Greggs plc Annual Report and Accounts 2016 Greggs plc Annual Report and Accounts 2016 We have been making GREAT because... QUALITY bakery products OURSELVES for over 75 years Every savoury is Every sandwich is FRESHLY freshly PREPARED baked every day in our shops Our We make sure our range BALANCED MEETS our CHOICE customers’ range continues to grow needs ...and now accounts for £100m of SALES There is always something NEW to excite customers but our CLASSIC FAVOURITES can’t be beaten GREGGS ...our iconic sausage roll REWARDS continues to be our customers for their BEST SELLER loyalty Strategic Report Our customers can We offer GREAT VALUE TRUST all day, every day! what our food is made of We share our success with the communities around us… 400+ BREAKFAST CLUBS Unsold food DONATED to GOOD CAUSES has increased sixteen-fold since 2013 20,000 WELL TRAINED colleagues 10% of our profits provide GREAT SERVICE to their between our team members CUSTOMERS We want our business to have a positive impact on people’s lives We are INVESTING Constantly £25m to modernise 100m to improve our shops £to reshape and open new ones: and centralise our our supply chain We’ve ambitions to grow to systems and processes to support shop over 2,000 shops nationwide growth Greggs plc Annual Report and Accounts 2016 1 We stand for great tasting, freshly prepared food that our customers can trust, at affordable prices and aim to become the customers’ favourite for food on the go. WITH AMBITIONS TO GROW TO OVER 2,000 SHOPS NATIONWIDE AND OWNERSHIP OF OUR SUPPLY CHAIN WE ARE IN A UNIQUE POSITION TO MAKE GOOD, FRESHLY PREPARED FOOD ACCESSIBLE TO EVERYONE, ENSURING THAT ’EVERYDAY TASTES GOOD’ AT GREGGS. 2 Greggs plc Annual Report and Accounts 2016 Strategic Report Strategic Financial progress highlights UNDERLYING TOTAL EXCLUDING INCLUDING 2016 has been another year of real progress for EXCEPTIONAL ITEMS EXCEPTIONAL ITEMS us as we continued on our journey to transform Greggs into a winning brand in the food-on-the- Total sales go market. We’ve been busy developing our £894m £894m great range of freshly prepared food in line with changing food trends, improving our shops and +7.0% +7.0% investing in customer service so we’re now tastier than ever! Company-managed shop like-for-like sales growth 4.2% 4.2% We’ve made good progress with our £25 million programme of investment in new systems and Pre-tax profit announced plans to invest £100 million in our £80.3m £75.1m supply chain, which will allow us to compete more effectively in the food-on-the-go market +10.0% +2.9% and grow shop numbers. The result has been a third consecutive year of strong like-for-like Diluted EPS sales growth and record profits. 60.8p 56.7p Ordinary dividend 31.0p 31.0p +8.4% +8.4% Return on capital employed 28.1% 26.2% Contents STRATEGIC REPORT DIRECTORS’ REPORT ACCOUNTS Highlights 3 Board of Directors and Secretary 42 Independent auditor’s report 74 Greggs at a glance: Our business model 4 Governance report 44 Consolidated income statement 77 Chairman’s statement 8 Directors’ report 49 Consolidated statement of comprehensive Chief Executive’s report 10 Audit Committee report 51 income 77 Our strategy 18 Remuneration Committee report 56 Balance sheets 78 Strategy in action 20 Statement of Directors’ responsibilities 73 Statements of changes in equity 79 Financial review 30 Statements of cashflows 81 Key financial performance indicators 34 Notes to the consolidated accounts 82 Non-financial key performance indicators 36 Ten-year history 110 Principal risks and uncertainties 39 Financial calendar IBC Secretary and advisers IBC Greggs plc Annual Report and Accounts 2016 3 GREGGS AT A GLANCE: OUR BUSINESS MODEL We’ve been on a journey to transform Greggs from a traditional bakery business into a winning brand in the dynamic food-on-the-go market… Having made strong progress in recent years, we are now ready to set the bar higher, refreshing both our vision and strategic plan to reflect our longer-term ambitions and commitment to putting the customer at the heart of our strategy. Our purpose an extremely competitive market place. Our business began in the 1930s, serving fresh By managing our own logistics operation we can bakery products to working families in the North remain focused on the customer, delivering what East at prices everyone could afford. Today we’re our shops and customers need on time and in full. just as keen for Greggs to have a positive impact on people’s lives. With ambitions to grow to over 2,000 Our target market shops nationwide and ownership of our supply Greggs is a brand with universal appeal and chain, we are in a unique position to make