Greggs plc Annual Report 2004

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FY2004 Annual Report · Greggs plc

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Baked-in
flavour

A N N U A L R E P O R T & A C C O U N T S 2 0 0 4

Fernwood House, Clayton Road, Jesmond, Newcastle upon Tyne NE2 1TL.
www.greggs.co.uk

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Financial Highlights

Turnover

Pre-tax profits

Post-tax profits

Shareholders’ funds

Capital expenditure

Earnings per share

Dividend per
ordinary share

2004
£’m
504.2
46.7
31.6
157.2
25.0

Pence

264.7

96.0

*As restated following adoption of UITF 38

Financial calendar

Announcement of results and dividends

Half year

Full year

Dividends

Interim

Final

Annual report
posted to shareholders

Annual General Meeting

2003*
£’m
457.0
40.5
27.2
134.2
32.4

Pence

230.5

80.0

Early August

Early March

Mid October

Late May

Early April

17 May 2005

EPS

DIVIDEND

Pence
270

260

250

240

230

220

210

200

190

180

170

160

150

140

130

120

110

100

1985

1986

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

2002

2003 2004

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

50 51

Nationwide Coverage

GREGGS

BAKERS OVEN

SHOP NUMBERS

2004

2003

SHOP NUMBERS

2004

2003

Scotland

North East

Cumbria

Yorkshire

North West

Midlands

South Wales

South East

GREGGS

139

114

119

129

144

102

249

133

108

116

125

137

239

Bakers Oven Scotland

Bakers Oven North

Bakers Oven Midlands

Bakers Oven South

BAKERS OVEN

214

222

Greggs Belgium

1,045

1,007

TOTAL

1,263

1,231

Contents
Contents

FINANCIAL REVIEW

CHAIRMAN’S STATEMENT

MANAGING DIRECTOR’S REPORT

16 DIRECTORS’ REPORT

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

REPORT OF THE INDEPENDENT AUDITORS

22 GROUP PROFIT & LOSS ACCOUNT

23 GROUP BALANCE SHEET

PARENT COMPANY BALANCE SHEET

25 GROUP CASH FLOW STATEMENT

26 ACCOUNTING POLICIES

28 NOTES TO THE ACCOUNTS

42 DIRECTORS’ REMUNERATION REPORT

46 CORPORATE GOVERNANCE

49 CORPORATE SOCIAL RESPONSIBILITY

50 TEN YEAR HISTORY

50 DIRECTORS & ADVISERS

SHOP ALLOCATION

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

Mission, vision
and values.

Our Business.

Greggs plc is the UK’s leading retailer specialising in sandwiches,

Enjoyable Experience: we will deliver customer satisfaction by offering

great-tasting food at unbeatable value to the highest standards of food

safety. This will be achieved from shops that provide friendly and

savouries and other bakery-related products, with a particular focus on

efficient service in attractive surroundings.

takeaway food and catering. We continue to show significant growth

and now have over 1,250 retail outlets, trading under the Greggs and

Bakers Oven brands.

Our Vision and Purpose.

Business Excellence: our people will seek continuous improvement

in their areas of responsibility, enabling them to make a real and lasting

contribution to the objectives of the Company.

Challenging Targets: we will strive to achieve a turnover of £1 billion

Our vision is to be Europe’s finest bakery-related retailer. Our purpose

by 2010 through continued core growth and the acquisition of new

is the growth and development of a thriving business, operating with

units, taking us to over 1,700 shops.

integrity, for the benefit and enjoyment of our people, customers,

shareholders and the wider community.

Our Strategy.

Our people will be enabled, within overall guidance from the centre,

to work towards the successful attainment of world-class standards.

To achieve this, the focus will be on:

Caring for the Community: our continued emphasis on social

responsibility will encourage even greater involvement in local charity

activities and social projects, and a growing focus on protecting

the environment.

Our Values.

As a people-focused business, we aim to be enthusiastic and supportive

A Great Place to Work: we will place major emphasis on promoting

in all that we do, open, honest and appreciative, and to treat everyone

a culture that encourages personal development, leadership qualities

with fairness, consideration and respect.

and creativity. This will be supported by working conditions that meet

the needs of our present and future people.

Our Culture.

We are achievers! Working hard in a friendly and informal way,

where everyone matters.

All of our sandwiches are made fresh on the day, using
freshly made bread, direct from our own bakeries.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

Chairman’s Statement

Tasty.

Derek Netherton
Chairman

I am pleased to report another year of good progress, based on our proven business strategy

and values. Both our brands achieved healthy like-for-like sales growth, contributing to

improved operating margins, while costs were again well controlled. This enabled the Group

to deliver its thirteenth consecutive year of profit, earnings and dividend growth.

Results

Dividend

The 2004 financial year comprised the 53 weeks to 1 January 2005

The Board recommends a final dividend of 66.0 pence per share

(2003: 52 weeks to 27 December 2003). Total Group sales

(2003: 54.5 pence). Together with the increased interim dividend

for the period increased by 10.3 per cent to £504 million

of 30.0 pence, paid in October 2004, this makes a total for the

(2003: £457 million). Adjusted to a comparable 52 week basis,

year of 96.0 pence (2003: 80.0 pence), a rise of 20.0 per cent.

the total sales increase would have been 8.4 per cent. Operating

profit grew by 14.0 per cent to £44.7 million (2003: £39.2 million),

with a 0.3 percentage point improvement in operating margin

reflecting our core volume growth and effective cost management.

This more than offset continuing pressure from increasing wage

costs. Because of shop holiday closures, inclusion of the 53rd week

had a small negative impact on operating profit.

After increased net interest receivable of £2.0 million (2003:

£1.3 million), pre-tax profit rose by 15.3 per cent to £46.7

million (2003: £40.5 million). Basic earnings per share grew by

14.8 per cent to 264.7 pence (2003: 230.5 pence).

Net cash in the balance sheet at the year end was £62.6 million,

compared with £36.4 million at the end of 2003.

We have increased our dividends to shareholders every year

since the company floated in 1984, and the compound rate of

growth over this period has been 18 per cent per annum.

The Board is committed to a progressive dividend policy and,

in view of the Company’s consistently strong cash generation,

believes that it is likely that dividends will grow faster than

earnings over the next few years.

Subject to the approval of the Annual General Meeting, the final

dividend will be paid on 27 May 2005 to shareholders on the

Sometimes it’s nice to indulge in pure pleasure and we
are proud to have harnessed best practice from across
our regional divisions to create the ultimate doughnut.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

Chairman’s Statement continued

Sweet.

Business highlights

People

Our sustained success in the bakery-related takeaway food market

The business depends on all our people working together to deliver

reflects our clear, specialist focus and further improvements in our

great products and excellent customer service each day. Our good

products, shops and service. These have been complemented by

results testify once more to the strength of their individual commitment

successful, national brand marketing initiatives which are helping us

and the effectiveness of their teamwork. On behalf of the Board,

to achieve growing customer awareness of our consistent quality and

I would like to express our thanks for all that they have achieved

value. We also benefited from more favourable weather patterns

during the year.

over the year as a whole. Mike Darrington provides a more detailed

commentary on these and other trading and business development

Prospects

issues in his Managing Director’s Report on pages 9 - 15.

During 2005 we plan to accelerate both the opening of new shops

The Board

and the refurbishment of established outlets. We will be supporting

this retail development with substantial investment in our manufacturing

Julie Baddeley, 53, joined the Board as an additional Independent

facilities, including the construction of a new savouries plant in

Non-Executive Director on 1 March 2005, and has also become

Newcastle upon Tyne. As a result, capital expenditure is budgeted

a member of the Board’s Audit, Remuneration and Nominations

to rise to nearly £50 million for the year.

Committees. Julie is a non-executive director of Yorkshire Building

Society, Computerland UK and the Pension Client Group within the

Government’s Department of Work and Pensions. She previously

held senior executive roles at Accenture, Sema Consulting and

Woolwich plc, where she was a main board director responsible for

Information Technology and Human Resources. Her extensive

experience in these areas complements the existing strengths and

skills of the Board, and is expected to enable her to make a valuable

contribution to our discussions.

Trading in the current year has started satisfactorily, with like-for-like

sales in the year to date increasing by 5.2 per cent. Selling price

inflation, which was 2.4 per cent at the end of 2004, is expected to

trend upwards as we seek to recover further substantial increases in

wage costs. We also face a significant rise in energy costs in the second

half, following the end of our current long-term supply agreement.

Despite these pressures, I believe that the Group is well equipped to

make further progress during the year.

Derek Netherton

Chairman

14 March 2005

At Greggs we aim to source the very best ingredients to
ensure our customers enjoy the highest quality products.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

The growth of Greggs has been based on the quality of our business

ingredients. These include a proven strategy, enjoyable products, strong

brands and a commitment to giving customers great service and good

value. Our most important ingredient of all is our excellent team of

people. Once again they have been a pleasure to work with over the

year, and have delivered results ahead of expectations.

Sir Michael Darrington
Managing Director

Managing Director’s Report

Healthy.

Trading performance

Our good progress during 2004 reflects the benefits of increasing

volume uplift of 3.7 per cent. The like-for-like sales increase for the

core volumes through our established shops, the addition of a net

year as a whole was 5.1 per cent, including core volume growth

32 new units and our continued focus on controlling costs. After a

of 2.9 per cent.

slow start like-for-like sales growth improved during the late spring

and summer, when our performance compared with a period of

exceptionally hot weather in 2003. Although progress then returned

to more normal levels, a good consumer response to our marketing

campaigns and generally favourable weather helped us to achieve

better than expected like-for-like sales growth in the final quarter,

despite the widely reported weakness of high street retailing over

the Christmas period.

After a like-for-like sales increase of 4.1 per cent in the first half

(24 weeks), which included core volume growth of 2.0 per cent,

performance improved in the second half (29 weeks), when we

achieved like-for-like sales growth of 6.0 per cent, including a core

Our selling price inflation was 2.1 per cent in the first half and 2.3 per

cent in the second, averaging 2.2 per cent for the year. This again

reflected a continuing programme of product upgrades as well as the

recovery of significant cost increases. The most important of these

was in wages, as we responded to market pressures throughout the

retail sector and sought to ensure that our remuneration would

continue to attract and retain high quality people.

Including the benefit of new shop openings in the current and prior

year, total sales rose by 10.3 per cent, comprising increases of 7.5

per cent in the first half and 12.6 per cent in the second, which this

year included the benefit of a 53rd trading week.

The latest Bakers Oven shop design
reinforces the brand’s core values
and is driving significant sales growth.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

10 11

Fresh.

Managing Director’s Report continued

Bakers Oven brand

As the Chairman has noted, inclusion of the 53rd week actually had

The four Bakers Oven divisions showed a very good improvement

a small negative effect on operating profit, which nevertheless rose

in both their like-for-like sales performance and their contribution to

by 14.0 per cent to £44.7 million as operating margin benefited from

Group profits. Like-for-like sales for the year grew by 6.3 per cent,

our higher volume throughput. Including the benefit of increased

including a core volume increase of 4.8 per cent. The brand

interest receivable on our growing average cash balances, pre-tax

enjoyed a good first half, in which like-for-like sales grew by 5.0 per

profit improved by 15.3 per cent to £46.7 million.

cent and core volumes by 3.9 per cent. Growth accelerated in the

Greggs brand UK

second half, which produced a like-for-like sales increase of 7.2 per

cent including a core volume gain of 5.5 per cent. Selling price

The nine Greggs divisions in the UK represent more than 80 per cent

inflation over the year was below the Group average at 1.5 per

of our retail portfolio and naturally remain the major contributor to

cent, reflecting our successful initiatives to enhance consumer

Group profits. Like-for-like sales for the year grew by 4.9 per cent,

perceptions of the brand’s value credentials, notably in sandwiches.

including core volume growth of 2.4 per cent. This comprised a

like-for-like increase of 3.8 per cent in the first half and 5.7 per cent

in the second, including core volume gains of 1.4 per cent and 3.2 per

cent respectively.

The improved performance of Bakers Oven follows the

appointment of a new managing director and a strengthening of the

senior team last year. The management team has taken determined

action to drive sales through improvements in the product offer,

The improvement in like-for-like sales performance was assisted by

service standards and retail environment. It has also addressed areas

a major brand re-launch in April, with the introduction of an updated

of past underperformance, notably through the rationalisation of the

identity designed to re-emphasise our heritage as a baker. This featured

retail chain in Scotland.

in point of sale material and in-shop promotions, and was backed by

a major media campaign that included TV advertising in most of our

regions, using the slogan ‘It’s the way we bake it that makes it’.

This is helping us to achieve growing national awareness of Greggs

as the leading brand in the bakery arena, including takeaway food.

We are particularly pleased that this improvement in profitability is

broad based, encompassing all four Bakers Oven divisions.

Greggs Continental Europe

We opened additional shops in Antwerp and Leuven during the

All divisions made pleasing progress during the year.

year, giving us two in each city and a total of four in Belgium.

We continue to refine and develop our product range as the

learning process continues.

Our savoury products are at the core of our business,
they are a vital part of our brand difference and they
continue to be our strongest-growing category.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

12 13

Savoury.

