Growth
Greggs plc Annual Report
and Accounts 2015
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Greggs is a much-loved and trusted
brand. We believe we can continue
to build on our strong bakery
heritage to compete successfully
in the food-on-the-go market.
Our offer is differentiated by the
fact that we freshly prepare food
and drinks in our shops each day,
to ensure our customers enjoy high
quality and great value for money.
Strategic Report
01-33
Accounts
67-100
Highlights
Greggs at a glance
Chairman’s statement
Strategy
Strategy in action
Chief Executive’s report
Financial review
Key financial performance indicators
Principal risks and uncertainties
Social responsibility
01
02
04
06
08
16
20
22
24
26
Independent auditor’s report
Consolidated income statement
Consolidated statement
of comprehensive income
Balance sheets
Statements of changes in equity
Statements of cashflows
Notes to the consolidated accounts
Ten-year history
Financial calendar
Secretary and advisers
67
70
70
71
72
74
75
100
IBC
IBC
Directors’ Report
34-66
Board of Directors and Secretary
Report of the Directors
Governance
Audit Committee report
Directors’ remuneration report
Statement of Directors’ responsibilities
34
36
38
44
49
66
Turn to page 08 to find out more.
Turn to page 10 to find out more.
Turn to page 12 to find out more.
Turn to page 14 to find out more.
Great tasting
fresh food
A great shopping
experience
Simple and efficient
operations
Improvement
through change
We freshly prepare
food which is both
great tasting and
value for money.
We are taking Greggs
to where our customers
are, providing them
with a great shopping
environment and fulfilling
more of their needs by
focusing on food-on-the-
go at all times of the day.
We are realising the
significant efficiency
and capacity benefits
to be gained within
our existing network
in order to develop
simple and efficient
operations.
We are investing
in our processes and
systems platform to
enable us to compete
more effectively in the
fast-moving food-on-
the-go market.
Strategic progress
In 2015 Greggs made further progress in executing the
strategic plan outlined in 2013, which focused the business
on the growing food-on-the-go market. This is bringing
about significant changes to the quality and relevance of
our product offer as well as the positioning and condition
of the Greggs shop estate.
We are also two years into a significant change programme,
with ongoing investment in processes and systems,
delivering benefits in terms of efficiency and greater agility,
both essential in such a competitive marketplace. The result
has been another excellent financial performance, founded
on strong like-for-like sales growth and leveraging the
vertical integration of the Greggs business model.
More detail: Strategy P06-P15
4.7%
Company-managed
shop like-for-like sales
55.8p
Diluted EPS** +28.6%
26.8%
Return on capital employed
Financial highlights
£836m
Total sales +5.2%*
£73m
Pre-tax profit** +25.4%
48.6p
Dividend per share,
including special dividend
of 20p per share
More detail: Financial review P20-P21
* Based on comparing 52 weeks’ sales.
** Before exceptional items in 2014.
Greggs plc Annual Report and Accounts 2015
01
Directors’ ReportAccountsStrategic Report Greggs at a glance
With 1,698 shops, 12 bakeries
and 20,000 employees who serve
millions of customers each week,
Greggs is the UK’s leading bakery
food-on-the-go retailer.
Bakeries
Distribution centre
Manufacturing centre of excellence for savouries
Shops
02
Greggs plc Annual Report and Accounts 2015
Our vision
… is to be a winning brand
in the food-on-the-go market.
How will we achieve this?
Our people... are what makes our
business successful. We aim to provide
them with a great place to work, where
they feel valued.
Our food... is made with high quality,
wholesome ingredients. Our daily-fresh
sandwiches and freshly-baked savouries
ensure that we deliver food that is both
high quality and great value for money
to our customers.
Our shops... are being remodelled and
relocated to meet the demands of busy
food-on-the-go customers.
Our vertically-integrated supply
network... currently comprises 12
bakeries, one distribution centre and one
manufacturing centre of excellence for
savouries. This allows us to make and
deliver great value, fresh products to our
shops every day.
Our values... commit us to being
enthusiastic and supportive in all that
we do, open, honest and appreciative,
treating everyone with fairness,
consideration and respect.
Our commitment to sharing the
benefits of our success... is deep-
rooted and was cemented by the
establishment of the Greggs Foundation
in 1987. Along with our values it forms
the bedrock of our approach to social
responsibility.
Our business model
Our vertically-integrated operations
We own and operate a vertically-
integrated supply chain, from
production through distribution to
point-of-sale. This means we can
make great tasting, high quality
bakery food at great prices offering
value for our customers.
Our target market
Food on-the-go is a growing market.
Greggs is a brand with broad appeal,
attracting customers of all types and
we have the opportunity to fulfil more
of their needs by focusing on great
tasting food-on-the-go, at all times
of the day.
Our market locations
Convenience is key in the food-on-
the-go market and we continue to
open and relocate shops to ensure
that our estate is well positioned.
