2013 Interim Results - Greggs...2013 £m 2012 £m Sales £361.7 £349.7 +3.4% Operating profit* 11.5...

2013 Interim Results2013 Interim Resultsfor the 26 weeks ended 29 June 2013

Agenda

• First half financial performance

• Strategy

• Outlook

• Questions

22

First half headlines

• Total sales up 3.4% to £362m:

- 19 net new shops opened

- B2B sales contributed 2.0% to sales growth

- Like-for-like sales down 2.9%

• Pre-tax profit down £4.6m to £11.4m• Pre-tax profit down £4.6m to £11.4m

• Diluted EPS down 3.4p to 8.5p

• Good cash generation

• Dividend per share maintained at 6.0p

33

Financial performanceRichard Hutton, Finance DirectorRichard Hutton, Finance Director

44

2013

£m

2012

£m

Sales £361.7 £349.7 +3.4%

Operating profit* 11.5 16.2

Finance expense (0.1) (0.2)

Group sales and profits

Finance expense (0.1) (0.2)

Profit before taxation 11.4 16.0

Diluted earnings per share* 8.5p 11.9p

Dividend per share 6.0p 6.0p

* Restated to reflect amendment to IAS19 (Employee Benefits):- Additional charge in H1 2013 £0.1m (H1 2012: £0.5m)- Expected additional charge for full year 2013 £0.2m (2012: £1.0m)

55

Sales growth driven by new shops and B2B

Net new shops +4.3% (+£15.3m)

New B2B +2.0% (+£6.8m)

LFL -2.9% (-£10.1m)

• B2B growth from annualising of Iceland ‘bake at home’ range extension

• Further Moto franchises, now in 21 locations (June 2012; 2)

• Own shop numbers up 67 vs. June 2012

6

+3.4% total sales (+£12.0m)

6

H1 LFL - an improving trend

7

Wet weather ’12

& Diamond

JubileeTough start to ‘13

7

Significant Q1 profit impact£

m p

rofi

t

8

Incl. benefit of

Diamond Jubilee

comps

Incl. impact of

earlier Easter

£m

pro

fit

8

First half operating profit bridge

99

First half margin

2013

£m

2012

£m

Sales £361.7 £349.7

Gross margin % 59.0% 60.6%

Distribution & selling % 51.0% 51.0%

Admin % 4.8% 5.0%Admin % 4.8% 5.0%

Operating profit 11.5 16.2

Operating margin % 3.2% 4.6%

• GM change: 0.6% mix impact from B2B growth plus increase in

promotional participation & input costs

• D&S costs supported by efficiency projects & one less public holiday

• Admin expenses well controlled

1010

Input costs

First half cost inflation:

2013 H2 outlook:

• Protein & dairy prices driving additional 30bps overall inflation in H2

• Flour position largely open pending wheat harvest

• Business rates increases continue to offset rent reductions

• Currently circa 5 months forward cover

1111

• In recent years savings have averaged c.£8m annually due to:

‒ Supply chain productivity plan (£15m cumulative annual

savings target by 2015)

‒ Step change cost reduction activity

• 2013 on track for similar full year savings

Cost savings on target

• 2013 on track for similar full year savings

• H1 examples:

‒ Simplifying shop operations £0.5m

‒ Better buying £0.8m

‒ Refrigeration maintenance £0.5m

1212

Tax and dividend

2013 2012

H1 tax charge 23.8% 25.3%

Diluted earnings per share 8.5p 11.9p

Dividend per share 6.0p 6.0pDividend per share 6.0p 6.0p

Taxation:

• Effective tax rate reflects 1.25% reduction in headline

Corporation Tax rate

• Guidance for full year now 23.8%, falling to 22.0% from 2016

1313

2013 2012

£m £m

Refits and additional equipment 7.5 8.0

New shops and re-sites 3.5 5.1

Manufacturing capacity 0.2 0.9

Other 7.9 6.4

First half capital expenditure

Other 7.9 6.4

Total capital expenditure 19.1 20.4

Full year capex now expected to be circa £50m

Number of gross new shops opened

(excluding franchises)

25 35

Number of refits 90 64

1414

Cash flow and balance sheet

• Net cash of £12.0m at half year (2012: £1.8m)

• Good capital discipline in H1

• Net £24.7m cash generated from operating activities

(2012: £14.2m)

• Continuing to fund investment from cash generation• Continuing to fund investment from cash generation

1515

StrategyRoger Whiteside, Chief Executive

16

Roger Whiteside, Chief Executive

16

Agenda

• Executive summary

• Market context

• Greggs performance

• Strategic changes

• Impact of strategic changes on 2013• Impact of strategic changes on 2013

1717

Executive summary

• Greggs must complete the transition from traditional bakery retailer to the

growing ‘food on the go’ (FOTG) market

• Focus must be on core FOTG customer and core operations

• Medium term priority is to improve quality of the estate:

- Increased rate of shop relocations

- One `Bakery FOTG’ shop format

- Limited net shop additions for 2-3 years

18

- Limited net shop additions for 2-3 years

• Scope to increase efficiency and capacity of existing supply network – new

savoury plant build postponed

• Developing new markets not a short term priority

• Major investment in processes and systems required to complete centralisation

program

• Re-shaping the business over the next 2-3 years as we build a platform to

deliver long term sustainable growth

18

Market context

• Greggs is pre-eminent in specialist bakery market but this market is

migrating to Grocers

19

1. Specialists made up of Independents and Craft Bakers. Source: BB75; Mintel, Company Reports;

19

Market context

• Greggs has therefore

moved to compete in

the FOTG market,

with the majority of

customer visits now

‘on the go’

