks ended 31 December 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 52 weeks ended 1 January 2022, which
are available on the Company's website www.greggs.co.uk
(http://www.greggs.co.uk) . From 2 January 2022 the following amendments
were adopted by the Group:
· Amendments to IAS 16: Property, Plant and Equipment - Proceeds before
Intended Use;
· Amendments to IAS 37: Provisions, Contingent Liabilities and
Contingent Assets: Onerous Contracts - Cost of Fulfilling a Contract; and
· Annual Improvements 2018-2020.
Their adoption did not have a material effect on the accounts.
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,
macro-economic conditions and the trading outlook of the Group. At the end of
the reporting period the Group had available liquidity totalling £261.6
million, comprised of cash and cash equivalents of £191.6 million plus an
undrawn revolving credit facility (RCF) of £70.0 million, which is committed
to December 2025. The RCF includes financial covenants that the Group must
comply with related to maximum leverage and a minimum fixed charge cover.
The Directors have reviewed cash flow forecasts prepared for the period up to
December 2024 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.
After reviewing these cash flow forecasts and 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 accounts. 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 the
higher of the 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 Group has traded profitably throughout 2022, with year-on-year growth
particularly strong in the first quarter due to the comparison with pandemic
lockdown restrictions in 2021. As such there is not considered to be a
global indicator of impairment across the Group's asset base. Where
indicators of impairments exist for specific cash generating units (CGUs),
with each individual shop considered its own CGU (shops opened in 2021 and
2022 are excluded on the grounds that they are still maturing), then an
impairment review has been performed to calculate the recoverable value.
For those shops with indications of impairment (identified as mature shops
with low cash generation relative to the carrying value of the associated
assets), the value-in-use has been calculated using the following assumptions:
• Like-for-like transaction volumes for those shops have
been assumed to grow at a rate of 2% for the period of the impairment review;
• Where shops are currently used to fulfil orders for
delivery, 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 pre-tax cost
of capital and at 31 December 2022 was 9.6% (1 January 2022: 6.9%); 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, a net impairment charge of £1.2 million
has been recognised during the current year (of which £1.16 million relates
to fixtures and fittings and £0.04 million relates to right-of-use assets)
resulting in an impairment provision of £5.2 million being retained at 31
December 2022 in respect of 92 shops (of which £2.3 million relates to
fixtures and fittings and £2.9 million relates to right-of-use assets).
Given the uncertainties in the impairment model, 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 £0.4 million, with an additional 11 shops impaired.
A 1% decrease in the discount rate would result in a reduced impairment of
£0.3 million, with three fewer shops impaired.
• A 5% increase in the growth assumption for net cash flow
(per annum) would result in a reduced impairment of £1.1 million with 16
fewer shops impaired. A 5% decrease in the growth assumption would result in
an increased provision of £3.3 million with an additional 47 shops impaired.
Determining the rate used to discount lease payments
At the commencement date of property leases the lease liability is calculated
by discounting the lease payments. The discount rate used should be the
interest rate implicit in the lease. However, if that rate cannot be readily
determined, which is generally the case for property leases, the lessee's
incremental borrowing rate is used, being the rate that the individual lessee
would have to pay to borrow the funds necessary to obtain an asset of similar
value to the right-of-use asset in a similar economic environment with similar
terms, security and conditions. As the Group had no suitable external
borrowings from which to determine that rate, judgement is required to
determine the incremental borrowing rate to be used. At the start of each
month a risk-free rate is obtained, linked to the length of the lease and an
adjustment is then made to reflect credit risk. During the year discount
rates in the range 2.5% to 5.9% were used. Small changes in the discount rate
would have an immaterial impact on the accounts. A 0.1% change in the discount
rate used for each lease is estimated to adjust the total liabilities by c.
£1.0 million.
Determining the lease term of property leases
At the commencement date of property leases the Group normally determines the
lease term to be the full term of the lease, assuming that any option to break
or extend the lease is unlikely to be exercised and it is not reasonably
certain that the Group will continue in occupation for any period beyond the
lease term. Leases are regularly reviewed and will be revalued if it becomes
reasonably certain that a break clause or option to extend the lease will be
exercised.