A high proportion of our openings
are in areas away from traditional high
streets as we diversify our portfolio in
line with market trends. Working with
franchise partners, we have extended
the Greggs offer to previously
inaccessible travel, workplace and
other convenience locations.
Our vertically-integrated operations
Central
support
Manufacturing
Delivery
logistics
Shops
Our target markets
Food-on-the-go
All consumer
demographics
United Kingdom
Our market locations
Shopping
Work
Travel
Leisure
Our offering to customers
High quality
food and
drinks
Great value
Convenient
shops
Great service
Happy
customers
Greggs plc Annual Report and Accounts 2015
03
Directors’ ReportAccountsStrategic Report Chairman’s statement
In 2015 Greggs delivered an
exceptional operational and financial
performance, whilst also making
good progress against its longer-
term strategic plan.
“The excellent outcome in
2015 gives us confidence as
we go into what we expect
to be another busy year.”
Ian Durant, Chairman
In 2015 Greggs delivered an excellent operational and financial
performance whilst also making good progress against its
longer-term strategic plan. Trading conditions have continued
to be supportive but the food-on-the-go market remains
competitive and fast-moving, and so must Greggs. The
excellent outcome in 2015 gives us confidence as we go into
what we expect to be another busy year.
Overview
In 2015, Greggs made further progress in executing the
strategic plan outlined in 2013, which focused the business on
the growing food-on-the-go market. This is bringing about
significant changes to the quality and relevance of our product
offer as well as the positioning and condition of the Greggs
shop estate. We are also two years into a significant change
programme, with ongoing investment in processes and systems
delivering benefits in terms of efficiency and greater agility.
The result has been another excellent financial performance,
founded on strong like-for-like sales growth and leveraging the
vertical integration of the Greggs business model.
The Chief Executive’s report provides greater detail on
performance in 2015, progress against our strategic plan and
key targets.
Our people and values
As a Board, we believe that the Greggs culture and heritage is
a key component of how the brand is perceived and cherished
by our customers. The ongoing success of our business
requires constant embracing of change but the way in which we
implement changes is very much informed by our values and
the long-term mind-set that has served the business so well.
I would like to thank everyone who has worked for Greggs
during the past year and contributed to its success. We are
proud of our achievements and have delivered an excellent
financial performance whilst ensuring that Greggs remains an
engaging place to work and a positive contributor to the
communities in which we trade.
04
Greggs plc Annual Report and Accounts 2015
The Board
There were no changes in the composition of the Board in
2015, following a number of appointments in 2014. We
completed our first independent Board evaluation in the year;
the results were reassuring in terms of the effectiveness of the
Board and have given us a number of actions for further
improvement in the year ahead.
Board members are encouraged to spend time in the business,
exploring its operations and talking with staff (for my part this
included a night shift in South Wales) in order to inform our
discussions about the business. Our aspiration is to maintain
an open and constructive dialogue with a management team
which values the contributions of the Non-Executive Directors.
Our discussions are often lively and, whilst mutually respectful,
a diversity of views is considered a strength.
The Board’s priorities in the past year have included oversight
of the programme of process and systems change, people
development and increasing our understanding of customer
needs. In addition, we have spent a significant amount of time
considering plans to invest in the Company’s internal supply
chain, including the acquisition of an additional distribution
facility in north London and the other proposals outlined in
the Chief Executive’s report.
Further details of the Board’s work can be found in the
Governance and Committee sections of this annual report.
During 2015 the Board carried out a review of the appropriate
capital structure of the Group, including consultation with
some shareholders on different options for returning surplus
capital. Given the leasehold nature of the shop portfolio the
Board concluded that it is not currently appropriate to take on
structural debt and intends to maintain a net cash position.
In 2015 the Group paid its first special dividend of 20.0p per
share (a total of £20.2 million), in addition to ordinary dividends
paid in the year totalling 23.4p per share. Our Finance Director,
Richard Hutton, outlines the expected application of the
distribution policy in more detail in the financial review.
Looking ahead
We have made great progress in executing the strategic
realignment of the business and, in the year ahead, will
continue to make changes to improve further in all areas.
This is expected to include major investment and change in
our supply chain, which will involve some proposed bakery
closures, as detailed in the Chief Executive’s report. We realise
that this will be difficult for the people impacted but is essential
to support growth and the long-term competitiveness of
the business.
High quality delivery of our change programme and
operational plans has resulted in a strong business
performance over the last two years. I am confident that
we can make further progress in the year ahead.
Dividend policy and capital structure
Our progressive dividend policy targets an ordinary dividend
that is two times covered by earnings, with any further surplus
capital being returned by way of special dividends.