Managing Director’s Report continued

Retail profile

Product profile

We opened a total of 56 new shops during the year and closed 24,

Sales growth under both our brands continued to be driven

including 10 which were re-sited in better locations. This produced

predominantly by the takeaway food categories of savouries and

a net increase of 32 shops to a total of 1,263 at the year end. At the

sandwiches. Savouries showed the strongest growth, though

beginning of 2005 we had 1,045 units under the Greggs brand in

sandwiches also made good progress, benefiting from the Greggs

the UK, a net addition of 38; four under the Greggs fascia in Belgium,

brand relaunch and improvements to the Bakers Oven range.

a net addition of two; and 214 under the Bakers Oven brand, a net

Cakes and confectionery products continued to generate modest

reduction of eight. We completed 24 comprehensive shop

like-for-like sales growth. The traditional bakery staples of bread and

refurbishments and 8 minor refits during the year.

rolls continued their long term decline as a proportion of our sales,

Further work was undertaken to refine the new Greggs shop format,

with the aim of reinforcing our credentials as a baker, softening

some aspects of its takeaway orientation and reducing the costs of

though we believe that their quality and their presence in our shops

is an important contributor both to the success of our sandwich

ranges and to positive consumer perceptions of our entire offer.

its implementation. Investment in shop refurbishments was

Enjoyability and customer choice remain key criteria in our approach

deliberately restrained as this process continued. Although some

to product development. We have continued to widen the ‘Lifestyle

work remains to be done, I am pleased to report that the results

Choice’ range of healthier-eating sandwiches and wraps, and are

of our latest trials have been sufficiently encouraging to permit a

seeing a gradual and progressive improvement in sales.

significant acceleration of the refurbishment programme in the

current year, when we expect to refit some 60 shops.

Strategic principles

We also plan to increase the pace of new shop openings in 2005,

and expect to add a net 45 shops to our chains during the year.

Although these will predominantly be under the Greggs brand in the

UK, we also plan a number of openings for Bakers Oven and the

addition of two further shops in Belgium.

We attach great importance to the Mission, Vision and Values

statement set out on page 3, and have continued to make progress

in all key areas.

Managing Director’s Report continued

‘A Great Place to Work’. Greggs began as a small family bakery and

best practice. The adoption of EFQM total quality management

we have always striven to maintain the ethos of a caring business that

standards has helped us in the process of systematically targeting,

puts its people first. By treating our people correctly, we aim to

benchmarking and measuring progress, by facilitating self-assessment

ensure that they will treat customers well and help us to deliver good

and the identification of critical areas for improvement.

results for the benefit of all our stakeholders. We have borne a

substantial increase in our wage bill to ensure that we can continue to

recruit and retain high quality staff, particularly in our shops. We are

also seeking to improve the working environment for all our people

through investment in improved staff facilities in our shops and

bakeries, and the progressive upgrading of our offices. During the year

we undertook an extensive consultation exercise to develop a new

statement of our culture, in words with which everyone in the

Group can identify. This underlines our commitment to treating all our

people in a friendly and informal way. While we are committed to

hard work and achievement, we also want everyone to know that

they matter and to enjoy what they do.

‘Challenging Targets’. Our growth has always been based on setting

and attaining stretching targets. Since 1998 we have had a published

goal of expanding the Group to achieve sales of £1 billion through

1,700 shops by 2010. As I noted last year, our planned growth has

been constrained by our search for the right formula to permit us to

drive expansion of the Bakers Oven chain. Latterly we had also

slowed the Greggs shop opening programme as we focused on

refining and developing its new concept. I am pleased that we are

now in a position to accelerate our retail expansion and look forward

to making more rapid progress towards our targets in the current

year and beyond. In the longer term, I remain confident that there

is significant further potential for the Group, with scope for at least

‘Enjoyable Experience’. Our business is all about producing tasty

2,000 shops under our existing brands in the UK and additional

fresh food for daily purchase. Customers will only return to us day

opportunities on the Continent.

after day if we provide them with something that gives them real

pleasure and satisfaction. The consistent focus of our investment in

product development is therefore on making everything we sell even

more enjoyable. We are aided in this by the substantial resources

available in our state-of-the-art Group Technical Centre in Newcastle

upon Tyne, where our technologists and chefs are also applying

themselves to the reduction of salt and fat in our products, in line with

Government guidelines. We are strongly committed to the principle

of customer choice, and lower fat alternatives to a number of our key

lines are currently under trial. The facilities at the Group Technical

Centre for the rapid microbiological testing of ingredients and products

are also helping us to ensure the highest standards of food safety.

‘Caring for the Community’. We remain strongly committed to

making a contribution to the communities where we operate,

particularly in areas of social deprivation. The Greggs Breakfast Clubs

in selected primary schools have proved of real value in improving

pupils’ attendance and concentration in the morning, as well as

encouraging family involvement in their children’s schools. We have

expanded the Clubs to 82 locations and expect to have 120 in

operation by the end of 2005. Their development has been aided

by the recruitment of a new Community Initiatives Manager, who

also works closely with Greggs Trust. The Trust is our principal

channel for the distribution of the Group’s charitable donations,

which last year totalled £615,000 (2003: £420,000), in line with our

‘Business Excellence’. We are determined to achieve continuous

commitment as a founder member of the ‘Per Cent’ Club. We gave

improvement in every area of our business by simplifying what we

£100,000 to the DEC appeal after the horrific Asian tsunami and

do and ensuring that all our people understand our corporate

I am pleased to report that this Group donation has been more

objectives and how they can help to realise them. Great emphasis

than matched by the fund-raising efforts of our staff. We also remain

is placed on effective two-way communication with everyone in the

an active supporter of Business in the Community.

Group and on continuously raising standards through the sharing of

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

14 15

Our commitment to corporate social responsibility extends to

ensuring proper care for the environment, and we have continued

to pursue a range of initiatives to reduce our environmental impact

by promoting efficient energy utilisation, maximising the recycling of

packaging and minimising waste.

Capital investment

People

We have an excellent team, which it is a real privilege to lead. I am

glad to report that our genuine commitment to our people is fully

matched by their commitment to doing an excellent job. Thus once

again it is a great pleasure to be able to thank all our 18,240 employees

for their individual contributions to another record result for the Group.

Capital expenditure during the year totalled £25.0 million, compared

I am also delighted to welcome the 335 additional staff we were

with our original budget of £34.0 million and actual expenditure of

able to recruit through our continued expansion in 2004, and look

£32.4 million in the prior year. This reduction principally reflected a

forward to the creation of a further 650 jobs in the current year.

lower number of shop refurbishments than we had originally expected.

In total we spent £13.4 million (2003: £14.3 million) on new shops

The future

and refurbishments, £8.3 million (2003: £13.8 million) on land,

As the Chairman has noted, the Group faces significant pressures

buildings and plant, and £3.3 million (2003: £4.3 million) on vehicles.

from rising wage and energy costs during 2005. The challenge to us

Expenditure on major bakery projects was at a lower level than in 2003,

as managers is to absorb these increases while accelerating our shop

though we completed extensions of our facilities in Leeds and Edinburgh.

refurbishment and opening programmes and continuing to enhance

During 2005 we expect a major increase in capital expenditure to

nearly £50 million. This reflects the acceleration of our shop

refurbishment and opening programmes, together with increased

investment in our manufacturing and distribution facilities to support

our products, service and marketing. I am confident that we have

the right team in place to handle all these issues successfully, and to

deliver a year of further progress towards our strategic targets and

our vision of being Europe’s finest bakery-related retailer.

the growth of our retail chains. The largest such project is the

Sir Michael Darrington

construction of a second central savouries facility at Balliol Park,

Newcastle upon Tyne, close to the original factory we opened in

Managing Director

14 March 2005

1998 and employing the same, proven technologies and processes.

This will involve a total investment of £13 million over the next two

years, and will enable us to meet growing demand for our successful

savouries ranges under both the Greggs and Bakers Oven brands.

Cash flow and balance sheet

Our strong operating cash flow combined with lower than expected

capital expenditure resulted in an increase in net cash on the balance

sheet to £62.6 million at the year end. This compared with £36.4

million in December 2003, and £46.7 million at the end of our

first half in June 2004.

Directors’ Report

The directors have pleasure in presenting their annual report and the

audited accounts for the 53 weeks ended 1 January 2005.

The comparative period is the 52 weeks ended 27 December 2003.

Principal activity

The principal activity of the Group is the retailing of sandwiches,

savouries and other bakery related products with a particular focus

Directors and their interests

The names of the directors in office during the year together with

their relevant interests in the share capital of the Company (as defined

in the Companies Act 1985) at 1 January 2005 and 27 December

2003 (or at date of appointment if later) are set out in note 6 to the

accounts. Details of directors’ share options are set out in the Directors’

on takeaway food and catering. The majority of products sold are

Remuneration Report on pages 42 to 45.

manufactured in house.

Results and dividends

Sales for the financial period (excluding VAT) were £504,186,000,

an increase of £47,208,000, or 10.3% over the previous financial

year. Group profit before taxation amounted to £46,702,000,

On 11 May 2004, Sonia Elkin retired as a non-executive director.

On 1 March 2005, Julie Baddeley was appointed a non-executive

director.

Trustee holdings of ordinary shares with no beneficial interest include

138,439 shares held by the Greggs Employee Benefit Trust of which

an increase of 15.3% over the previous financial year.

certain directors are trustees.

An interim dividend of 30p per ordinary share was paid on 1 October

2004 and the directors propose a final dividend of 66p payable on

27 May 2005, leaving profit for the financial year to be retained of

£20,063,000 (2003: £17,761,000).

Business review

In accordance with the Company’s Articles of Association, Stephen

Curran, Ian Gregg, Susan Johnson, Derek Netherton and Malcolm

Simpson retire from the Board and, being eligible, offer themselves

for re-election. Having been appointed since the last Annual

General Meeting, Julie Baddeley retires from the Board and, being

eligible, offers herself for re-election.

A review of the business during the year and an outline of future

developments are given in the Chairman’s statement and Managing

Corporate Governance

Director’s report.

Fixed assets

In the opinion of the directors the market value of all of the Group’s

properties is not significantly different from their historical net

book amount.

A separate report on corporate governance is set out on pages

46 to 48.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

16 17

Substantial shareholdings

Employment policies

At 14 March 2005, the only notified interests of substantial

We are committed to promoting policies which ensure that employees

shareholdings in the issued share capital of the Company were:

and those who seek to work for us are treated equally, regardless of

Number of
shares held

Percentage
of issued
share capital

sex, marital status, creed, colour, race or ethnic origin.

It is our policy to give full and fair consideration to applications for

employment by people who are disabled, to continue wherever

possible the employment of staff who become disabled and to provide

equal opportunities for the career development of disabled employees.

The number and dispersion of the Group’s operating locations make

it difficult, but essential, to communicate effectively with employees.

Communication with our shop staff is principally through the

operational structure of shop area and divisional management.

We communicate with our bakery staff by regular briefings and

9.10%

6.96%

4.26%

4.22%

3.78%

A.J. Davison
(as trustee of various settlements)

FMR Corporation

1,104,941

844,607

Mrs G.V. Richardson and family

517,906

Prudential plc

Standard Life

Scottish Widows Investment
Partnership

512,400

459,141

376,059

3.10%

letters. All staff receive a copy of divisional and Group gazettes.

Various trustees jointly hold shares with A.J. Davison above, some

of whom, by reason of such joint holdings and other holdings in their

The Group operates Profit Sharing and Savings Related Share Option

Schemes to encourage its employees to identify with its corporate

own name, have declarable interests as follows: Mrs F.M.E. Nicholson

objectives.

(7.72% jointly held with A.J. Davison and others plus 0.04% in other

holdings), Mrs F.K. Deakin (7.72% jointly held with A.J. Davison and

others plus 0.03% in other holdings) and Mr J.A. Wardropper (5.95%

jointly held with A.J. Davison and others).

Payments to suppliers

Supplier credit is an important factor in the success of the Group.

Whilst the Group does not follow any code or standard on payment

practice, payments to suppliers are made in accordance with the

Group’s normal terms and conditions of business except where

varied terms and conditions are agreed with individual suppliers,

in which case these prevail. Where disputes arise we attempt to

resolve them promptly and amicably to ensure delays in payment

are kept to a minimum.

The average creditor payment period for the Company and the Group

at 1 January 2005 was 41 days (2003: 41 days).

Directors’ Report continued

Charitable contributions

This fair value will then be charged to the profit and loss account.

Under UITF 17 no charge to profit and loss account was required

The Group is a member of the ‘Per Cent’ Club. Charitable donations

in respect of these schemes.

of £615,000 (representing 1.3% of profit before tax) were made

by the Group during the year, including £351,000 to Greggs Trust.

IAS 12 Deferred tax

More details about Greggs Trust can be found on page 49.

International Financial
Reporting Standards

Deferred tax balances will be calculated with reference to temporary

differences which are based on balance sheet carrying values and

related tax allowances. This differs from UK GAAP whereby profit

and loss based timing differences give rise to deferred tax balances.

This is the last year that the audited accounts will be presented

Dividends

under UK GAAP.

For reporting periods beginning on or after 1 January 2005 the

consolidated accounts of the Group must comply with International

Financial Reporting Standards (“IFRS”). This will include comparative

The Company normally declares dividends to the holders of equity

shares after the balance sheet date. These dividends will not be

recognised as a liability at the balance sheet date as is currently the

situation. Dividends paid during the period will not be shown on the

face of the Income statement but will be included in the

information for 2004 (subject to certain exemptions). During 2004

reconciliation of equity statement.

the Group has continued its preparatory work to enable it to report

its interim 2005 results under IFRS.