20

‘on the go’

1. Other visits include food to be consumed later, or destination food visits

Source: Allegra Strategies: Eating Out in the UK 2012, OC&C Consumer

Survey June 2013, OC&C analysis

20

Market context

• The FOTG market is in growth but Greggs has lost market share

Market Value: FOTG 1vs Eating Out2, 2007-12

Indexed vs 2007 Market Value = 100

21

Source: Allegra Strategies: Easting Out in the UK 2012, BRC

1. Based on coffee shop, sandwich shop and fast food chain purchases

2. Based on restaurant and pub purchases

21

Greggs’ performance

Greggs performance

relative to the FOTG

market has been impacted

by a number of factors:

• Rapidly expanding new

entrants and existing

competitor shop

Greggs sales mix

22

competitor shop

numbers

• Exposure to declining

traditional bakery

categories such as

bread

• Exposure to locations

unsuitable for FOTG

• Recent impact from

Iceland sales

22

Strategic changes - focus on core FOTG market

• Accessing new markets no longer a priority

• Replaced by…

Bakery Food

on the Go

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co

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Keeping people, communities and values at the heart of the business

Me

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Inv

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23

Investing in our shops

Strategic changes:

• Long term opportunity to increase shop numbers

• Medium term focus on improving quality not growing shop

numbers

• Long term consumer trends require re-shaping of estate

2424

1

25

More investment in successful ‘Bakery food on the go’ format

Faster rate of relocation to stronger locations

= Overall shop numbers to be relatively stable over the next 2-3 years

2

1

2

25


Strategic changes:

• Long term opportunity to

increase shop numbers

• Medium term focus on

improving quality not

growing shop numbers

26

growing shop numbers

• Long term consumer

trends requires re-shaping

of estate

• Simplify refits into one

format ‘Bakery Food on

the Go’

26

2. Investing in our shops

Strategic changes

• Simplify refits into one format ‘Bakery Food on the Go’ Before

Before

2727


Strategic changes


Before

2828


Strategic changes


After

2929


Strategic changes:



numbers

• Long term consumer trends requires re-shaping of estate

• Simplify refits into one format ‘Bakery Food on the Go

30


• Better use of space and flow to create ‘Greggs with seats’

30


Strategic changes:



numbers



32



• Strong sales from new formats (130 planned for second half)

32


Strategic changes:



numbers



33



• Strong sales from new formats (130 planned for second half)

• Moto franchise going well and to be extended

33

Accessing new markets - no longer a priority

Strategic changes:

• Iceland wholesale to continue but

not extended to new retailers

• Moment by Greggs trial to be

halted. Existing shops to be

34

halted. Existing shops to be

integrated into main chain,

wherever possible

• International not a priority

34

Improving operational effectiveness

New strategic initiative:

• Significant progress in recent years to centralise the business.

• Now need to begin final phase to invest in process and systems

• Independent review completed in first half

• Major investment required in process and systems

35

• Major investment required in process and systems

replacement:

‒ £25m investment over 5 years

‒ £38m direct benefits expected plus improved

responsiveness and flexibility for future developments

• £6m per annum net benefit as we complete the programme

35

Improving operational effectiveness

Practical examples:

• Integrated ERP-based stock system replacing legacy of

autonomous divisional manufacturing & warehousing systems

• New ordering processes to ensure better product availability

and reduced waste

36

and reduced waste

• Forecast-based manpower planning application to replace

manually generated staff rotas

• More transparent supplier management and purchasing

processes to drive full benefits of scale in buying

36

Competitive advantage through supply chain

Strategic changes:

• Focus on efficiency and

capacity from existing

network

• Postpone plans for new

37

• Postpone plans for new

frozen manufacturing

facility

• Continue development of

centres of excellence

37

Meeting consumer needs - focus on FOTG

3838


Strategic changes:

• Overhaul, simplify and re-launch existing categories, e.g. Sweet

3939

Strategic changes:


• Develop new reasons to visit e.g. Pizza


4141

Strategic changes:


• Develop new reasons to visit, e.g. Pizza

• Promote quality credentials not just price, e.g. improved bakes


4343

Strategic changes:




• Improve availability and service - early morning and Sunday


45


45

Strategic changes:






46


• Build day part - extended trading hours

46

Strategic changes:






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• Build day part - extended trading hours

• Engage customers better through loyalty scheme

47

Financial impact of strategic changes on 2013

• £6-8m of one–off exceptional charges in H2 2013:

- Sunk costs of plans for frozen manufacturing facility

- Impairment of Greggs Moment shop assets

- Provision for onerous leases on 9 accelerated closures

- Impairment of Southall development site value

49

• Financing facility no longer required

49

Current trading

and outlook

50

and outlook

50

Outlook

• Trading conditions remain challenging

• Improving LFL trend in Q2

• Momentum lost in recent heat wave

• 3.2% LFL decline in past 5 weeks to August 3rd

• Expectations for full year profits reduced by £3m

• Strategic plan has been changed to focus on core FOTG

51

• Strategic plan has been changed to focus on core FOTG

business

Re-shaping the business over the next 2-3 years as we build a

platform to deliver long term sustainable growth

51

QUESTIONSQUESTIONS

52

2013 Interim Results - Greggs...2013 £m 2012 £m Sales £361.7 £349.7 +3.4% Operating profit* 11.5...

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Transcript of 2013 Interim Results - Greggs...2013 £m 2012 £m Sales £361.7 £349.7 +3.4% Operating profit* 11.5...