Ian Durant
Chairman
1 March 2016
In line with its progressive dividend policy the Board intends
to recommend at the Annual General Meeting (AGM) a final
dividend of 21.2p per share (2014: 16.0p), giving a total
ordinary dividend for the year of 28.6p (2014: 22.0p), an
increase of 30.0 per cent.
Greggs plc Annual Report and Accounts 2015
05
Directors’ ReportAccountsStrategic Report Strategy
Continuing to focus on
four key areas will deliver
success in food-on-the-go.
Our approach
Keeping our people,
communities and
values at the heart
of our business.
Great tasting
fresh food
We freshly prepare food which is both
great tasting and value for money.
Progress made in 2015
– Extension of breakfast range adding new porridge, free-range
egg omelette in addition to breakfast baguettes.
– Relaunch of hot food menu with a range of soup, hot sandwiches
and pizza.
– Extension of ‘Balanced Choice’ range, to include soup, salads,
‘heat-to-eat’ sandwiches and ‘no added sugar’ soft drinks.
– Core sweet lines upgraded.
– Coffee sales grew strongly and we invested substantially
in additional coffee machines.
– We introduced further great value deals.
More detail: Strategy in action P08-P09
A great shopping
experience
We are taking Greggs to where our
customers are, providing them with a great
shopping environment and fulfilling more of
their needs by focusing on food-on-the-go
at all times of the day.
Progress made in 2015
– 222 shops refitted, most with seating, and 34 re-sites.
– Franchise partnerships developed, including expansion into
Northern Ireland.
– 27 new Company-managed shops opened.
– New systems to manage shop labour allocation have enabled
us to improve service standards at busiest times of the day.
– Continued to build on reputation for fast and friendly service
and have invested significantly with independent customer
experience visits, rewarding teams who deliver great standards.
– Greggs Rewards loyalty programme grows in popularity.
More detail: Strategy in action P10-P11
Simple and efficient
operations
We are realising the significant efficiency
and capacity benefits to be gained within
our existing network in order to develop
simple and efficient operations.
Progress made in 2015
– New benefits achieved through better procurement, product
management, investment in manufacturing projects and adoption
of more efficient structures.
– We continued to consolidate production activity by focusing
on centres of excellence in our supply chain.
– Acquisition of a freehold distribution depot adjacent to our
existing bakery in Enfield to support the growth potential of
the business.
– Combined annual financial benefits of £12 million in 2015.
More detail: Strategy in action P12-P13
Improvement
through change
We are investing in our processes and
systems platform to enable us to compete
more effectively in the fast-moving
food-on-the-go market.
Progress made in 2015
– Significant progress in second year of our investment programme to
create the integrated systems platform necessary to compete more
effectively as a centralised brand in the food-on-the-go market.
– Workforce and supplier relationship management implemented
and delivering benefits in excess of expectations.
– Installed the infrastructure necessary to run SAP as our core ERP
system and implemented the first module of this, going live with
our new customer contact system to help improve customer
relationship management.
More detail: Strategy in action P14-P15
06
Greggs plc Annual Report and Accounts 2015
Our vision and strategy
Our strategic plan focuses on growing like-for-like sales by
further improving the quality of our food offer and existing
estate and making our operations simpler and more efficient.
The plan has four key pillars which are underpinned by our
approach to keeping our people, communities and values at
the heart of our business.
Measuring progress
Our strategic plan represents a major programme of change over
a period of up to five years and we have mapped out a number
of key targets and milestones that we will use to track progress:
– Driving like-for-like sales growth.
– Achieving targeted returns on our transformational
investment in shop refurbishment.
– Delivery of operational efficiencies.
– Achieving the planned benefits from our investment
in processes and systems.
Plans for 2016
We have another strong pipeline of new product developments and upgrades, with
many opportunities to continue to improve our product offer and further develop our
position in the food-on-the-go market. For example, we have just launched a new flat
white coffee together with improved recipes for other hot drinks. Balanced Choice
development is a key priority with new soup options recently launched and a freshly
prepared salad range planned for the summer.
Company-managed shop
like-for-like sales growth
4.7%
See: Chief Executive’s report P17
Plans for 2016
We plan to enhance the customer experience further by continuing to improve our
service offering, shop environments and locations, rebalancing our estate towards
new convenient catchment areas, with help from our franchise partners in travel and
other convenience locations. We expect to open 100-120 shops, including further
development of our franchise partnerships, refit around 200 shops and close
50-60 shops. We will also launch a new improved mobile app and more flexible
payment options.
Refit return on
investment
22.9%
See: Chief Executive’s report P18
Plans for 2016
We plan to invest around £100 million in our manufacturing and distribution
operations over the next five years to reshape our operations. This will enable us to
increase capacity to support shop expansion substantially beyond 2,000 outlets in
the UK and compete more effectively in the food-on-the-go market.