The key areas that have been identified as having an impact for

the Group are as follows:

IAS 19 Pension scheme accounting

The adoption of IFRS will result in changes to the format and disclosure

requirements of both the primary financial statements and the

related notes.

Auditors

Under this standard the Group defined benefit pension scheme’s

In accordance with Section 384 of the Companies Act 1985,

net liability position will be included on the balance sheet with the

a resolution for the re-appointment of KPMG Audit Plc as auditors

returns on scheme assets, current service costs and interest costs

of the Company will be proposed at the forthcoming Annual

being movements in the profit and loss account. The net position is

General Meeting.

expected to be broadly in line with FRS 17 values disclosed in note

7 (which would have been recognised in the 2005 opening balance

By order of the Board

Andrew Davison

sheet under UK GAAP) with some limited differences in the

Secretary

measurement parameters used. The Group will, for the first time,

Greggs plc (CRN 502851)

be required to prepare a Statement of Recognised Income and

Expense which will reflect the actuarial gain or loss on the scheme

(presuming that IAS 19 (Revised) is endorsed for use in the EU).

IFRS 2 Share options

The fair value of share based payments will be calculated using an

Fernwood House

Clayton Road

Jesmond

Newcastle upon Tyne

NE2 1TL

option pricing model for all employee share option schemes.

14 March 2005

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

18 19

Statement of Directors’ Responsibilities
in respect of the preparation of Accounts

The directors are required by company law to prepare accounts for

The directors have responsibility for ensuring that the Company keeps

each financial year which give a true and fair view of the state of affairs

accounting records which disclose with reasonable accuracy at any

of the Company and the Group at the end of the financial year and

time the financial position of the Company and which enable them

of the results for that period.

to ensure that the accounts comply with the Companies Act 1985.

The directors consider that in preparing the accounts on pages 22

The directors have general responsibility for taking such steps as are

to 41, they have used appropriate accounting policies, consistently

reasonably open to them to safeguard the assets of the Group and

applied and supported by reasonable and prudent judgements and

to prevent and detect fraud and other irregularities.

estimates, and that all accounting standards which they consider to

be applicable have been followed. The accounts have been prepared

on a going concern basis on the presumption that the Group will

continue in business.

Report of the Independent Auditors to the Members of Greggs plc

We have audited the accounts on pages 22 to 41. We have also

We report to you our opinion as to whether the accounts give a true

audited the information in the Directors’ Remuneration Report that

and fair view and whether the accounts and the part of the Directors’

is described as having been audited.

Remuneration Report to be audited have been properly prepared in

This report is made solely to the Company’s members, as a body, in

accordance with section 235 of the Companies Act 1985. Our audit

work has been undertaken so that we might state to the Company’s

members those matters we are required to state to them in an auditor’s

report and for no other purpose. To the fullest extent permitted by

law, we do not accept or assume responsibility to anyone other

accordance with the Companies Act 1985. We also report to you if,

in our opinion, the directors’ report is not consistent with the accounts,

if the Company has not kept proper accounting records, if we have not

received all the information and explanations we require for our audit,

or if information specified by law or the Listing Rules regarding

directors’ remuneration and transactions with the Group is not disclosed.

than the Company and the Company’s members as a body, for our

We review whether the corporate governance statement on pages

audit work, for this report, or for the opinions we have formed.

46 to 48 reflects the Company’s compliance with the nine provisions

Respective responsibilities of
directors and auditors

The directors are responsible for preparing the Annual Report and the

Directors’ Remuneration Report. As described on page 19 this includes

of the 2003 FRC Code specified for our review by the Listing Rules,

and we report if it does not. We are not required to consider

whether the Board’s statements on internal control cover all risks

and controls, or form an opinion on the effectiveness of the Group’s

corporate governance procedures or its risk and control procedures.

responsibility for preparing the accounts in accordance with applicable

We read the other information contained in the Annual Report,

United Kingdom law and accounting standards. Our responsibilities,

including the corporate governance statement and the unaudited

as independent auditors, are established in the United Kingdom by

part of the Directors’ Remuneration Report, and consider whether it

statute, the Auditing Practices Board, the Listing Rules of the Financial

is consistent with the audited accounts. We consider the implications

Services Authority and by our profession’s ethical guidance.

for our report if we become aware of any apparent misstatements

or material inconsistencies with the accounts.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

20 21

Basis of audit opinion

Opinion

We conducted our audit in accordance with Auditing Standards issued

In our opinion:

by the Auditing Practices Board. An audit includes examination, on a

test basis, of evidence relevant to the amounts and disclosures in the

accounts and the part of the Directors’ Remuneration Report to be

audited. It also includes an assessment of the significant estimates and

judgements made by the directors in the preparation of the accounts,

and of whether the accounting policies are appropriate to the

Group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information

and explanations which we considered necessary in order to provide

us with sufficient evidence to give reasonable assurance that the

accounts and the part of the Directors’ Remuneration Report to be

audited are free from material misstatement, whether caused by fraud

or other irregularity or error. In forming our opinion we also evaluated

the overall adequacy of the presentation of information in the accounts

and the part of the Directors’ Remuneration Report to be audited.

• the accounts give a true and fair view of the state of affairs of the

Company and the Group as at 1 January 2005 and of the profit

of the Group for the 53 weeks then ended; and

• the accounts and the part of the Directors’ Remuneration Report

to be audited have been properly prepared in accordance with

the Companies Act 1985.

KPMG Audit Plc

Chartered Accountants

Registered Auditor

Newcastle upon Tyne

14 March 2005

Group Profit and Loss Account

for the 53 weeks ended 1 January 2005

Turnover

Cost of sales

Gross profit

Distribution and selling costs

Administrative expenses

Operating profit

Net interest receivable and other income

Profit on ordinary activities before taxation

Taxation on profit on ordinary activities

Profit on ordinary activities after taxation

Dividends paid and proposed

Retained profit for the financial year

Basic earnings per share

Diluted earnings per share

Note

2004

£’000

504,186

(193,009)

311,177

(228,891)

(37,572)

44,714

1,988

46,702

(15,115)

31,587

(11,524)

20,063

264.7p

262.0p

2003

£’000

456,978

(175,284)

281,694

(209,559)

(32,968)

39,167

1,305

40,472

(13,235)

27,237

(9,476)

17,761

230.5p

227.6p

The Group’s operating profit for both the current and preceding financial year derives from continuing operations. There are no recognised gains or losses during the current and
previous year other than the profit for the year.

RECONCILIATION OF MOVEMENT IN CONSOLIDATED SHAREHOLDERS’ FUNDS
for the 53 weeks ended 1 January 2005

Profit for the financial year

Dividends

Retained profit for the financial year

New share capital
- nominal value

- share premium

Purchase of own shares into Employee Benefit Trust

Sale of own shares from Employee Benefit Trust

Net addition to shareholders’ funds

Opening shareholders’ funds – as previously stated

Prior year adjustment – see accounting policies

Opening shareholders’ funds – as restated

Closing shareholders’ funds

2004

£’000

139,196

(5,046)

2003

£’000

119,965

(3,561)

2004

£’000

31,587

(11,524)

20,063

680

(941)

3,200

23,008

134,150

157,158

2003

£’000

27,237

(9,476)

17,761

1,452

(1,485)

17,746

116,404

134,150

Group Balance Sheet

at 1 January 2005

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

22 23

1 January

2005

27 December

2003

As restated (see

accounting policies)

Note

£’000

Fixed assets

Tangible assets

Investments

Current assets

Stocks

Debtors

Cash at bank and in hand

7,283

13,949

62,601

83,833

Creditors: amounts falling due within one year

(74,811)

Net current assets / (liabilities)

Total assets less current liabilities

Creditors: amounts falling due after more than one year

Provisions for liabilities and charges

Deferred tax

Net assets

Capital and reserves

Called up share capital

Share premium account

Profit and loss account

Equity shareholders’ funds

163,110

9,022

172,132

(105)

(14,869)

157,158

2,428

12,217

142,513

157,158

7,126

13,037

36,358

56,521

(68,558)

160,704

(12,037)

148,667

(112)

(14,405)

134,150

2,422

11,537

120,191

134,150

The accounts on pages 22 to 41 were approved by the Board of directors on 14 March 2005 and were signed on its behalf by

M.J. Darrington } Directors

M. Simpson

Parent Company Balance Sheet

at 1 January 2005

1 January

2005

27 December

2003

As restated (see

accounting policies)

Note

£’000

Fixed assets

Tangible assets

Investments

Current assets

Stocks

Debtors

Cash at bank and in hand

7,283

38,777

62,381

108,441

Creditors: amounts falling due within one year

(74,210)

Net current assets

Total assets less current liabilities

Creditors: amounts falling due after more than one year

Provisions for liabilities and charges

Deferred tax

Net assets

Capital and reserves

Called up share capital

Share premium account

Profit and loss account

Equity shareholders’ funds

The accounts on pages 22 to 41 were approved by the Board of directors on 14 March 2005 and were signed on its behalf by

M.J. Darrington } Directors

M. Simpson

131,923

5,190

137,113

136,825

5,190

142,015

7,126

32,017

36,214

75,357

(68,488)

34,231

171,344

(105)

(9,007)

162,232

2,428

12,217

147,587

162,232

6,869

148,884

(112)

(10,854)

137,918

2,422

11,537

123,959

137,918

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

24 25

Group Cash Flow Statement

for the 53 weeks ended 1 January 2005

Reconciliation of operating profit to net cash inflow from operating activities

Operating profit

Depreciation charges

Loss on disposal of fixed assets

Release of government grants

Increase in stocks

Increase in debtors

Increase in creditors

Net decrease / (increase) in working capital

Net cash inflow from operating activities

CASH FLOW STATEMENT

Net cash inflow from operating activities

Returns on investments and servicing of finance

Interest received

Interest paid

Net cash inflow from returns on investments and servicing of finance

Taxation paid

Capital expenditure and financial investments

Purchase of tangible fixed assets

Disposal of tangible fixed assets

Net cash outflow from capital expenditure and financial investments

Equity dividends paid

Net cash inflow before financing

Financing

Issue of ordinary share capital

Disposal / (purchase) of investments

Net cash inflow / (outflow) from financing

Net increase in cash in the period

Further details regarding cash flows are given in note 26 to the accounts

2004

2003

As restated (see

accounting policies)

£’000

44,714

20,978

358

(7)

3,218

69,261

1,988

(14,150)

(23,742)

(10,059)

23,298

2,945

26,243

(796)

(1,297)

1,601

1,313

(8)

(32,361)

787

1,470

(1,485)

39,167

18,985

(7)

(492)

57,722

1,305

(10,908)

(31,574)

(8,807)

7,738

(15)

7,723

(157)

(912)

4,287

2,003

(15)

(25,090)

1,348

686

2,259

Accounting Policies

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Group’s accounts.

(a) Basis of accounting

The accounts are prepared under the historical cost accounting rules and in accordance with applicable accounting standards. The requirements of all new accounting standards

and pronouncements required to be adopted during the past year have been implemented where relevant, in particular UITF Abstract 38 Accounting for ESOP trusts.

(b) Prior year adjustment

UITF 38 requires the assets and liabilities of the Group’s ESOP trust to be recognised in the Group’s accounts where there is de facto control of those assets and liabilities.

The Company’s own shares held by the ESOP trust should be deducted from shareholders’ funds until they vest unconditionally with employees. Prior to the adoption of

UITF 38 the Company’s own shares held by the ESOP trust were recognised as fixed asset investments on the balance sheet at the lower of cost and net book amount.

All relevant primary statements and notes relating to the accounts have been restated accordingly.

Compliance with UITF 38 has reduced the 2004 investments and shareholders’ funds by £2,787,000 (2003: £5,046,000). The net profit for 2003 was unaffected.

The estimated impact on the current year’s profit if UITF 38 had not been adopted would be to increase the net profit by £85,000.

The consolidated accounts include the results of Greggs plc and its subsidiary undertakings for the period of 53 weeks ended 1 January 2005. The comparative period is

the 52 weeks ended 27 December 2003.

(d) Depreciation

Depreciation is provided on the cost of tangible fixed assets before deducting government capital grants and after taking the estimated residual value into consideration.

Freehold and long leasehold properties are depreciated by equal instalments over a period of 40 years. No depreciation is provided on freehold land. Depreciation of

other tangible fixed assets is provided on a straight line basis as follows:

Short leasehold properties

10%

Plant:

General

10%

Computers

20% - 331/3%

Motor vehicles

20% - 25%

Delivery trays

331/3%

Shop fixtures and fittings:

General

Electronic equipment

10%

20%

(e) Government grants

Grants received in respect of specific capital items are credited to deferred income and transferred to the profit and loss account in equal instalments over the estimated

average life of the relevant fixed assets. Grants which are related to the fulfilment of certain conditions or to the expiry of a period of time are also credited to deferred

income and are transferred to the profit and loss account in equal instalments over a period from the commencement of the project until these conditions are met.

(f) Stocks

Stocks are stated at the lower of cost and net realisable value.

(g) Taxation

The charge for taxation is based on the profit for the year and takes into account taxation deferred or accelerated because of timing differences between the treatment of

certain items for taxation and accounting purposes.

Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation purposes and accounting purposes

which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 19.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

26 27

(h) Goodwill

Purchased goodwill arising in respect of acquisitions before 1 January 1998, when FRS 10: “Goodwill and Intangible Assets” was adopted, was written off to reserves in the

year of acquisition. When a subsequent disposal occurs any related goodwill previously written off to reserves is written back through the profit and loss account as part of

the profit or loss on disposal.

(i) Leased assets

The rental costs of properties and other assets acquired under operating leases are charged to the profit and loss account on a straight line basis over the term of the lease.

(j) Pension costs

The Group operates defined benefit and defined contribution schemes for its employees. The assets of these funds are held by the Trustees of the schemes and are

entirely separate from those of the Group.

The amount charged to the profit and loss account in respect of the defined benefit scheme is based on actuarial estimates and is calculated to spread the cost of pensions

over employees’ working lives with the Group. The amount charged to the profit and loss account in respect of the defined contribution schemes represents the

contributions payable in respect of the accounting period.

(k) Employee share ownership plan

The Group accounts include the assets and related liabilities of the Greggs Employee Benefit Trust. During the year the Group has adopted the provisions of UITF 38

Accounting for ESOP trusts in these accounts. Under the requirements of UITF 38 the shares held by the ESOP are stated at cost and deducted from shareholders’ funds.

(l) Financial assets and liabilities

Changes in the value of financial instruments are disclosed in the notes to the accounts but are not reflected in the profit and loss account or the balance sheet.

(m) Cash and liquid resources

Cash, for the purposes of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts repayable on demand.

Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of

cash at or close to their carrying values or traded in an active market. Liquid resources comprise term deposits of less than one year (other than cash), government

securities and investments in money market managed funds.

(n) Foreign currency

Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction or, if hedged, at the forward contract rate. Monetary assets and

liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date or, if appropriate, at the forward contract

rate. All exchange rate differences are included in the profit and loss account.

Notes to the Accounts

1. Turnover
Turnover represents sales to customers less value added tax. The turnover arises from the Group’s principal activity and relates principally to sales within the United Kingdom.

2. Employee profit sharing scheme
The total amount paid out under the Group’s employee profit sharing scheme is contained within the main cost categories as follows:

Cost of sales

Distribution and selling costs

Administrative expenses

3. Net interest receivable / (payable) and other income / (similar charges)

Interest receivable and other income

Interest payable and similar charges

2004

£’000

1,424

3,240

730

5,394

2004

£’000

2,003

(15)

2003

£’000

1,346

2,811

571

4,728

2003

£’000

1,313

(8)

1,988

1,305

Interest payable and similar charges includes net exchange losses on foreign currency deposits of £13,000 (2003: gains of £248,000 included in interest receivable and other income).

4. Profit on ordinary activities before taxation

This is stated after charging / (crediting):

Depreciation on owned tangible fixed assets

Loss on disposal of fixed assets

Release of government grants

Auditors’ remuneration (group and parent company):

audit services

non-audit fees paid to the auditor and its associates:

- corporation tax compliance

- current year

- prior years

- other taxation services

- pension schemes audit

2004

£’000

2003

£’000

20,978

18,985

358

(7)

Payments under operating leases – property rents

30,971

28,362

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

28 29

5. Share options

Contingent rights to the allotment of Ordinary Shares in the Company at future dates exist under the terms of the Company’s Savings Related Share Option Scheme and its
Executive Share Option Schemes. Details of these options at 1 January 2005 are as follows:

Options outstanding

at the end of the year

Date of grant

Price

September 1996

1355p

2004

1,479

2003

3,401

March 1999

26871/2p

60,633

77,832

April 1999

2098p

169,548

March 2000

17011/2p

75,446

94,208

April 2002

2821p

95,260

121,230

April 2002

3526p

7,400

8,200

April 2003

2700p

50,416

58,315

September 2003

31041/2p

March 2004

3388p

August 2004

3400p

November 2004

3098p

7,050

7,500

95,400

71,580

8,250

Dates

exercisable

Three to ten years
after September 1996

Three to ten years
after March 1999

June 2004 to
December 2004

Three to ten years
after March 2000

June 2005 to
December 2005

Three to ten years
after April 2002

June 2006 to
December 2006

Three to ten years
after September 2003

Three to ten years
after March 2004

Three to ten years
after August 2004

January 2008 to
July 2008

Executive Share
Option Scheme 5

Executive Share
Option Scheme 6

Savings Related Share
Option Scheme 4

Executive Share
Option Scheme 7

Savings Related Share
Option Scheme 5

Executive Share
Option Scheme 8

Savings Related Share
Option Scheme 6

Executive Share
Option Scheme 9

Executive Share
Option Scheme 10

Executive Share
Option Scheme 11

Savings Related Share
Option Scheme 7

6. Directors’ share interests

The directors who served during the year and who were still in office at the end of the year and their interests in the share capital of the Company according to the register of
directors’ interests are as follows:

Mike Darrington

Malcolm Simpson

Ian Gregg (non-executive)

Stephen Curran (non-executive)

Susan Johnson (non-executive)

Derek Netherton (non-executive)

Bob Bennett (non-executive)

Ordinary shares of 20p

(Beneficial interest)

2004

70,650

85,722

2003

70,440

85,523

154,655

219,300

3,700

Ordinary shares of 20p

(Trustee holding with no beneficial interest)

2004

2003

138,354

166,955

138,354

264,163

292,764

264,163

The executive directors have a potential beneficial interest in the Greggs Employee Benefit Trust (note 24).
Details of directors’ share options and emoluments and pension benefits can be found in the Directors’ Remuneration Report on pages 42 to 45.
There have been no changes since 1 January 2005 in the directors’ interests noted above.

Notes to the Accounts

continued

7. Pensions

a). Defined benefit scheme

The Company operates a defined benefit pension scheme, the Greggs plc 1978 Retirement and Death Benefit Scheme. The scheme funds are administered by trustees and are
independent of the Company’s finances. Contributions are paid to the scheme in accordance with the recommendations of an independent actuarial advisor.

The pension cost relating to the scheme is assessed in accordance with the advice of an independent qualified actuary using the attained age method. Actuarial valuations are carried
out triennially and the latest actuarial assessment of this scheme was at 6 April 2002. The assumptions which have the most significant effect on the results of the valuation are those
relating to the rate of return on investments and the rate of increase in salaries. It was assumed that the investment return would exceed salary increases by 2.0% per annum.

At the date of the latest actuarial valuation, the market value of the scheme’s assets was £33,334,400. The actuarial value of the scheme’s assets represented 87% of the benefits that
had accrued to members, after allowing for expected future increases in earnings. In view of this situation the Company has already made several lump sum contributions to the
scheme and has agreed to increase the funding rate, including employees’ contributions, to a total of 16.5% of annual pensionable salary. In addition the Company has undertaken
regularly to review the funding position and intends to ensure that the scheme is adequately funded to meet its liabilities. The total pension cost to the Group of this scheme, including
the group life premium, was £3,290,000 for the year (2003: £2,627,000).

Whilst the Group continues to account for pension costs in accordance with Statement of Standard Accounting Practice 24 Accounting for Pension Costs, under FRS 17 Retirement
Benefits the following transitional disclosures are required.

The actuarial valuation was updated to 1 January 2005, by an independent qualified actuary in accordance with the transitional arrangements of FRS 17. As required by FRS 17, the
defined benefit liabilities have been measured using the projected unit method and both the assets and liabilities include the value of those pensions in payment which are secured with
insured annuities.

The major assumptions used in this valuation were:

Inflation

Pension increases (LPI)

Salary growth

Discount rate

1 January

2005

2.9% pa

2.7% pa

4.4% pa

5.4% pa

27 December

2003

2.7% pa

2.6% pa

4.2% pa

5.4% pa

28 December

2002

2.4% pa

3.9% pa

5.6% pa

The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions, which, due to the timescale covered, may not necessarily be borne
out in practice.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

30 31

7. Pensions (continued)

Scheme assets

The fair value of the scheme’s assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, and the present value
of the scheme’s liabilities, which are derived from cash flow projections over long periods and thus inherently uncertain, were:

Fair value of assets
Composed of :

Total fair value of assets

Present value of liabilities

Gross pension liability

Related deferred tax asset

Net pension liability

Equities

Bonds

Cash

Other

Equities

Bonds

Cash

Other

£’000

33,122

2,060

9,864

2,303

1 January

2005

£’000

27 December

28 December

£’000

2003

£’000

2002

£’000

27,326

5,880

6,653

18,188

6,229

7,952

47,349

(58,283)

(10,934)

3,280

(7,654)

39,859

(51,106)

(11,247)

3,374

(7,873)

32,369

(41,699)

(9,330)

2,799

(6,531)

Expected return

7.5% pa

4.6% pa

4.5% pa

5.5% pa

7.7% pa

4.8% pa

4.9% pa

7.4% pa

4.5% pa

Over the period to 1 January 2005, contributions by the Company of £2,889,000 (2003: £2,261,000) were made to the scheme. It has been agreed with the trustees that
employer’s contributions for the period between 6 April 2003 and 5 April 2008 will be at the level of 9.9% of annual pensionable salary, plus the cost of insuring death in service
benefits and the cost of administration expenses.

The post retirement deficit under FRS 17 would have moved as follows during the period to 1 January 2005:

Post retirement deficit at 28 December 2003

Current service cost (employee and employer)

Contributions (employee and employer)

Other net finance income / (expense)

Actuarial loss

Post retirement deficit at 1 January 2005

2004

£’000

(11,247)

(3,006)

4,209

(896)

(10,934)

2003

£’000

(9,330)

(2,725)

3,477

(338)

(2,331)

(11,247)

Notes to the Accounts

continued

7. Pensions (continued)

The following amounts would have been included within operating profit under FRS17:

Current service cost (employer’s part only)

Past service cost

The following amounts would have been included as net finance income / (expense) under FRS 17:

Expected return on pension scheme assets

Interest on post retirement liabilities

The following amounts would have been recognised within the statement of total recognised gains and losses (“STRGL”) under FRS 17:

Annual return less expected return on scheme assets

Experience gains / (losses) arising on liabilities

Loss due to changes in assumptions underlying the present value
of scheme liabilities

Actuarial loss recognised in the STRGL

2004

£’000

1,717

(2,668)

(896)

2003

£’000

3,188

(167)

(5,352)

(2,331)

(5%)

(2%)

2004

£’000

2,088

2004

£’000

2,813

(2,807)

(0%)

(10%)

(5%)

2002

£’000

(6,663)

(2,206)

(1,020)

(9,889)

2003

£’000

1,808

2003

£’000

2,050

(2,388)

(338)

(21%)

(5%)

(2%)

(24%)

The above percentages show the STRGL components as a percentage of the end of period value of the scheme’s assets or liabilities as appropriate.

The scheme is now closed to new entrants and, under the method used to calculate pension costs in accordance with FRS 17, the cost as a percentage of covered pensionable
payroll will tend to increase as the average age of the membership increases.

The Group’s net assets, including the disclosed FRS 17 balance sheet item above, would be £149,504,000 at 1 January 2005 (£126,277,000 at 27 December 2003).

b). Defined contribution schemes

The Company also operates defined contribution schemes for other eligible employees. The assets of the schemes are held separately from those of the Group. The pension cost
represents contributions payable by the Group and amounted to £1,234,000 in the period (2003: £1,135,000).

There were no material amounts outstanding to any of the schemes at the period end.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

32 33

8. Employees

The average number of persons employed by the Group (including directors) during the period was as follows:

Management

Administration

Production

Shop

The aggregate payroll costs of these persons were as follows:

Wages and salaries

Social security costs

Other pension costs

9. Taxation on profit on ordinary activities

a). Analysis of charge in period at 30% (2003: 30%)

Current tax:

Corporation tax at 30% (2003: 30%)

- current period

- previous periods

Total current tax

Deferred tax

Origination and reversal of timing differences

- current period

- previous periods

Total deferred tax

Tax on profit on ordinary activities

2004

No’s

651

337

2,697

14,555

18,240

2003

No’s

665

319

2,672

14,249

17,905

2004

£’000

2003

£’000

181,346

166,950

13,664

4,524

12,258

3,762

199,534

182,970

2004

2003

£’000

14,874

(223)

12,253

14,651

12,253

256

208

982

464

15,115

982

13,235

Notes to the Accounts

continued

9. Taxation on profit on ordinary activities (continued)

b). Factors affecting current tax charge for period

The tax assessed for the period is higher (2003: higher) than the standard rate of corporation tax in the UK (30%). The differences are explained below:

Profit on ordinary activities before tax

Tax on profit on ordinary activities at UK standard rate of tax of 30% (2003: 30%)

Effects of:

Capital allowances for period in excess of depreciation

Expenses not deductible for tax purposes

Chargeable gains rolled over

Non-qualifying depreciation

Other

Adjustments in respect of previous periods

Current tax charge for period

10. Profit attributable to Greggs plc

2004

£’000

46,702

14,011

2003

£’000

40,472

12,142

(256)

249

(177)

836

211

(223)

(982)

181

(49)

822

139

14,651

12,253

Of the profit attributable to shareholders, £32,893,000 (2003: £27,415,000) is dealt with in the accounts of the parent company. The Company has taken advantage of the
exemption permitted by section 230 of the Companies Act 1985 from presenting its own profit and loss account.