The leases typically run for a period of 10 or 15 years. In England and
Wales, the majority of the Group's property leases are protected by the
Landlord and Tenant Act 1954 (LTA) which affords protection to the lessee at
the end of an existing lease term.
Judgement is required in respect of those property leases where the current
lease term has expired but the Group has not yet renewed the lease. Where
the Group believes renewal to be reasonably certain and the lease is protected
by the LTA it will be treated as having been renewed at the date of
termination of the previous lease term and on the same terms as the previous
lease. Where renewal is not considered to be reasonably certain the leases
are included with a lease term which reflects the anticipated notice period
under relevant legislation. The lease will be revalued when it is renewed to
take account of the new terms. As at 31 December 2022 the financial effect of
applying this judgement was an increase in recognised lease liabilities of
£45.1 million (1 January 2022: £41.7 million).
In addition, where a shop is refurbished nearing the end of the contractual
lease end date and the Group therefore expects to renew the lease, the lease
liability is revised to reflect an additional lease term. The impact of this
judgement as at 31 December 2022 is an additional lease liability of £7.7
million (1 January 2022: £7.7 million).
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.
The Board regularly reviews the revenues and trading profit of each segment.
The Board receives information on overheads, assets and liabilities on an
aggregated basis consistent with the Group accounts.
2022 2022 2022 2021 2021 2021
Retail Business to business Total Retail Business to business Total
company-managed company-managed
shops shops
£m £m £m £m £m £m
Revenue 1,352.3 160.5 1,512.8 1,098.2 131.5 1,229.7
======= ======= ======== ======= ======= ========
Trading profit* 224.6 31.3 255.9 207.1 28.5 235.6
Overheads including profit share (101.5) (82.4)
________ ________
Operating profit 154.4 153.2
Finance expense (net) (6.1) (7.6)
_______ _______
Profit before tax 148.3 145.6
======= =======
* 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
2022 2021
£m £m
Current tax
Current year 14.1 19.1
Adjustment for prior years (0.2) (0.2)
________ ________
13.9 18.9
________ ________
Deferred tax
Origination and reversal of temporary differences 14.1 10.2
Adjustment for prior years 0.0 (1.0)
________ ________
14.1 9.2
________ ________
Total income tax expense in income statement
28.0 28.1
======= =======
4. Earnings per share
Basic earnings per share
Basic earnings per share for the 52 weeks ended 31 December 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 31
December 2022 as calculated below.
Diluted earnings per share
Diluted earnings per share for the 52 weeks ended 31 December 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 31 December 2022 as calculated
below.
Profit attributable to ordinary shareholders
2022 2021
£m £m
Profit for the financial year attributable to equity holders of the Parent 120.3 117.5
======= =======
Basic earnings per share 118.5p 115.7p
Diluted earnings per share 117.5p 114.3p
Weighted average number of ordinary shares
2022 2021
Number Number
Issued ordinary shares at start of year 101,897,021 101,426,038
Effect of own shares held (511,370) (221,851)
Effect of shares issued 100,009 284,386
__________ __________
Weighted average number of ordinary shares during the year 101,485,660 101,488,573
Effect of share options in issue 849,222 1,261,311
__________ __________
Weighted average number of ordinary shares (diluted) during the year 102,334,882 102,749,884
========= =========
5. Dividends
The following tables analyse dividends when paid and the year to which they
relate:
2022 2021
Per share Per share
pence pence
2021 interim dividend - 15.0p
2021 special dividend 40.0p -
2021 final dividend 42.0p -
2022 interim dividend 15.0p -
________ ________
97.0p 15.0p
======= =======
The proposed final dividend in respect of 2022 amounts to 44.0 pence (£44.9
million). These dividends are not included as a liability in these accounts.
2022 2021
£m £m
2021 interim dividend - 15.3
2021 special dividend 40.6 -
2021 final dividend 42.7 -
2022 interim dividend 15.2 -
________ ________
98.5 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
We have a risk management policy and framework in place, both of which have
been approved by the Board. This supports us in taking a consistent
approach.
Our risk process works "top down" and "bottom up". Risks are identified by
considering potential events which could prevent the achievement of our
objectives.