See: Chief Executive’s report P19
Operational
efficiencies
£8.1m
Plans for 2016
We will continue with the implementation of our strategic plan to enable the business
to compete more effectively in the food-on-the-go market whilst driving efficiencies
and adding capacity for further sustainable growth. We will continue to build a suite
of new capabilities, including centralised supply, procurement, product lifecycle
management and centralised ranging, forecasting and replenishment. Results of the
programme expected to make an annual net contribution of around £6 million once
all key functionality is in place.
Savings from processes
and systems change
£4.0m
See: Chief Executive’s report P18
Greggs plc Annual Report and Accounts 2015
07
Directors’ ReportAccountsStrategic Report Strategy in action
Great tasting
fresh food
Expert bakers for over 75 years, Greggs prides itself on freshly
preparing food in shops every day and delivering both
great tasting food and value for money to its customers.
(The Global Food and Consumer
Goods Experts) with a ‘Health and
Wellness Award’. In the autumn, we
completely overhauled and re-
presented our hot food menu,
introducing new products such as the
Aberdeen Angus spicy meatball melt
baguette, the Balanced Choice peri
peri chicken flatbread and improved
existing lines, such as pizza slices. Our
core sweet lines were also upgraded.
Our reputation for value for money
continues to grow as we further
extend our popular meal deals.
Plans for 2016
We plan to develop our position
in the food-on-the-go market by
building on the success of the
changes we introduced in 2015 and
a healthy pipeline of activity in the
year ahead. Highlights include the
introduction of a flat white coffee
to our hot drinks menu, a freshly
prepared salad range planned for
summer, upgrading product recipes,
introducing new products and
widening our meal deal offers.
Because we own and run all of our
bakeries, we know, and can control,
exactly what goes into our food. Our
vertically-integrated supply chain,
unique recipes and bakery expertise
all help to set Greggs apart and
deliver simple, good quality, great
tasting fresh food at affordable and
competitive prices.
Progress made in 2015
We continued to see improved sales
as a result of the product changes and
improvements made last year. Our
2015 product initiatives across the
day, combined with our great value
deals, continued to drive increased
customer visits and higher average
transaction values. Coffee sales
continue to grow, and we invested
substantially in additional coffee
machines in early 2015. We extended
our breakfast range to include new
porridge and breakfast sandwich
options, including a free-range egg
omelette option which attracted the
‘Good Egg Award’. The extension of
our Balanced Choice range to include
salads and sandwiches and improved
own-label drinks with ‘no added
sugar’, all with fewer than 400
calories, has proven popular with
sales continuing to grow strongly.
The range was recognised by IGD
“I regularly visit Greggs on my
lunch break to grab a coffee
and a sandwich. I am a big fan
of the Balanced Choice range
and enjoy trying the latest
additions to the menu.”
Jane Lipton, Leeds
08
Greggs plc Annual Report and Accounts 2015
Greggs plc Annual Report and Accounts 2015
09
Directors’ ReportAccountsStrategic Report Strategy in action
A great shopping
experience
Our bakery food-on-the-go format comprises a contemporary
interior that draws on Greggs’ bakery heritage but is designed
to meet the demands of the modern retail environment and
busy food-on-the-go shoppers.
Important features include the
provision of seating for customers
where appropriate, improved
customer flow and more efficient
queue management. The Greggs
customer experience has been
further enhanced by improved
service levels and more convenient
shop locations, with new franchise
partnerships enabling us to reach
previously inaccessible travel and
other convenience locations.
Progress made in 2015
We have continued to benefit from
the changes we made to service
levels, including improved
availability, to drive excellent volume
growth, and have extended further
the times our shops are available to
customers. We continue to build on
our reputation for fast and friendly
customer service and have
introduced an independent
‘customer experience’ programme,
rewarding teams delivering great
standards. Our digital customer
reward programme, Greggs
Rewards, continues to attract new
members and provides us with
valuable information to enhance
the customer experience.
Our investment programme to
improve the quality of our estate is
progressing well, with 202 refits,
plus 20 conversions of larger bakery
cafés completed in 2015. During
2015, we returned to net shop
growth, opening 122 new shops
(including 61 franchise shops) and
closing 74 shops, giving a total of
1,698 shops (of which 105 are
franchise shops) trading at 2 January
2016. Together with franchise
partners Moto, Euro Garages,
Applegreen UK and Ireland,
Wightlink Limited, Blakemore Retail,
Compass and the Sandpiper Group,
most of our new shops were opened
in locations away from high streets.
We also opened our first shop in
Northern Ireland with franchise
partner Applegreen.
Plans for 2016
We remain committed to improving
the quality of our existing estate and
our service offering. In 2016, we will
continue to reshape our estate which
will involve closing 50-60 shops,
relocating others and opening up to
120 new ones away from the high
street. We will continue to improve
our service levels through a
combination of improved availability
at lunchtime, further roll out of our
extended opening hours programme
and the launch of a new, improved
mobile app and more flexible
payment options.
