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."

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 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.

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.

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