The Operating Board is responsible for maintaining the overall corporate risk
map, which documents the key risks to the achievement of strategic
objectives. We conduct a formal review of our key strategic risks twice a
year via Risk Committee, with input from each of the risk owners. This
allows us to discuss the gradings, reflect on any changes, and ensure that the
level of risk remains consistent with our risk appetite. Risk Committee also
considers new risks escalated to it, and assesses whether or not these are
significant enough to merit inclusion on the strategic risk register.
The risk process is facilitated by the Business Assurance team, who help
identify and assess key risks, as well as providing support in developing an
appropriate risk response. The team also provides a route for matters of
concern to be quickly escalated to the Operating Board and Risk Committee.
In addition, Business Assurance provides an independent view on the controls
in place over specific risk areas within the internal audit plan.
Risks are assessed under our strategic pillars (including The Greggs Pledge),
and are categorised into four broad groups - strategic, operational, financial
and legal / regulatory.
Our strategic risk register captures a description of each risk, and allocates
an Operating Board member as risk owner. Each risk owner is responsible for
ensuring that appropriate mitigating controls are in place. We then set out
key controls for each risk, and make an assessment of their effectiveness.
The likelihood and impact of each risk arising is then calculated, taking into
account the controls which are in place.
Developments in 2022
Our Enterprise Risk Management (ERM) framework, which we developed with Marsh
Advisory in 2021, has been rolled out more widely. The ERM policy &
procedure were signed off by the Board to demonstrate commitment at the top of
the organisation.
Further, our Chief Executive has continued to increase our focus on risk
management. This has emphasised the importance of risk management and is
helping to promote our work to fully embed the concept.
We have engaged with heads of business functions to increase their involvement
in the process. They participated in the strategic risk grading review at
the year end, which provided a different perspective from the Operating Board
and gave some valuable insight. We plan to continue an ongoing dialogue with
this group, the output from which we will feed into discussions at Risk
Committee.
We reviewed the structure of the Business Assurance team and we have appointed
an Audit and Risk Manager, to drive a more joined up assurance approach. The
role will help us to optimise the opportunities for internal audit to
independently assess the effectiveness of key controls.
Plans for 2023
During 2023, we will further embed our ERM approach, and support more of our
functions to develop their own risk registers in the standard corporate
format. This will also involve more regular and structured engagement with
our heads of business functions.
We have engaged with our insurance brokers to conduct an overall review of our
approach to insurance, a significant mitigating control against a number of
our strategic risks. This will involve members of our Main and Operating
Boards as well as key heads of business functions.
We will be increasing the resource within the Business Assurance team to
ensure that we are able to continue to support the growing business.
Climate risks
Our climate risks and opportunities are in the process of being fully defined,
though we have undertaken a significant amount of work to understand our
exposure. Once the risks have been agreed, they will be incorporated within
our main ERM framework, and managed consistently with other risks identified
across the business.
We continue to monitor climate change as an emerging risk, since we do not
believe it constitutes a principal risk to the business within the time
horizon of our current strategic plan. However, we keep under review future
climate change legislation and customer preferences.
Emerging risks
We conduct an emerging risk review on a quarterly basis, and report our
findings to the Risk Committee and Main Board. Various sources of
information are used to ensure this is as complete as possible:
• Horizon scanning by subject matter experts throughout
the business, coupled with an escalation route to raise any issues;
• Engaging with our functional heads to discuss any areas
of concern within their remit;
• Monitoring customer and consumer trends;
• Taking input from our advisers and other specialists
with who we work;
Current areas of emerging risks which we are monitoring include changes to
legislation, geopolitical tensions, and the cost of living crisis.
Risk appetite
Risk appetite is the level of risk which we are prepared to take to meet our
strategic objectives. In determining this, we recognise that there is a
balance between a prudent approach to risk and sufficient flexibility to take
appropriate opportunities when they arise.
Our appetite for taking risks depends on the category of risk in question.
For example, we would be prepared to take more risk in the pursuit of our
strategy than in areas such as Food Safety, where compliance with legislation
drives a zero tolerance of risk.
Changes to principal risk disclosures
A principal risk is a risk or combination of risks that could seriously affect
our performance, future prospects or reputation. Not all of our strategic
risks are considered to be principal risks, only those which could have a
significant impact on our ongoing viability.