“The staff in Greggs are
so helpful and friendly.
I’m always greeted
with a smile.”
Sam Meadows, Sheffield
10
Greggs plc Annual Report and Accounts 2015
Greggs plc Annual Report and Accounts 2015
11
Directors’ ReportAccountsStrategic Report Strategy in action
Simple and
efficient operations
As a retailer with a vertically-integrated supply chain, from
production through distribution to point-of-sale, we have
an important advantage over many of our competitors.
recognised by the award of British
Retail Consortium accreditation to
a number of our bakeries and
production facilities during the year.
Plans for 2016
We plan to invest around £100
million in our manufacturing and
distribution operations over the next
five years to reshape our operations.
This will enable us to increase
capacity to support shop expansion
substantially beyond 2,000 outlets in
the UK and compete more effectively
in the food-on-the-go market. We
currently operate 12 bakeries, but
not all are suitable for long-term
investment due to their size or
location. As a result, we are
proposing to close our Twickenham,
Edinburgh and Sleaford bakeries.
We will be treating all those affected
with fairness, consideration
and respect in line
with our values.
To make sure we continue to deliver
good quality, great tasting fresh food
at competitive prices, it is imperative
that we continue to focus on realising
the significant efficiency and capacity
benefits to be gained within our
supply chain and network of bakeries.
We will also continue to improve our
operational effectiveness in support
areas in order to maximise our scope
for investment in front-line
customer service.
Progress made in 2015
We made good progress in our
drive to make supply and support
functions simpler and more efficient.
Better processes, particularly around
procurement, workforce and product
management, have delivered lower
costs and reduced waste and we
continue to consolidate production
activity by focusing on centres of
excellence, ensuring great product
quality and consistency. In total,
our actions delivered savings of
£12 million in 2015. We acquired a
freehold distribution depot close
to our Enfield bakery which will be
brought into use in the second half
of 2016, providing additional
distribution capacity for shop
growth expansion. We were again
“My day starts at 4am to help
ensure each shop is fully stocked
for the day ahead. My reward is
a bacon breakfast roll and coffee
at the end of the run!”
Andy Coull, Relief Team Leader in Transport
12
Greggs plc Annual Report and Accounts 2015
Greggs plc Annual Report and Accounts 2015
13
Directors’ ReportAccountsStrategic Report Strategy in action
Improvement
through change
We continue to make significant progress in creating the
integrated systems platform needed to compete more
effectively as a centralised brand.
We are now halfway through our
five-year change programme which
involves investing in a process and
systems platform that enables us to
compete more effectively in the
fast-moving food-on-the-go market.
Progress made in 2015
We made significant progress in
the second year of our investment
programme to overhaul our processes
and systems and introduce new
ways of working. We installed the
infrastructure necessary to run SAP as
our core ERP system and implemented
the first module of this through the
introduction of a new customer
contact system to improve customer
relationship management. We are well
advanced with plans to bring finance
into SAP in the first half of 2016.
Plans for 2016
Plans are well underway for the
next major phase of change which
will focus on core elements such
as finance, procurement, product
lifecycle management, centralised
ranging, forecasting and
replenishment. Results of the
programme are expected to make
an annual net contribution of
around £6 million, once all key
functionality is in place.
“I work for the Greggs in-house
customer care team and I’m
always happy to help our
customers find out more about
our range of products. The new
system helps me to do my job
more effectively and efficiently.”
Lauren McGettigan, Customer Care Team Leader
14
Greggs plc Annual Report and Accounts 2015
Greggs plc Annual Report and Accounts 2015
15
Directors’ ReportAccountsStrategic Report Chief Executive’s report
We delivered another excellent performance in 2015,
making further progress with our plan to transform
Greggs from a traditional bakery business into a
modern, attractive food-on-the-go retailer.
“Our estate is stronger and
our products, value and
service are all improving
the customer experience.”
Roger Whiteside, Chief Executive
16
Greggs plc Annual Report and Accounts 2015
In 2015 we delivered another excellent performance in the
second year of implementation of our strategy to transform
Greggs from a traditional bakery business into a modern,
attractive food-on-the-go retailer. We have made significant
progress across all areas of our strategic plan, with the result
that our estate is stronger and our products, value and service
are all improving the experience for customers. Trading
conditions have continued to be favourable and we have grown
sales whilst continuing to drive efficiencies in our operations,
resulting in a second consecutive year of record profits.
Financial performance
Total sales grew to £835.7 million in 2015, up 5.2 per cent on a
comparable 52 week basis and up 3.7 per cent when compared
to the 53 week financial year in 2014. Company-managed shop
like-for-like sales grew by 4.7 per cent and our franchised shops
continued to perform well.