11. Dividends

On ordinary shares of 20p

Interim paid: 30.0p (2003: 25.5p)

Final proposed: 66.0p (2003: 54.5p)

Total dividends: 96.0p (2003: 80.0p)

12. Earnings per share

2004

£’000

3,602

7,922

11,524

2003
£’000

3,019

6,457

9,476

Basic earnings per share are calculated on earnings after taxation of £31,587,000 (2003: £27,237,000) divided by the weighted average number of shares in issue outstanding during
the period of 11,931,728 (2003: 11,817,677).

Diluted earnings per share are calculated using the same earnings as those used for basic earnings per share, and a weighted average number of shares of 12,055,134
(2003: 11,968,023). This number includes 123,406 (2003: 150,346) shares being the dilutive effect of the share options in place at the period end.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

34 35

Land and

buildings

£’000

Plant and

Shop fixtures

machinery

and fittings

£’000

Total

£’000

72,842

71,541

103,713

248,096

4,477

7,237

13,376

25,090

(761)

(7,586)

(7,996)

(16,343)

76,558

71,192

109,093

256,843

12,783

39,432

1,564

7,813

35,177

11,601

87,392

20,978

(359)

(7,304)

(6,974)

(14,637)

13,988

39,941

39,804

93,733

62,570

60,059

31,251

32,109

69,289

68,536

163,110

160,704

2004

2003

£’000

13,922

41,955

5,710

13,785

39,392

5,822

61,587

759

224

62,570

58,999

753

307

60,059

13. Group statement of tangible fixed assets

Cost

At 27 December 2003

Additions

Disposals

At 1 January 2005

Depreciation

At 27 December 2003

Charged in period

Disposals

At 1 January 2005

Net book amount

At 1 January 2005

At 27 December 2003

The net book amount of land and buildings comprises:

Freehold property

Long leasehold property

Short leasehold property

Shops

Bakeries

Other

Bakeries

Shops

Notes to the Accounts

continued

14. Parent company statement of tangible fixed assets

Cost

At 27 December 2003

Additions

Intra Group transfers

Disposals

At 1 January 2005

Depreciation

At 27 December 2003

Charged in period

Intra Group transfers

Disposals

At 1 January 2005

Net book amount

At 1 January 2005

At 27 December 2003

The net book amount of land and buildings comprises:

Freehold property

Long leasehold property

Short leasehold property

Shops

Bakeries

Other

Bakeries

Shops

Land and

buildings

£’000

Plant and

Shop fixtures

machinery

and fittings

£’000

Total

£’000

41,058

72,074

104,201

217,333

4,441

(8,494)

7,237

13,376

25,054

(8,494)

(392)

(7,586)

(7,996)

(15,974)

36,613

71,725

109,581

217,919

5,238

39,702

35,568

11,601

80,508

20,178

(169)

7,813

(7,304)

(6,974)

(14,521)

764

(169)

(243)

5,590

40,211

40,195

85,996

31,023

35,820

31,514

32,372

69,386

68,633

131,923

136,825

£’000

7,650

17,341

5,803

2004

£’000

30,794

224

31,023

2003

£’000

7,263

21,583

5,914

34,760

753

307

35,820

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

36 37

Shares in subsidiary

undertakings

£’000

Own

£’000

Total

£’000

5,046

(5,046)

5,828

5,046

10,874

(5,046)

5,828

638

5,190

5,828

638

5,190

15. Investments

Group
Cost and Net book amount

At 27 December 2003 - as previously stated

Prior year adjustment - see accounting policies

At 27 December 2003 - as restated

At 1 January 2005

Parent company
Cost

At 27 December 2003 - as previously stated

Prior year adjustment - see accounting policies

At 27 December 2003 - as restated

At 1 January 2005

Provisions

At 27 December 2003 and 1 January 2005

Net book amount

At 1 January 2005

At 27 December 2003

Own shares held related to 264,163 shares of the Company held by the Greggs Employee Benefit Trust which are to be used to satisfy certain of the share option arrangements
detailed in note 5. Following the adoption by the Group of UITF 38 during the year, own shares are no longer recognised as an asset on the balance sheet but are deducted from
equity (see accounting policies).

The Company’s subsidiary undertakings, which are all wholly owned, are as follows:

Principal activity

Country of incorporation

Charles Bragg (Bakers) Limited

Greggs (Leasing) Limited

Thurston Parfitt Limited

Non-trading

Dormant

Greggs Properties Limited

Property holding

Olivers (U.K.) Limited

Dormant

Olivers (U.K.) Development Limited * Dormant

Birketts Holdings Limited

J R Birkett & Sons Limited *

Greggs Trustees Limited

* held indirectly

Non-trading

Trustee

England and Wales

Scotland

England and Wales

Notes to the Accounts

continued

16. Stocks

Raw materials and consumables

Work in progress

17. Debtors

Trade debtors

Amounts owed by subsidiary undertakings

Other debtors, including value added tax

Prepayments and accrued income

All amounts fall due within one year.

18. Creditors: amounts falling due within one year

Trade creditors

Corporation tax

Other taxes and social security costs

Other creditors

Accruals

Proposed final dividend

Deferred government grants

19. Creditors: amounts falling due after more than one year

Deferred government grants

Group

Parent company

2003

£’000

5,105

2,021

7,126

2004

£’000

5,322

1,961

7,283

2003

£’000

5,105

2,021

7,126

Group

Parent company

2003
£’000

582

2004

£’000

665

2003
£’000

582

24,828

18,980

4,533

7,922

5,320

7,964

4,533

7,922

2004

£’000

5,322

1,961

7,283

2004

£’000

665

5,320

7,964

13,949

13,037

38,777

32,017

Group

Parent company

2004

£’000

2003
£’000

2004

£’000

2003
£’000

25,467

23,794

25,467

23,794

7,685

5,502

16,433

11,795

7,922

7,183

4,777

16,942

9,398

6,457

7,084

5,502

16,433

11,795

7,922

7,113

4,777

16,942

9,398

6,457

74,811

68,558

74,210

68,488

Group

Parent company

2004

£’000

105

2003
£’000

112

2004

£’000

105

2003
£’000

112

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

38 39

20. Financial assets and liabilities

The Group’s activities are financed by cash at bank and short term investments which comprise cash placed on deposit.

During the period the Group has held funds in a deposit account denominated in Euros to provide working capital for its operations in Europe.

The Group’s treasury policy has as its principal objective the achievement of the maximum rate of return on cash balances whilst maintaining an acceptable level of risk.
Other than mentioned above there are no financial instruments, derivatives or commodity contracts used.

The Group considers that the interest rate and currency risks are not significant.

For the purposes of the following disclosures, short-term debtors and creditors have been excluded, as permitted by FRS13.

The Group’s financial assets comprise cash at bank. At 1 January 2005 the average floating interest rate earned on the closing cash balance was 4.8% (2003: 3.7%).

At 1 January 2005 the Group had no financial liabilities (2003: £nil). The Group has an overdraft facility of £10,000,000 of which £10,000,000 was undrawn at 1 January 2005
(2003: £10,000,000 undrawn).

The fair value of the Group’s other financial assets and liabilities is not materially different from their book values.

21. Provisions for liabilities and charges - deferred tax

The provision is in respect of:

Accelerated capital allowances

The movement in deferred tax is represented by the charge for the period.

Group

Parent company

2004

£’000

2003

£’000

2004

£’000

2003

£’000

14,869

14,405

9,007

10,854

22. Share capital

Authorised:

25,000,000 ordinary shares of 20p

Issued and fully paid:
Number of shares:

12,109,483

32,409

12,141,892

At 27 December 2003

Issued in respect of share options

At 1 January 2005

Details of outstanding share options are given in note 5.

23. Share premium account

At 27 December 2003

Premium arising on issue of shares in respect of share options

At 1 January 2005

Group and Parent company

2004

£’000

2003

£’000

5,000

2,422

2,404

2,428

2,422

Group and

Parent company

£’000

11,537

680

12,217

Notes to the Accounts

continued

24. Profit and loss account

At start of period - as originally stated

Prior year adjustment - see accounting policies

At start of period - as restated

Retained profit for the period

Purchase of own shares into Employee Benefit Trust

Sale of own shares from Employee Benefit Trust

At end of period

Group

Parent company

2004

£’000

2003

£’000

2004

£’000

2003

£’000

125,237

107,476

129,005

111,066

(5,046)

(3,561)

(5,046)

(3,561)

120,191

103,915

123,959

107,505

20,063

17,761

21,369

17,939

(941)

(1,485)

(941)

(1,485)

3,200

142,513

120,191

147,587

123,959

Cumulative goodwill written off resulting from acquisitions made prior to 1 January 1998 amounts to £3,275,000 (2003: £3,275,000).

Deducted from the profit and loss account is £2,787,000 (2003: £5,046,000) in respect of own shares held by the Greggs Employee Benefit Trust. The Trust, which was established
during 1988 to act as a repository of issued Company shares, holds 138,439 shares (2003: 264,163 shares) with a market value at 1 January 2005 of £5,064,000 (2003: £8,295,000)
which have not vested unconditionally in employees.

The shares held by the Greggs Employee Benefit Trust can be purchased either by employees on the exercise of an option under the Greggs Executive Share Option Schemes or by
the trustees of the Greggs Employee Share Scheme (see note 5).

25. Commitments

a). Capital commitments

Outstanding commitments for capital expenditure at 1 January 2005 not provided for in the accounts are as follows:

Contracted for

b). Operating lease commitments

Group

Parent company

2004

£’000

2003

£’000

2004

£’000

2003

£’000

1,867

4,794

1,867

4,794

At 1 January 2005 the Group and Company had annual commitments under operating leases on land and buildings as set out below:

Operating leases which expire:

Within one year

In the second to fifth years inclusive

After more than five years

The Group’s business is carried on through retail outlets which are subject to operating leases which include clauses for periodic rent reviews.
The property commitments above are stated at current rents.

2004

£’000

2003

£’000

1,362

7,351

20,839

29,552

1,551

6,940

20,077

28,568

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

40 41

26. Notes to the group cash flow statement

a). Reconciliation of net cash flow to movement in net funds

Increase in cash in the period

Movement in net funds in the period

Net funds at 27 December 2003

Net funds at 1 January 2005

b). Analysis of net funds

2004

£’000

26,243

36,358

62,601

27 December

2003

£’000

Cash flow

Other changes

£’000

2003

£’000

7,723

28,635

36,358

1 January

2005

£’000

Cash in hand and at bank

36,358

26,243

62,601

Directors’ Remuneration Report

Introduction

This report has been prepared in accordance with the Directors’ Remuneration Report
Regulations 2002 (the “Regulations”). This report also meets the relevant requirements
of the Listing Rules of the Financial Services Authority and describes how the Board has
applied the Principles of Good Governance relating to directors’ remuneration.

The Regulations require the auditors to report to the Company’s members on the
“auditable part” of the Directors’ Remuneration Report and to state whether, in their
opinion, that part of the report has been properly prepared in accordance with the
Companies Act 1985 (as amended by the Regulations). The report has, therefore,
been divided into separate sections for audited and unaudited information.

Unaudited information

Remuneration Committee

The Remuneration Committee of the Board sets the remuneration and terms of
appointment of the executive directors and the Chairman on behalf of the Board.
The names of the directors who have served on the Remuneration Committee during
the year are Ian Gregg (Chairman), Sonia Elkin (until 11 May 2004), Stephen Curran
and Bob Bennett. Mike Darrington and Andrew Davison have assisted the Committee
in their deliberations on directors’ remuneration.

General Policy on Directors’ Remuneration

The Company’s policy is to establish competitive remuneration packages for its directors
that will attract, retain and motivate individuals with appropriate skills and experience
and will best serve the interests of the Company, its shareholders and its employees.

Remuneration packages for executive directors are designed so as to reward them fairly
for their contributions within the range of benefits offered by other UK companies of
equivalent size, to recognise the unusually complex nature of the combined retail,
manufacturing and distribution operations of the Greggs business and having considered
levels of remuneration paid to others within the Company.

The Remuneration Committee aims to set basic salaries for executive directors at a level
broadly equivalent to median salaries for individuals holding similar positions in comparable
companies, with adjustment to reflect individual performance. Basic salaries are normally
benchmarked every three years unless a material change in the business or in market
conditions warrants earlier review. Basic salaries were last benchmarked in 2002, to
take effect from 1 January 2003, on the basis of advice and information as to levels of
remuneration in comparable companies provided by Monks Partnership. A review was
started towards the end of 2004 by Monks Partnership, who are benchmarking salaries
and remuneration packages against both sector and turnover comparator groups of
companies. Monks Partnership were selected and appointed by the Remuneration
Committee. They also assisted the Executive Director Committee by producing
comparative information to assist in determining the fees payable to non-executive
directors and assisted the Company generally in determining the remuneration of its
senior management team, but otherwise had no connection with the Company.

The Remuneration Committee seeks to structure total benefits packages in a manner
that will align the interests of the executive directors with those of shareholders.