Key changes to principal risks and our risk profile are as follows:
• Our previously disclosed risk of "supply chain
disruption" incorporated both internal interruption events and external supply
issues. We have described this as two separate risks, since the risk profile
and the mitigations are different.
• A previously disclosed risk of "significant fines for
non-compliance" has been removed from the listing, since we no longer believe
it to meet the definition of a principal risk. The reputational impact of
such an incident is stated elsewhere within the risk register.
• We have included the additional disclosure of the
category of each risk as set out in our risk register - Strategic /
Operational / Financial / Legal & Regulatory, to aid understanding.
• Although not disclosed as a principal risk in our 2021
annual report, we set out our ongoing response to the Covid 19 pandemic. Any
such activity still in progress is now considered part of our normal business
operations, and hence no further comment is necessary. However, we are
reflecting on our overall response to the pandemic, and report our key lessons
learned to our Board.
The following table sets out the principal risks, shows the movement during
the year, and describes the impact and key mitigations. The list is not in
priority order, and does not include all the risks which are faced by the
business. Other risks which are not included here could also have a
negative impact on the business, including those which are not presently
known to us. The position described below is a summary at the time of
publishing this report.
Principal risks and uncertainties
Risk & description Impact Key mitigations Links to strategy Movement
Business interruption event
We could suffer a significant business interruption event impacting one or We would potentially be unable to supply our customers for a period of time. We have contingency plans in place for our sites, which are tested 1,2,3 No change
more of our key locations. For example a prolonged power outage, denial of This could impact our own customers, those of our franchise partners, and also periodically.
access or an incident resulting in physical damage. our wholesale sales through Iceland Foods.
4,5
Our resilience throughout the pandemic demonstrates that we are well placed to
Operational manage disruption to our operations.
Our diversified product range from multiple production sites provide
alternatives for our customers.
We have flexibility within our network, to enable us to continue our
operations.
Insurance cover is in place.
Supply chain disruption
External supply could be interrupted, resulting from issues such as third A prolonged outage at one of our key suppliers could impact on our ability to We try to avoid single source supply for key ingredients. 1,2,3 No change
party business interruption, or unexpected product shortage. produce some of our range, or otherwise impact on our ability to operate.
4,5
In the event of interruptions, we are agile in our response to implementing
Operational contingency plans. These are regularly tested.
Risk & description Impact Key mitigations Links to strategy Movement
Cyber & data security incident
A cyber incident may occur which impacts on our IT infrastructure. We could suffer a significant loss of data, resulting in litigation and fines. Third parties provide expertise and support, including regular penetration
testing and a Security Operations Centre monitoring our networks.
Our operations could be disrupted for a period of time.
2,3,4 Increased
The external threat environment is constantly evolving and there is currently
an extended period of heightened cyber threat, as advised by the National Our technical measures are constantly reviewed and updated in line with
Cyber Security Centre. changing requirements and recognised information security control sets.
Operational Our Operating Board took part in a desktop cyber event simulation, facilitated
externally.
Prolonged system downtime/ interruption
As we streamline the business and embrace greater flexibility in our working We may be unable to run our production systems for a period of time. This We continue to invest in our IT infrastructure.
arrangements, we increase our reliance on technology. Any system could ultimately impact on our ability to supply into our shops for our
interruption becomes more disruptive, with an increased risk of it having an customers. 2,3,4 No change
impact on business operations.
We have established disaster recovery processes which are tested periodically.
Data maybe unavailable or lost, making it difficult for us to operate.
Operational
Our ERP system incorporates multiple layers of resilience.
External partners are engaged to provide specialist support and expertise when
required.
We will be refreshing our crisis and contingency plans in 2023.
Risk & description Impact Key mitigations Links to strategy Movement
Deterioration of relationship with key partner
We continue to work closely with franchise, wholesale and delivery partners in A lack of alignment could result in targets not being met, due to performance We work with a number of respected partners, and are continuing to broaden the
order to broaden our service offer into locations where our customers want us not being optimised. The brand's reputation could be damaged, and the range of businesses with whom we operate. This reduces the reliance on any one
to be. There is a risk that our strategy and goals are not fully aligned. relationship would be put at risk. individual partner. 1,2,3 No change
4
Strategic Contracts and service level agreements are in place, along with a robust
onboarding process for new partners.