good, we have been working hard to ensure we freshly prepared food accessible to everyone. understand our customers and evolve our offer in response to their changing needs. Our vision This customer understanding informs all our In recent years we have shown we can be a decision making as we set out to become the winning brand in the food-on-the-go market and customers’ favourite for food-on-the-go. our vision now is to become the customers’ favourite for food-on-the-go. To achieve this Our market locations we need to get even better at seeing our business As ‘on-the-go’ eating habits change, we have through the eyes of customers and have continued built on our existing estate of shops to take to invest in understanding their needs. We recently Greggs where our customers want us to be. appointed a new Customer Director to lead our As a result we can now be found in retail parks, development of customer insight, making sure it shopping centres, industrial estates and office drives decision making across the business. parks. We are also located where our customers need us when travelling, with shops in travel Our operations hubs and roadside locations with parking. Ownership of our supply chain means that we Through our franchise partnerships we are can make good, freshly prepared food also in motorway service stations and accessible to everyone at great value in petrol forecourts. What we do Where we operate What we offer Support Delivery Shopping Travel Quality Convenience Manufacturing Shops Work Leisure Value Service 4 Greggs plc Annual Report and Accounts 2016 Strategic Report Manufacturing and distribution centre A typical day in the life of Greggs: Distribution centre How we make sure ’Everyday tastes good’ at Greggs Manufacturing centre 4:00am Teams in our combined manufacturing and distribution centres pull together shop orders Continued overleaf 5:00am 5:30-6:00am From the bread used to make our tasty Our Shop Managers arrive to sandwiches to the nation’s favourite sausage prepare their shops for the busy roll, our dedicated manufacturing teams day ahead, one of their first jobs start work early in the morning and continue involves unpacking products that throughout the day, to ensure all of our are delivered fresh every day products are of the highest quality Greggs plc Annual Report and Accounts 2016 5 GREGGS AT A GLANCE 7:00am Our shops open for business and the increasingly busy breakfast trade starts, with many customers choosing our outstanding £2 breakfast deal to start their day 6:00am 7:30-9:00am From freshly preparing our tasty Our head office support teams sandwiches to baking-off our iconic arrive at Greggs House and savouries our shop teams set to work to Customer Care lines open make sure we can offer our customers great availability as soon as the doors open 6 Greggs plc Annual Report and Accounts 2016 Strategic Report Our dedicated delivery fleet work through the night 11:00am 6:00pm To make sure all of our shops With the breakfast rush over, our Closing time for the receive their orders on time, in shop teams make sure our shelves majority of our shops full and that ’Everyday tastes and counters are full with our good’ for our customers customers’ lunchtime favourites 12:00-2:00pm 3:00pm 12:30am Lunch is served! Our shop teams With the lunchtime rush over our Production finishes… deliver fast and friendly service snacking options and £2 sweet until 5am the next day with a smile treat and hot drink deal appeal to customers in need of an energy boost Greggs plc Annual Report and Accounts 2016 7 CHAIRMAN’S STATEMENT Investing in our future Greggs performed strongly in 2016, benefiting from the investments that we have made in recent years and the continued implementation of changes in line with our strategic plan. The food-on-the-go market continues to grow and is highly competitive and fast-moving. This requires us to constantly evolve and develop our offer to customers. Our clear plan and record of delivery is bringing sustainable long-term growth for the benefit of all stakeholders. Overview In 2016 Greggs demonstrated once again its ability to manage a major change agenda whilst delivering a strong trading and financial performance. The Greggs brand is increasingly relevant to consumers in the food-on-the-go market as a result of our investments in the shop estate and the quality of our food and drink offer. We have made notable progress in the overhaul of our processes and systems and this will continue in the year ahead, alongside significant investment to transform our internal supply chain to support further growth in shop numbers and deliver a more efficient business.