The performance-related elements of the executive directors’ remuneration packages,
under which executive directors can receive payments in total of up to 50% of their basic
salaries, consist of annual performance based cash bonuses and participation in the
Company’s Profit-Sharing Scheme (which distributes 10% of profits half-yearly to all
employees on the basis of a formula related to the profitability of their relevant division,
length of service and salary levels). Such bonus payments are not pensionable. In addition,
there have been occasional grants of options over shares in the Company, pursuant to
one or more of the share option schemes operated through the Remuneration
Committee. These include both Inland Revenue approved and unapproved long-term
share incentive schemes, designed to encourage the executive directors and other
employees to hold shares in the Company and to enhance share values.

In accordance with institutional investor guidelines, the total number of new shares and
shares held in treasury over which the Company may grant options is limited and the
Company has chosen to allocate most of the number available to the Company’s Savings
Related Share Option Scheme open to all employees, including executive directors.
This has restricted the number of new shares or shares held in treasury available to be
allocated under the discretionary Senior Executive Share Option Schemes, under which
the last grant of options (in which no executive director participated) was made in August
2004. The company will keep under review the need to maintain competitive benefit
packages, and where it considers appropriate, will make use of the Employee Benefit
Trust to supply shares on the exercise of options. Unless granted pursuant to the all-
employee Savings Related Share Option Scheme (under which options may be offered
at a discount to market price), the Remuneration Committee intends that all options
granted to executive directors will be at exercise prices at least equal to the market price
of a share as at the date of grant.

The above policies enable the executive directors to receive potentially significant benefits
in addition to their basic salaries, but only if value has been created for shareholders.

The Remuneration Committee considers that, although the non-performance related
elements of the executive directors’ remuneration packages are at or around the median
the performance related elements are significant in terms of providing motivation to the
executive directors to improve shareholder value.

In order to ensure that no director is involved in deciding his/her own remuneration,
the fees payable to non-executive directors (other than the Chairman) are set, after
consultation with the Chairman, by a committee of the Board consisting only of executive
directors (Mike Darrington and Malcolm Simpson) who periodically seek advice from
external consultants as to the appropriate market rates applicable.

Policy on Performance Conditions

The performance conditions attaching to share options granted to the executive directors
under the Company’s Senior Executive Share Option Schemes have varied according
to the date of grant. Such conditions are set by the Remuneration Committee following
receipt of advice from external consultants as to prevailing market practice and in order to
set challenging performance objectives linked to shareholder return. The Remuneration
Committee intends that performance conditions will continue to be settled on this basis
and applied to any grants of options to future executive directors under the discretionary
Senior Executive Share Option Schemes. Details of the performance conditions for
options currently outstanding are set out in the section headed ‘Share Options’ below.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

42 43

Whether performance conditions attached to share options have been met is tested by
the Remuneration Committee, which compares the actual performance of the Company
with relevant published statistics and, if necessary, obtains advice from external consultants
in order to reach its conclusion. This ensures that no director is in a position to rule on
whether any performance condition applicable to his own options has been satisfied.

No performance conditions have been attached to options granted pursuant to the
Company’s Savings Related Share Option Scheme, which is available for all employees.
The principal purpose of this scheme is to encourage employees at all levels within the
Company to participate in, and to understand better, the growth in value of the Company
and the rules of that scheme require that all options granted must be on the same terms.

Performance criteria in relation to the performance based annual cash bonuses payable
to the executive directors are set by the Remuneration Committee each year in accordance
with the general remuneration policy set out above.

Policy on Service Contract Notice Periods and Payments on Early Termination

The Company’s policy on the duration of directors’ contracts is that:

• existing executive directors should have service contracts terminable on one year
notice served by the Company or by six months notice served by the director.
Future executive directors would be engaged on terms necessary to secure individuals
of appropriate calibre, having regard to prevailing market conditions at that time;

• non-executive directors are appointed subject to the Company’s Articles of Association,
which require them to retire and to seek re-election at the first AGM after appointment.
Thereafter, one half of the Board (other than those appointed since the last AGM),
being those who have been longest in office since last re-election, and any other
director who has not been elected or re-elected at either of the two preceding AGMs,
must retire and seek re-election. Any non-executive director who has served on the
Board for over 9 years must seek re-election annually. The Nominations Committee
advises the Board as to whether a particular director, whose turn it is to retire, should
be nominated for re-election.

The policy on termination payments for executive directors is that the Company does
not normally make payments beyond its contractual obligations, including any payment
in respect of notice to which a director is entitled. In exceptional circumstances,
an additional ex-gratia payment may be considered, based on factors including the
director’s past contribution and the circumstances of the director’s departure.

The Company’s policy on notice periods changed at the end of 2004 when the executive
directors agreed (without receiving any compensation) to reduce their entitlement to
notice and to compensation in all circumstances to a maximum of one year.

Non-executive directors would not normally be entitled to compensation for early
termination of their appointments prior to the date on which they would next be due
to retire by rotation, or if not re-appointed at such time.

Directors’ service contracts

Details of the directors’ service contracts or letters of appointment are as follows:

Executive Directors
Mike Darrington has a service contract with the Company dated 7 March 2003.
His continuous period of service with the Company commenced on 15 July 1983.

Malcolm Simpson has a service contract with the Company dated 7 March 2003.
His continuous period of service with the Company commenced on 24 April 1973.

Both Mike Darrington and Malcolm Simpson have provisions in their contracts which
enable them to be terminated by the Company on 12 months notice or by the executive
on 6 months notice. In addition to their basic salaries, each is entitled to participate in a
performance based cash bonus. They are also entitled to additional benefits including the
use of a motor car, private medical insurance, pension, life assurance, permanent health
insurance and a contribution towards telephone expenses.

For 2005, the executive directors will receive a performance based cash bonus such that
the combined bonus to be received by each of them under this arrangement and the
Company’s Profit-Sharing Scheme will be set according to a straight line graph linked to
the level of profit achieved by the Company in the financial year, subject to confirmation
by the Remuneration Committee. Total bonus payments are capped at 50% of basic salary.

Non-executive Directors
The non-executive directors do not have service contracts with the Company.
However, each of them does have a letter of appointment. The terms of appointment
of each non-executive director require that they seek re-election on a regular basis in
accordance with the Articles of Association of the Company (see above). The fees
payable to the non-executive directors cover all normal duties. In exceptional
circumstances, where significant additional time commitment is required, the Board
(or a duly authorised committee) may award additional fees. No right of compensation
exists where the office is terminated, for whatever reason.

Performance Graph

The graph below shows a comparison of the total shareholder return for the Company’s
shares for each of the last 5 financial years against the total shareholder return for the
companies comprised in the FTSE Mid 250 Index (excluding Investment Trusts).

This index was chosen for this comparison because it includes companies of broadly
similar size to the Company.

250

200

150

100

9
9
9
1
/
2
1
/
1
3

FTSE Mid 250 (ex-Invst Trusts) Greggs

0
0
0
2
/
2
1
/
1
3

1
0
0
2
/
2
1
/
1
3

2
0
0
2
/
2
1
/
1
3

3
0
0
2
/
2
1
/
1
3

4
0
0
2
/
2
1
/
1
3

Directors’ Remuneration Report

continued

Audited Information

Directors’ emoluments and compensation

The following table sets out details of the emoluments and compensation received in 2004 by each director (excluding pension contributions, details of which are set out below).

Executive

Mike Darrington

Malcolm Simpson

Chairman

Derek Netherton

Non-executive

Stephen Curran

Sonia Elkin

Ian Gregg

Susan Johnson

Bob Bennett

TOTAL

Estimated

value

Salary / fees

of benefits

Annual

bonus and

profit share

Total 2004

Total 2003

320,000
212,000

23,431
17,958

96,833
64,152

440,264
294,110

384,072
256,845

88,000

23,500
9,617
25,000
23,500
25,500

-
-
-
-
-

88,000

84,000

23,500
9,617
25,000
23,500
25,500

22,250
24,250
44,125
22,250
1,854

727,117

41,389

160,985

929,491

839,646

The fees for Stephen Curran were paid to a third party.

No part of the remuneration, other than the basic salaries of the executive directors, is taken into account when calculating pension benefits.

Share Options

The following table sets out details of the share options (all of which were granted at a nominal or nil cost to the executive director concerned) held by, or granted to, each director
during the year, according to the register of directors’ interests:

Mike Darrington

Malcolm Simpson

Number of options during year

27/12/03

Granted

Exercised

1/1/05

Exercise

price

Market

price at

date of

exercise

Gain on

exercise

Date of

grant

Date from

which

exercisable

Expiry

date

Scheme

18,000

199

27,900

12,000

199

12,400

18,000

26.875

Mar 99

Mar 02

Mar 06

Executive

(199)

20.98

33.83

2,557

Jun 99

Jun 04

Dec 04

SAYE

27,900

17.015

12,000

26.875

Mar 00

Mar 03

Mar 07

Executive

Mar 99

Mar 02

Mar 06

Executive

(199)

20.98

33.45

2,482

Jun 99

Jun 04

Dec 04

SAYE

12,400

17.015

Mar 00

Mar 03

Mar 07

Executive

The aggregate gain on exercise of share options was £5,039 (2003: £213,954), including £2,557 (2003: £80,937) in respect of the highest paid director.

The executive directors also have a potential beneficial interest in the Greggs Employee Benefit Trust (see note 24 to the Accounts).

On each of the grants awarded in 1999 and 2000 under the Senior Executive Share Option Scheme, the exercise of one half of the options granted was made conditional upon the
growth in the Company’s basic earnings per share over the three years from grant being greater than the median earnings per share growth of the companies comprised in the FTSE
Mid 250 Index (excluding Investment Trusts). The other half of the options granted was conditional upon growth in the basic earnings per share of the Company being at least 10%
above the median basic earnings per share growth of such comparator companies within the same period.

No non-executive director has any options to acquire shares in the Company.

The mid-market price of ordinary shares in the Company as at 1 January 2005 was £36.58. The highest and lowest mid-market prices of ordinary shares during the financial year
were £37.50 and £31.00 respectively.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

44 45

Pensions

Both of the executive directors earned pension benefits under the Greggs 1978 Retirement and Death Benefit Scheme, the Company’s defined benefit scheme, during the period
under review. This scheme, which currently requires a contribution of 6.6% of pensionable salary from members, provides for up to two-thirds of final pensionable salary, dependant
on length of pensionable service. Both of the executive directors also received contributions into the Company’s money purchase defined contributions pension schemes during the
period under review. No pension benefits were earned or accrued in respect of any non-executive director.

Defined benefit scheme

The following table sets out the change in each director’s accrued pension in the Company’s defined benefit scheme during the year and his accrued benefits in the scheme at the
year end:

Accrued annual

Increase in

Transfer value

Executive Director

Mike Darrington

Malcolm Simpson

pension

Increase in

entitlement at

accrued

pension

age 65 as at

pension

entitlement for

1 January

27 December

entitlement

the year net of

of increase

in accrued

pension

entitlement

for the year

Date of

Date service

birth

commenced

2005

2003

for the year

inflation of 2.8%

8/3/42

15/8/83

117,892

104,910

15/10/41

24/4/73

114,021

103,186

12,982

10,835

10,054

126,525

7,956

90,337

Note 1: The pension entitlement shown is that which would be paid annually on retirement based on service to the end of the year, but excluding any statutory increases which
would be due after the year end.

Note 2: The inflation rate of 2.8% shown in the table above is that published by the Secretary of State for Social Security in accordance with Schedule 3 of the Pensions Schemes Act 1993.

Executive Director

Mike Darrington

Malcolm Simpson

Increase in the

Cash equivalent Cash equivalent

cash equivalent

transfer

value as at

value since

27 December

1 January

27 December

2003

2005

2003

1,593,107

1,708,175

101,775

1,539,655

1,627,859

68,116

Note: cash equivalent transfer values have been calculated in accordance with Actuaries Guidance Note GN11 and the increase is stated net of contributions made by the director.
The transfer values disclosed above do not represent a sum paid or payable to the individual director. Instead they represent a potential liability of the pension scheme.

Money purchase schemes

The Company has paid the following contributions to two of the Company’s money purchase schemes (the Greggs Bakeries (MJD) Retirement Benefit Scheme and the
Greggs Senior Executive Pension Scheme) for the benefit of executive directors during this financial year:

Executive Director

Mike Darrington

Malcolm Simpson

Approval by Shareholders

Total

Contribution

contributions

in respect

made during

of 2004

76,868

10,500

2003

67,800

10,310

At the Annual General Meeting of the Company to be held on 17 May 2005, a resolution approving this report is to be proposed as an ordinary resolution.

This report was approved by the Board on 14 March 2005.

Signed on behalf of the Board
Ian Gregg
Director
Chairman of Remuneration Committee
14 March 2005

Corporate Governance

The Combined Code

The Board recognises the importance of, and is committed to, high standards of corporate
governance and to integrity and high ethical standards in all of its business dealings.

The Board considers that (except as stated in this paragraph) it has complied throughout
the period under review with the principles of governance set out in Section 1 of the
revised Combined Code on corporate governance appended to the Listing Rules
published by the UK Listing Authority (the “Combined Code”) effective during the
financial year. With effect from 1 January 2003 the executive directors agreed (without
compensation) to a reduction in their notice periods to one year, save that they would
be entitled to a payment by way of liquidated damages calculated by reference to a
two year notice period if termination were to take place within 12 months following a
change of control of the Company. This arrangement, which was in place throughout
2004, is not in compliance with the revised Combined Code. With effect from 1 January
2005, the executive directors agreed (without compensation) to reduce their notice
periods and rights to compensation to which they are entitled in all circumstances to a
maximum of one year.