Operating profit (before exceptional items in 2014) grew by
25.9 per cent to £73.1 million and pre-tax profit (before
exceptional items in 2014) grew by 25.4 per cent to £73.0
million. Our Finance Director, Richard Hutton, comments on
financial performance in more detail in the financial review.
Market background: Growing food-on-the-go market
Market conditions continued to be favourable during 2015, with
low inflation leading to further rises in real disposable
consumer income. We saw strong growth throughout the year,
although customer footfall in some shopping locations was
subdued in the final quarter, resulting in slower growth in this
period. The market for food-on-the-go remains highly
competitive but our like-for-like sales performance
demonstrates the strength of the Greggs brand, its quality and
its differentiated offer. Greggs appeals to a broad customer
base and we saw increased numbers of customer visits as well
as growth in average transaction values in the year.
Strategic direction: Focus on food-on-the-go
Our strategic plan, announced in 2013, focuses on growing like-
for-like sales by improving the customer proposition and the
quality of our existing estate and making our operations
simpler and more efficient. The plan has four key pillars:
1. Great tasting fresh food.
2. A great shopping experience.
3. Simple and efficient operations.
4. Improvement through change.
These pillars are all supported by our approach to keeping our
people, communities and values at the heart of our business.
Highlights of the year
Our Balanced Choice range
won recognition at the 2015
IGD Awards.
We opened our 100th
franchise shop increasing
our presence in travel,
leisure and work-centred
catchments.
We acquired a new freehold
distribution depot, close to
our Enfield bakery, to
support business growth.
Investment in new systems
to manage shop labour
allocation has enabled us to
improve service standards at
the busiest times of the day.
The strategic plan represents a major programme of change
over a period of up to five years and we are tracking progress
against a number of key targets:
growth, with sales already accounting for 10 per cent of
turnover. Success this year has come from range extensions
including soup and salads, ‘heat-to-eat’ sandwiches and ‘no
added sugar’ soft drinks.
– Driving like-for-like sales growth.
– Achieving targeted returns on our transformational
investment in shop refits.
– Delivery of operational and supply chain efficiencies.
– Achieving the planned benefits from our investment in
processes and systems.
In 2015 we once again met our objectives in all of these areas:
– A second consecutive year of strong like-for-like
sales growth.
– Refit investment returns exceeded our hurdle.
– A second year of significant cost efficiencies.
– Process and systems investment benefits ahead of plan.
Delivering our strategy
1. Great tasting fresh food
Greggs is a strong and trusted brand and we draw on our
heritage in fresh bakery to compete successfully in the
food-on-the-go market. The Greggs product offer is
differentiated by the way we freshly prepare food each day in
our shops and by offering outstanding value for money for
good quality, great tasting food-on-the-go.
Improvements to product range
We continue to make improvements to our product range in
order to tailor it to the demands of the food-on-the-go
customer and this has been successful in driving sales growth.
Demand for breakfast products continues to grow strongly
as increasing numbers of customers look to grab breakfast
as they go about their busy lives. In the early part of the year
we successfully extended our breakfast menu to include
free-range egg omelette in addition to breakfast baguettes.
Coffee sales continue to grow strongly and we invested
substantially in additional coffee machines to meet rising
demand at this time of day.
Growth in sandwich sales continued its momentum in the
second year following the category re-launch and we saw a
further step-up in sales with the successful launch of our new
‘heat-to-eat’ sandwich range in the autumn.
Our Balanced Choice range offers healthier choices with fewer
than 400 calories and which are either amber or green on the
FSA traffic light system. This has provided a strong platform for
With growing concern over obesity this is a strategically
important area of development and we were particularly proud
to be awarded the 2015 IGD ‘Health and Wellness Award’ in
recognition of our work in improving the nutritional value of our
products. The judges recognised our efforts to help our
customers to make informed choices and our achievement in
delivering a significant positive change in the shopping habits
of customers.
Value
Greggs continues to lead the market in offering outstanding
value for money and the attractiveness of our value deals has
driven growth in both transaction numbers and average values.
We maintained our £2 breakfast meal deal for the sixth year
running and saw increased participation in our range of all-day
meal deals offering any savoury or sweet product plus any hot
drink for £2.
2016 product initiatives
We have another strong pipeline of new product developments
planned for 2016. As an example we have just launched a new
‘flat white’ coffee together with improved recipes for other hot
drinks, and these are already proving popular. Balanced Choice
development remains a priority with new soup options recently
launched and a new freshly-prepared salad range planned for
the summer.
Traditional bakery favourites in savoury and sweet products
remain very important and we have an exciting line up of new
developments and quality upgrades in our plans for this year.
We also aim to build on our strong growth in sandwich sales,
with further improvements this spring to maintain momentum
in this part of our offer.