We are strengthening our inhouse teams to provide more resource to support our
partners.
Ability to attract / retain / motivate people
Our people are an essential part of our business and our culture. We may be unable to continue to deliver the product range and service We recognise that our people are a key asset to the business, and offer
Particularly in the current environment, we may be unable to attract and standards that our customers want and expect from us. competitive packages, along with extensive training and development
retain the right talent within Greggs.
opportunities. 1,2,3 Increased
4,5
The loss of existing resource results in additional recruitment, which in turn
Operational creates workload and training requirements. Colleagues have a range of ways to communicate their ideas for improvement,
including opinion surveys and listening groups.
Ultimately, we may be unable to grow the business in line with our strategy
We have a robust succession planning process for our leadership teams, and are
continuing to develop this across the wider organisation.
Risk & description Impact Key mitigations Links to strategy Movement
Damage to reputation
As we grow our social media presence, and engage more with our customers, Customers could lose their trust in the brand, ultimately impacting on our We have a robust crisis management process in place, which we test
there is a risk of damage to our brand if we fail to respond quickly and ability to grow our estate and achieve our objectives. Shareholder value regularly. This is supported by appropriate third parties (such as PR
appropriately to an incident. could be reduced. agencies) where specialist advice is required. 2,3 No change
Strategic We have conducted a detailed review of our Food Safety incident response with
our Operating Board.
All of our shops are required to follow consistent procedures, to ensure that
our food complies with standards.
Our audit team ensure compliance, across both company-operated and franchise
shops.
Risk & description Impact Key mitigations Links to strategy Movement
Significant Food Safety incident / product quality issue
We may inadvertently produce and/or sell products which are unsafe, or not of There could be harm to our customers or colleagues. All new external suppliers require formal approval.
the appropriate quality. This could be a result of incorrect labelling of
allergens, product contamination, or a failure to correctly follow procedures. 1,2,3 No change
Our reputation as a trusted brand could be significantly impacted, which in All ingredients and products have specifications, to ensure consistency. 4,5
turn would affect our financial performance. We could also be exposed to
Operational significant fines.
Allergen risk assessments are in place.
Our teams are trained, with specialists able to provide additional knowledge.
We have a Primary Authority relationship in place, which gives independent
assurance that our processes and procedures are adequate.
Audits are undertaken by our internal teams, and external bodies.
Our complaints process ensures all matters are investigated. When a root
cause identified, we take action to address it.
Changes in the regulatory landscape
New regulatory requirements could be implemented, driven by environmental, It may be necessary for us to make changes to our product range. Without an Regular horizon scanning activities are undertaken by our teams.
health or other concerns. ability to respond quickly, we could lose market share.
1,2,3 No change
We believe that we may have greater exposure in some areas than our
competitors. We engage with Trade Associations and government bodies to ensure we are 4
Legal / Regulatory updated with developments.
Participating in industry forums gives us an opportunity to influence decision
making.
"Links to strategy" key:
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.
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:
2022 2021
£m £m
Current year LFL sales 1,239.8 981.5
Prior year LFL sales 1,052.2 643.9
________ ________
Growth in LFL sales 187.6 337.6
======== ========
LFL sales growth percentage 17.8% 52.4%
Return on capital employed - calculated by dividing profit before tax by the
average total assets less current liabilities for the year.
2022 2021
£m £m
Profit before tax 148.3 145.6
======= =======
Capital employed:
Opening 681.5 585.6
Closing 730.3 681.5
------------- -------------
Average 705.9 633.6
======= =======
Return on capital employed 21.0% 23.0%
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
2022 2021
£m £m
Net cash inflow from operating activities 251.5 285.5
Repayment of principal of lease liabilities (52.7) (49.0)
------------- -------------
Net cash inflow from operating activities after lease payments 198.8 236.5
======= =======
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
2022 2021
£m £m
Company-managed shop turnover 1,352.3 1,098.2
======= =======
Land and buildings right-of-use assets depreciation 51.6 47.7
Land and buildings right-of-use assets interest charge 6.8 6.3
------------- -------------
Right-of-use asset charges 58.4 54.0
======= =======
4.3% 4.9%
======= =======
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