The following statements describe how the relevant principles and provisions of the
Combined Code were applied to the Company in 2004 and will be relevant to the
Company for the 2005 financial year.

The Board

The Board, under the chairmanship of Derek Netherton, meets regularly to discharge
its duties. At these meetings, it reviews Group strategy, performance, resources, risk
management procedures and other matters reserved for the Board. Whilst the executive
responsibility for running the Company’s business rests ultimately with the Managing
Director, Mike Darrington, the non-executive directors fulfil an essential role in ensuring
that the strategies proposed by the executive directors are fully discussed and critically
examined prior to adoption. During 2004, the Board met five times. All directors
attended all meetings, save that Bob Bennett and Stephen Curran were each unable to
attend one meeting.

The Board has adopted a paper identifying the separation of the roles of the Chairman
and the Managing Director. The Chairman sets the agenda for Board meetings and
ensures that the Board is supplied in a timely manner with information in a form and of
a quality appropriate to enable it to discharge its duties. The Board considers that it
effectively leads and controls the Company. All directors take decisions objectively and in
the interests of the Company. The non-executive directors scrutinise the performance
of management in meeting agreed goals and objectives and monitor the reporting of
performance. All directors receive induction training on joining the Board and regularly
update and refresh their knowledge through reading, attendance on relevant courses
and/or activities outside the Company. The Board meets with the Management Board
at a different operating division each year as part of the process of maintaining an
awareness of the company’s activities and assessing the ability of the management team.
This meeting also affords senior managers the opportunity to bring matters to the attention
of the Board. The Company has also adopted “whistle blowing” procedures enabling
employees to bring matters to the attention of the senior management and for the
confidential, proportionate and independent consideration and follow-up of any matter
so raised.

The Board currently comprises the Chairman, 2 executive and 5 non-executive
directors as follows:

Derek Netherton (Chairman), 60, spent his career in investment banking and retired
in 1996 from his position as joint head of corporate finance at J Henry Schroder & Co
Limited. He is a non-executive director of Next plc, Hiscox plc and St James’s Place
Capital plc. He was appointed to the Board on 1 March 2002 and was appointed
Chairman in August of the same year. There have been no significant changes to the
Chairman’s other commitments during 2004.

Sir Michael Darrington (Managing Director), 63, qualified as a Chartered Accountant

and then spent 17 years with United Biscuits, latterly in General Management. During

this time he attended the PMD course at Harvard Business School. He joined Greggs

in 1983 and was appointed Managing Director in January 1984.

Malcolm Simpson (Finance Director), 63, qualified as a Chartered Accountant with what

is now KPMG and then worked for eight years within the finance department of Procter

and Gamble Limited. He joined the Company in 1973 and was appointed Financial

Director in 1975.

Stephen Curran, 61, joined the Board in 1981. He was appointed Chairman of Candover

Investments plc in May 1999, having previously been Chief Executive of Candover since

January 1991. Prior to joining Candover in May 1981, he was a managing consultant

with Coopers & Lybrand Associates and then an investment manager with what is now

Cinven. With effect from the close of the Company’s Annual General Meeting in 2004

he replaced Sonia Elkin as the Senior Independent Non-Executive Director.

Ian Gregg OBE, 65, qualified as a solicitor before joining the Company as Executive

Chairman and Managing Director on the death of his father in 1964. He built the business

up from a single-shop operation to a multi-divisional specialist retailer with almost 300

shops by the time of its successful flotation in 1984. Following the appointment of Mike

Darrington as Managing Director in January 1984, Ian continued in the role of Executive

Chairman until July 1993. He was then invited to become non-executive Chairman,

which role he handed over to Derek Netherton in August 2002.

Susan Johnson OBE, 47, was appointed to the Board in March 2000. She obtained an

MBA in 1993 after which she pursued a career in sales and marketing before being

appointed as Chief Executive of the Northern Business Forum. She is now an Executive

Director of Yorkshire Forward.

Bob Bennett, FCA, 57, was appointed to the Board in December 2003. He trained as

a chartered accountant with Spicer & Pegler and has, since 1993, been Group Finance

Director of Northern Rock plc. With effect from the close of the Company’s Annual

General Meeting in 2004 he replaced Sonia Elkin as Chairman of the Audit Committee.

Julie Baddeley, 53, was appointed to the Board in March 2005. She has held senior

executive roles in the Woolwich plc (where she was responsible for Information

Technology and Human Resources), Accenture and Sema Consulting. Julie is a non-

executive director of Yorkshire Building Society, Computerland UK and the Pension

Client Group within the Government’s Department of Works and Pensions.

The Board includes a balance of executive and non-executive directors (including

independent non-executive directors) such that no individual or small group of individuals

can dominate the Board’s decision taking. The Board is satisfied that a strategy is in

place for orderly succession to the Board and to positions of senior management so

as to maintain an appropriate balance of skills and experience within the Company

and on the Board.

After carefully reviewing the guidance in the Combined Code, all of the non-executive

directors are considered by the Board to be independent in character and judgement

and to be free from any business or other relationship or circumstance which is likely

to affect or to interfere with the exercise of their independent judgement. The following

relationships might appear to be capable of affecting the individual non-executive

director’s independence. However, having considered these relationships carefully, the

Board is of the view that they do not and that the individuals concerned are of sufficient

strength of character to avoid allowing their independence to be so compromised:

• Ian Gregg is a member of the Company’s pension scheme and a former employee,

Managing Director and Chairman of the Company.

• Stephen Curran and Ian Gregg have both served on the Board for more than 9 years

from the date of their first election.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

46 47

The Board is grateful for the continued involvement of Ian and Stephen, who bring
considerable experience and insight to Board discussions. Both are now required by
the Company’s Articles of Association to seek re-election to the Board by shareholders
annually (see below).

The Board is continuing to take steps to add to the number of independent non-
executive directors on the Board.

The Company’s Articles of Association require that all directors must retire and seek
re-election at the first AGM following appointment. Thereafter, one half of the directors
(other than those appointed since the last AGM) being those who have been in office
longest since last re-election and any other director who has not been elected or
re-elected at either of the two preceding AGMs must seek re-election at each AGM.
A resolution was adopted at the AGM in 2004 to alter the Company’s Articles of
Association to require non-executive directors to seek re-election annually after they
have served for over 9 years on the Board.

All directors are able to receive training and to take independent professional advice at the
expense of the Company. They also have direct access to the Company Secretary, who
is responsible for advising the Board, through the Chairman, on all governance matters.
The performance of the Board, its Committees and of all directors is evaluated annually
by a formal and rigorous process. Each director completes a questionnaire on the
performance of the Board, the Chairman, the non-executive directors, the executive
directors and the Board Committees. The results are collated by the Company Secretary
and fed back to the Chairman and the Senior Independent Director and then to the
Board for discussion. Members of the Audit Committee complete a separate additional
questionnaire, the results of which are collated by the Company Secretary and fed back
to the Chairman of the Audit Committee and then to the Board for discussion. In addition,
the Chairman holds structured discussions with each director. The Senior Non-Executive
Director conducts a similar discussion with the Chairman. These discussions are also
used to identify individual and collective training needs.

The Board delegates some of its activities to the following committees, each of which
has written terms of reference, which are available on request. The Company Secretary
acts as secretary to each of these Committees.

The Audit Committee currently consists of four independent non-executive directors
(Bob Bennett - Chairman, Susan Johnson, Stephen Curran and Julie Baddeley). During
2004 it met three times. All Committee members attended all meetings in the period
they were members, save that Bob Bennett and Stephen Curran were each unable
to attend one meeting. The Committee’s main functions are to endeavour (i) to ensure
that the accounting and financial policies of the Company are proper and effective; (ii) to
monitor the integrity of the financial statements and information published by the
Company; (iii) to review the Group’s approach to risk management; and (iv) to monitor
compliance with the Listing Rules and the recommendations of the Combined Code.

The Committee, in performing these functions, reviews the annual and interim financial
statements issued to shareholders, compliance with financial reporting standards and the
size and remit of the internal audit function. The Committee also considers and makes
recommendations to the Board in relation to the independence and objectivity of the
external auditors (including the impact of any non-audit work undertaken by them) and
their suitability for re-appointment. The Audit Committee determines the scope of the
external audit in discussion with the external auditors and agrees their fees in respect of
the audit. The Committee normally meets with the Finance Director and the external
auditors in attendance, although time is set aside annually for discussion between the
Committee and the external auditors and with the internal auditors, in each case in the
absence of all executive directors, and the Committee has the power to engage outside
advisers if it sees fit.

The Remuneration Committee currently consists entirely of independent non-executive

directors (Ian Gregg – Chairman, Stephen Curran, Bob Bennett and Julie Baddeley).

During 2004 it met three times. All Committee members attended all meetings in the
period they were members, save that Bob Bennett and Stephen Curran were each unable
to attend one meeting. The Committee’s main duties are to determine the basic salary,
benefits in kind, terms and conditions of employment, performance-related bonuses,
share options and pension benefits of the executive directors and the Chairman on
behalf of the Board. The Committee is also responsible for the operation of the Company’s
share option schemes and, when requested by the Board or by the Managing Director,
for monitoring and making recommendations in respect of the level and structure of
remuneration for senior management. A separate Executive Director Committee sets,
after discussion with the Chairman, the fees for the non-executive directors so as to
ensure that no director is involved in setting his or her own remuneration. The Directors’
Remuneration Report is set out on pages 42 to 45 of this Annual Report.

The Nominations Committee currently comprises Derek Netherton - Chairman, all of
the non-executive directors and Mike Darrington. During 2004 it met formally only once
(with all committee members except Bob Bennett present) but held several informal
discussions during the year in order to progress the selection and recruitment of new
non-executive directors. The Committee’s main functions are to review the balance and
constitution of the Board; to advise the Board as to whether directors retiring by rotation
should be nominated for re-election by the members; and to approve and manage the
process for setting the specification for all Board appointments, identifying candidates
who meet that specification and making recommendations to the Board on the basis of
merit and compliance with objective criteria in respect of all new Board appointments.
In relation to the appointment of Julie Baddeley, the Nominations Committee defined
the criteria on the basis of its assessment of the skills required (which it agreed with the
Board), engaged a recruitment consultant and held a series of interviews before deciding
to recommend the Board to offer the role to Julie as its preferred candidate.

Relations with shareholders.

The Chairman ensures that there is effective communication with individual and
institutional shareholders through the announcement of regular trading updates, as well
as general presentations after announcement of the interim and preliminary results and
the posting of results on the Company’s website.

The Board considers that the AGM is the main forum for communication with investors,
with the Chairmen of the Board and its committees available to answer any issues raised
and any newly appointed non-executive directors being available to meet shareholders.
In addition, the Company Secretary and the Company’s Brokers draw the attention of
the Board to all relevant shareholder communications. The Board also reviews briefings
and comments by analysts in order to maintain an understanding of market perceptions
of the Company. The Senior Independent Director is available to shareholders if they have
concerns which contact through the normal channels of the Chairman, Managing Director
or Finance Director have failed to resolve or for which such contact is not appropriate.

At the AGM, the balance of proxy votes cast for and against each resolution and the
number of abstentions is displayed. All substantial issues, including the receipt of the
annual report and accounts, are proposed at the AGM as separate resolutions.

Accountability, Audit and Going Concern.

The Board acknowledges its responsibility to present a balanced and understandable
assessment of the Company’s position and prospects. This is fulfilled by the statements
contained in the Chairman’s statement and Managing Director’s report, which supplement
the statutory accounts themselves. A statement of directors’ responsibilities in respect
of the preparation of accounts is given on page 19.

The Audit Committee has reviewed whether, and is satisfied that, the Company’s
auditors, KPMG Audit Plc, continue to be objective and independent of the Company.
KPMG Audit Plc does perform non-audit services for the Group but the Audit
Committee is satisfied that its objectivity is not impaired by such work (non-audit fees
amounted to £91,000 during 2004 and related mainly to taxation compliance services).

Policies and Procedures

Policies and procedures, covering control issues across appropriate aspects of the
business, are defined and communicated to the respective managers and staff at all
levels. Adherence is monitored and reported upon on an ongoing basis.

Health and Safety

The Company is committed to improving continuously the working environment with
the objective that accidents and work related ill health should be progressively reduced.
An occupational health strategy has been produced with Health and Safety Officers and
Occupational Nurses appointed in every Division. Targets are set and programmes are
devised to implement them. This approach involves a rigorous health assessment, during
which hazards are identified, risks assessed, control measures applied and improvement
actions agreed to manage residual risks to an acceptable level.

Financial Reporting

The Company operates a comprehensive financial control system that incorporates
Divisional Financial Controllers who have responsibility for financial management within
each Division. Each Divisional Financial Controller works closely with their respective
Divisional Managing Director to monitor performance at Divisional Board level as
against planned and prior year comparatives. In addition, assets and liabilities are
scrutinised at several levels on a regular basis and remedial action taken where required.
A comprehensive annual planning process is carried out which determines expected
levels of performance for all aspects of the business. Each Divisional Financial Controller
also reports directly to the Finance Director on technical matters.

Internal Audit

The internal audit function visits every Division at least once in every financial year and
reviews performance of the Division across a range of financial and non-financial
requirements, reporting findings to the relevant senior managers and direct to the Audit
Committee.