2. A great shopping experience
As well as improvements to our products we have continued to
make changes in our shop operations to meet the needs of our
food-on-the-go customers better. Our investment in new
systems to manage shop labour allocation has enabled us to
improve service standards at the busiest times of the day and
we have continued to extend opening hours as opportunities
arise. Our shop teams have an outstanding reputation for fast
and friendly service and we have invested significantly to build
on this with independent customer experience visits rewarding
teams who deliver great standards.
Greggs plc Annual Report and Accounts 2015
17
Directors’ ReportAccountsStrategic Report Chief Executive’s report continued
Estate changes and refurbishments
The food-on-the-go market continues to grow, offering exciting
opportunities to increase our estate to substantially more than
2,000 shops, particularly in new locations away from high
streets. 2015 saw us return to net shop growth, opening 122
new shops (including 61 franchised units and our first in
Northern Ireland) in the year and closing 74, resulting in 1,698
shops trading at 2 January 2016. 90 per cent of our new shop
locations were away from high streets in areas such as retail
and industrial parks, motorway service stations and travel hubs.
At the end of 2015 we had 105 franchised shops operating in
travel and other convenience locations, with a particular focus
on motorway services and petrol forecourts.
We completed 202 shop refurbishments during the year and
converted a further 20 existing bakery cafés to our bakery
food-on-the-go format. These investments are transformational
and allow our shops to really focus on the food-on-the-go
customer. By the end of 2015 82 per cent of our shops had
been converted to the food-on-the-go format and in the year
ahead we anticipate progressing with this refurbishment
programme at a similar rate.
In 2016 we again expect to open 100-120 shops, including
further development of our franchise partnerships, and to close
50-60 shops. With our leasehold property structure we have
the flexibility to relocate as customer trends move and our new
shop opening programme is steadily shifting the balance of the
estate, increasing our presence in travel, leisure and work-
centred catchments. In 2013 only 20 per cent of our estate was
located in these location types and by the end of 2015 this
proportion had risen to 27 per cent. This, coupled with our refit
investment programme, is progressively improving the quality
and performance of our shop estate.
Greggs Rewards loyalty scheme
We have continued to build membership of our digital
customer reward programme, which is providing valuable
insight into consumer behaviour and developing loyalty. This is
a strategically important initiative as we pursue our long-term
ambitions to develop digital engagement with our customers.
In 2016 we will take an important next step by launching a new
improved mobile app and more flexible payment options.
3. Simple and efficient operations
Our drive to make our supply and support functions simpler
and more efficient continued to make good progress in 2015.
New benefits were achieved through better procurement,
investment in manufacturing projects and the adoption of more
efficient structures.
In addition we were able to extract further gains from our
investment in better processes and systems, particularly in
workforce management where we continued to build upon the
initial deployment and refine our approach. In total our actions
to make the business simpler and more efficient delivered
savings of £12 million in 2015, slightly ahead of the targets we
had set. We expect a lower level of overall cost benefit in 2016
as we focus on implementing core SAP, and should then
achieve further cost and revenue benefits from 2017.
In September 2015, in order to provide additional distribution
capacity for shop growth, we acquired a freehold distribution
depot adjacent to our existing bakery in Enfield. The total
18
Greggs plc Annual Report and Accounts 2015
investment, including conversion works, is likely to be around
£13 million and the facility will be brought into use in the
second half of 2016. This marks a first step towards a major new
programme of investment in our supply chain which will have
far-reaching implications and major benefits for our business.
The proposals are described in more detail in our view on the
outlook below.
4. Improvement through change
Investment in systems
We have made significant progress in the second year of our
major investment programme to create the integrated systems
platform necessary in order to compete more effectively as a
centralised business in the food-on-the-go market. The initial
phases, involving workforce management and supplier
relationship management, have delivered benefits in excess
of our initial expectations.
In 2015 we installed the infrastructure necessary to run SAP
as our core Enterprise Resource Planning system and
implemented the first module of this, going live with a new
customer contact system in the fourth quarter. We are well
advanced with plans to bring our existing finance processes
into SAP in the first half of 2016. This will provide the platform
on which we will build a suite of new capabilities across
logistics, procurement, product lifecycle management and
centralised ranging, forecasting and replenishment. We plan
to trial improved processes around shop ordering in the latter
part of the year.
We continue to be encouraged by the results of the
programme, which is expected to make an annual net
contribution of around £6.0 million once all the key functionality
is in place, as well as making us more agile in terms of our
ability to adopt further change in the future.
Keeping our people, communities and values
at the heart of our business
The business continues to implement successfully a far-
reaching programme of change as we progress with our plan
to position Greggs so it continues to succeed in the growing
food-on-the-go market. I would like to take this opportunity
to thank all of our teams in every part of our business for the
role they played in delivering another record-breaking year
of success.
As a business one of the ways in which we share the benefits
of our success is through our profit sharing scheme, which
distributes ten per cent of our profit to employees. I am
delighted that our people will be sharing a record £8.1 million
as a result of our strong performance in 2015.