The Board confirms that it has reviewed the effectiveness of the system of internal
control (covering all material controls, including financial, operational, compliance and
risk management systems) during the period under review and up to the date of
approval of the annual report and accounts.

Corporate Governance

continued

The Company has an internal audit function. This assists in its monitoring of systems of
control and augments the examination carried out by the external auditors.

After making enquiries, the directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable future.
For this reason, they continue to adopt the going concern basis in preparing the accounts.

Risk Management.

The Board is ultimately responsible for the Group’s system of internal control, which
covers all aspects of the business, and for reviewing its effectiveness. However, any such
system can only be designed to manage, rather than eliminate, the risk of failure to
achieve the Company’s objectives and, therefore, is only able to provide reasonable,
and not absolute, assurance against material misstatement or loss. The directors
regularly review the risks to which the Company is exposed, as well as the operation
and effectiveness of the system of internal controls. This is an ongoing process which
accords with the guidance in the Turnbull report, involving the identification, evaluation
and management of the significant risks faced by the Company. Key elements of the
internal control system, which have been in place during the whole of the period
under review and up to the date of approval of the annual report and accounts, are:

Board of Directors

The Board takes a proactive approach to the management of all forms of risk, and views
risk management as a vital constituent of its role. The Board holds five scheduled
meetings a year. At each of these meetings the effectiveness of the controls relating to
the most significant risks (i.e. those which may restrict the Company’s ability to meet its
objectives) are monitored and reviewed. Remedial action is determined where
appropriate. For some key risks, where it is felt necessary, specialist advice is sought from
external agencies and professional advisers. The Board also reviews, at least annually,
the level and scope of insurance cover maintained within the business. The Board
receives reports from management on significant changes in the business and external
environment which might affect the risk profile. It has also set in place a system of
regular hierarchical reporting which provides for relevant details and assurances on the
assessment and control of risks to be given to it.

Management Board

The Management Board, answerable directly to the Managing Director, is responsible
for implementing decisions of the Main Board and providing protection against the major
risks by various techniques, including sharing best practice, monitoring, supervision and
training.

Risk Committee

A Risk Committee, consisting of the heads of each management function within the
business (including Health and Safety, Food Safety, Personnel, Production and Purchasing),
has responsibility for analysing, assessing, measuring and understanding the Company’s
risk environment, as well as devising a sound risk management strategy for review and
approval by the Board. The Risk Committee reports it findings and important changes
to the Board on a regular basis through personal presentation, narrative reports and key
performance indicators (internal and external to the organisation). The Risk Committee
also feeds the results of its assessments back into the business planning for each division
at least annually. The risks are assessed on a regular basis across all functional areas but,
in particular, the areas of food safety, health and safety, information flow, asset protection
and Regulatory Requirements.

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

48 49

Corporate Social Responsibility

Greggs plc believes that as a major employer, a provider of food products to the public,
and a public company with obligations to its shareholders, the company has a responsibility
to conduct its business with integrity, to act responsibly, to address the impacts of our
business on the environment, and to give something back to the wider communities in
which we operate.

This responsibility is delivered through the following:

Customers, People and Suppliers

“Our Values” are embraced by the Board and expected of all colleagues:

In 2004, Greggs plc appointed its first Community Initiatives Manager. This is a full-time
dedicated role to oversee our work in the wider communities, in particular to accelerate
further roll-out of the Greggs Breakfast Clubs. This appointment is testament to Greggs
on-going commitment to the communities in which we operate.

In addition to the schemes listed above, Greggs plc staff throughout the country participate
voluntarily in a wide range of charity fund raising, which makes an additional meaningful
contribution to the wider communities in which we operate. By their dedication and
devotion, our employees are a true credit to the Greggs plc name, and the real benefits
of what they achieve are inestimable. It is thanks to these employees and their efforts that
as a Company we are able to make a contribution to the communities in which we operate.

“We will be enthusiastic and supportive in all that we do, open, honest and appreciative,
treating everyone with fairness, consideration and respect.”

The Environment

Our Values are a basis for all of our activities. Our employees are expected to use them
in their relationships with each other and with customers and suppliers. Our Values are
our ‘code of conduct’ and are the framework within which the business manages its
activities and operates.

Food Safety and Health and Safety are at the forefront of how we operate. We insist on
providing our customers with good quality food products and assurances of food safety.
Our robust systems also seek to protect the health and safety of our customers and
employees.

Wider Communities

In 2004, Greggs plc directly donated 1.3% of pre-tax profit to charity.

• The Greggs Trust is a registered charity, founded by Ian Gregg in 1987. Its main

objective is the alleviation of the effects of poverty and social deprivation in the areas
where the Company trades. Its income in 2004 was £884,390, derived from the
Greggs plc donation, from employees under the Give As You Earn Scheme (10% of
employees donated through this scheme in 2004), and staff fund raising activities.
The balance was received in the form of donations from major shareholders and
income from investments (including shares in Greggs plc) held by the Trust. Funds
are distributed by the Trustees and via the 13 staff Charity Committees operating
across the country, offering support to good causes within our trading areas.

• The Greggs Breakfast Club scheme is designed to get children in selected primary
schools off to a better start by providing them with free breakfasts. Greggs funds all
of the healthy breakfast, including provision of fresh bread from local Greggs shops,
together with the necessary equipment. Greggs staff work with school teachers to
encourage parents, grandparents and other volunteers to run the clubs, including
serving the breakfasts, thereby helping them to help others in their own communities.
In 2004, the number of Breakfast Club schemes increased from 60 to 82. The concept
has been validated by external independent research which has shown that Breakfast
Club attendance encourages children to get to school on time and increases
attentiveness in class.

• The Greggs Cancer Run, is an annual event which has raised nearly £3 million since
its inception in 1983. The Cancer Run originated in Greggs North East, organised
each year by a group of dedicated staff. In 2004, Cancer Runs took place at both
Greggs North East and Greggs North West. The event will take place in an additional
two divisions in 2005.

• 2004 was Year 4 of the Company’s investment of £500,000 in the 5-year Newcastle
Employment Bond, which is secured as to repayment by Northern Rock plc.
The investment is at zero rate interest, with the interest foregone to be used to help
tackle long-term unemployment in the Newcastle upon Tyne area.

• On a nationwide basis, Greggs is a member of the ‘Per Cent’ Club and made
charitable donations of £615,000 in 2004, the majority of which was directed
through the Greggs Trust.

The Company recognises the importance of protecting our environment for future
generations and is committed to carrying out its activities with due consideration for the
environmental impacts of its operations and in line with Our Values.

Environment Policy

Greggs plc has identified the key environmental impacts of its activities. We are committed
to an ongoing programme of continual reduction of any adverse impacts and prevention
of pollution consistent with our long term business objectives. To manage this, the
Company is progressively introducing an Environmental Management System (EMS)
in each Division, which will seek the following:

• Compliance with all relevant environmental legislation, regulation and other

requirements applicable to the Company or to which the Company subscribes.

• Reduction of waste at source via the efficient use of resources and encouragement

of the re-use and recycling of waste.

• Working towards increasing efficiency at all sites.

• Monitoring and improving the performance of vehicles owned by Greggs plc.

• Working towards ensuring that policies and procedures are in place so that accidents/
incidents with potential adverse environmental impact are controlled as far as is
reasonably practicable.

• Progressively making employees aware of the environmental issues relevant to their

role within Greggs plc.

• Taking into account the adverse impact on the environment of any capital

expenditure project.

During 2004, progress has been made as follows:

• The first formal EMS has been implemented in the Greggs Central Savoury Plant

at Balliol Park.

• The Greggs Central Savouries Plant has been granted an Integrated Pollution

Prevention and Control (IPPC) Permit to Operate. This is one of the first to be
granted in the UK food industry.

• Environmental Aspects and Impacts registers have been completed for all divisions

(first stage of the EMS). These identify the environmental effects of our activities, and
will be used to plan the appropriate actions to minimise these.

• Environmental Audits of all divisions are now included in the annual audit schedule.

• Greggs plc is working closely with DEFRA on the disposal considerations for animal

by-products.

• Continuation of the SEBA (Save Energy Be Aware) initiative in all shops and factories

to reduce energy consumption by the Company.

In 2004, the Company has taken steps towards meeting its environmental commitments
and will continue to grow this commitment during 2005.

10 Year History

1995

1996

1997

1998

1999

2000

2001

2002

2003*

2004

Turnover (£’000)

219,514

238,465

265,941

291,420

308,678

339,008

377,556

422,600

456,978

504,186

Profit on ordinary
activities before
taxation (£’000)

Shareholders’ funds
(£’000)

Earnings per share
(pence)

Dividend per share
(pence)

Cash generated
by operations (£’000)
(before dividends, tax and
capital expenditure)

Capital expenditure
(£’000)

Number of shops in
operation at year end

13,056

15,673

18,035

20,214

21,520

26,356

32,742

36,666

40,472

46,702

41,219

48,107

58,384

69,585

80,896

88,169

103,554

119,965

134,150

157,158

79.0

95.8

121.1

122.8

135.1

162.3

190.2

209.2

230.5

264.7

26.0

32.0

37.0

41.0

45.0

55.0

65.0

72.5

80.0

96.0

20,838

24,955

30,408

34,902

34,526

43,431

50,418

55,555

57,722

69,261

11,931

15,669

24,364

26,204

22,403

21,397

27,385

42,143

32,361

25,090

967

1,032

1,057

1,072

1,084

1,105

1,144

1,202

1,231

1,263

*as restated following adoption of UITF 38

DIRECTORS

Derek Netherton (Non-executive chairman)†ø

Mike Darrington FCA (Managing)ø

Malcolm Simpson FCA (Financial)

Ian Gregg OBE (Non-executive)†ø

Stephen Curran FCCA (Non-executive)*†ø

Susan Johnson OBE (Non-executive)*ø

Bob Bennett FCA (Non-executive)*†ø

Julie Baddeley (Non-executive)*†ø

*Member of Audit Committee

† Member of Remuneration Committee

ø Member of Nominations Committee

SECRETARY AND REGISTERED OFFICE

Andrew John Davison, Solicitor

Fernwood House

Clayton Road

Jesmond

Newcastle upon Tyne

NE2 1TL

Bankers

Stockbrokers

Royal Bank of Scotland plc

UBS

149 High Street

Gosforth

Newcastle upon Tyne

NE3 1HA

Auditors

KPMG Audit Plc

Quayside House

110 Quayside

Newcastle upon Tyne

NE1 3DX

Solicitors

Robert Muckle

Norham House

12 New Bridge Street West

Newcastle upon Tyne

NE1 8AS

1 Finsbury Avenue

London

EC2M 2PA

Brewin Dolphin Securities Ltd

Commercial Union House

39 Pilgrim Street

Newcastle upon Tyne

NE1 6RQ

Registrars

Capita Registrars

Bourne House

34 Beckenham Road

Beckenham

Kent

BR3 4TU

Financial Highlights

Turnover

Pre-tax profits

Post-tax profits

Shareholders’ funds

Capital expenditure

Earnings per share

Dividend per
ordinary share

2004
£’m
504.2
46.7
31.6
157.2
25.0

Pence

264.7

96.0

*As restated following adoption of UITF 38

Financial calendar

Announcement of results and dividends

Half year

Full year

Dividends

Interim

Final

Annual report
posted to shareholders

Annual General Meeting

2003*
£’m
457.0
40.5
27.2
134.2
32.4

Pence

230.5

80.0

Early August

Early March

Mid October

Late May

Early April

17 May 2005

EPS

DIVIDEND

Pence
270

260

250

240

230

220

210

200

190

180

170

160

150

140

130

120

110

100

1985

1986

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

2002

2003 2004

GREGGS plc ANNUAL REPORT AND ACCOUNTS 2004

50 51

Nationwide Coverage

GREGGS

BAKERS OVEN

SHOP NUMBERS

2004

2003

SHOP NUMBERS

2004

2003

Scotland

North East

Cumbria

Yorkshire

North West

Midlands

South Wales

South East

GREGGS

139

114

119

129

144

102

249

133

108

116

125

137

239

Bakers Oven Scotland

Bakers Oven North

Bakers Oven Midlands

Bakers Oven South

BAKERS OVEN

214

222

Greggs Belgium

1,045

1,007

TOTAL

1,263

1,231

Contents
Contents

FINANCIAL REVIEW

CHAIRMAN’S STATEMENT

MANAGING DIRECTOR’S REPORT

16 DIRECTORS’ REPORT

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

REPORT OF THE INDEPENDENT AUDITORS

22 GROUP PROFIT & LOSS ACCOUNT

23 GROUP BALANCE SHEET

PARENT COMPANY BALANCE SHEET

25 GROUP CASH FLOW STATEMENT

26 ACCOUNTING POLICIES

28 NOTES TO THE ACCOUNTS

42 DIRECTORS’ REMUNERATION REPORT

46 CORPORATE GOVERNANCE

49 CORPORATE SOCIAL RESPONSIBILITY

50 TEN YEAR HISTORY

50 DIRECTORS & ADVISERS

SHOP ALLOCATION

Baked-in
flavour

A N N U A L R E P O R T & A C C O U N T S 2 0 0 4

Fernwood House, Clayton Road, Jesmond, Newcastle upon Tyne NE2 1TL.
www.greggs.co.uk

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