Greggs in the community
We also aim to share our success with the local communities
in which we operate. Around £600,000 was raised in our shops
and our bakeries for the Greggs Foundation and this, combined
with donations from the Company and the proceeds of carrier
bag charges, enabled the Greggs Foundation to distribute
£1.8 million in support of a wide range of local community
initiatives. These included the award-winning Greggs Breakfast
Club programme, which provided over four million free
wholesome breakfasts to children in 363 primary schools
in 2015. 163 of these clubs are supported by our partner
organisations, who share our ambition to improve the learning
opportunities for children in disadvantaged areas.
Our customers were once again incredibly generous, helping
Greggs to raise over £1.0 million for the North of England
Children’s Cancer Research Fund, the BBC Children in Need
appeal and the Disasters Emergency Committee’s Nepal
earthquake appeal collectively in 2015.
Our ‘Fresh Start’ employability programme helped to promote
the employability skills of over 600 people in 2015. We also
created 91 new apprenticeships through our national
apprentice development programme.
In 2015 we continued our support for the Business in the
Community’s (BITC) ‘Business Connectors’ scheme and,
through our employee volunteering scheme, we donated 500
volunteer days to good causes.
Social responsibility
In addition to our support for the local communities in which
we trade, we have made significant progress in the other key
areas of our social responsibility agenda. We were particularly
pleased to have gained recognition for our work through
independent accreditation, achieving a ‘three-star’ rating in the
BITC CR index scheme and a ‘tier three’ assessment with the
Business Benchmark on Farm Animal Welfare.
One area of particular focus remained the donation of end-of-
day food to charitable organisations. In 2015 we improved our
processes and were successful in more than doubling the
amount of end-of-day food that we donated to good causes,
benefitting those in need whilst reducing waste in the business.
Outlook for 2016
£100 million investment programme in manufacturing and
distribution operations
As part of our strategic plan to grow Greggs and transform
it from a decentralised traditional bakery business into a
centrally-run modern food-on-the-go brand we have been
reviewing our manufacturing and distribution operations.
Greggs is unusual in this sector in that it is vertically-
integrated, owning and operating manufacturing facilities
and its logistics network.
Following a lengthy and detailed review we have concluded
that this integrated business model gives us competitive
advantage, lying at the heart of our ability to offer outstanding
quality and value. We intend to invest substantially to support
growth and reshape the supply chain in order to compete more
effectively in the food-on-the-go market. This requires an
investment of around £100 million in a major programme over
the next five years to create additional manufacturing centres
of excellence and increase capacity to support shop expansion
substantially beyond 2,000 outlets in the UK.
Greggs currently operates from 12 bakeries; unfortunately
not all are suitable for long-term investment due to their
location and size. As a result we are proposing to close three
bakeries and use the disposal proceeds to contribute to the
investment in our remaining bakeries over the course of the
five-year programme.
The bakeries proposed for closure are Twickenham, Edinburgh
and Sleaford, and we aim to agree a programme to transfer
production and distribution operations from these sites to
other bakeries in our network over the next year. Alongside
these proposed changes in our bakeries we have further steps
to take in the centralisation of support services which we
believe will require some restructuring amongst our teams
deployed in the regions. We will be entering into consultation
shortly to work with trade unions and employee representatives
of those affected to refine and develop these proposals.
This may result in a total of 355 roles becoming redundant.
These are difficult changes that we believe are needed to
support the long-term growth of the business; however our
immediate priority is to work to minimise the negative impact
on our people, many of whom have worked in these roles for a
significant number of years. Wherever possible we would look
to offer alternative employment to affected employees but,
due to the location of our sites, we anticipate that unfortunately
many will leave the business.
Our recently-acquired distribution facility in London will enable
us to invest in our Enfield bakery to create a manufacturing
centre of excellence in the south east region and we now
propose to invest in the extension of our Clydesmill bakery in
Glasgow to create a centre of excellence in Scotland. These
investments will mark the first phase of our five-year
programme to transform our supply chain.
Trading
This year has started well and like-for-like sales in the eight
weeks to 27 February 2016 have grown by 4.2 per cent, with
total sales up 6.8 per cent. The consumer outlook remains
positive with disposable incomes expected to grow further
in 2016.
Costs were well controlled in 2015 and we will drive further
efficiencies in the year ahead. Wage costs will increase above
the rate of general inflation but food input costs are again likely
to be deflationary for the first half of the year. In order to
protect our reputation as an attractive employer we have
agreed a wage increase of 5 per cent for our shop team
members, lifting our hourly rate to £7.47 and retaining a
premium over the statutory minimum.
Overall 2016 will be another year of significant change as we
advance with our strategic plan and propose major investment
in our supply chain. Alongside this we are confident of
delivering a further year of underlying growth. The Board’s
expectations for the year ahead remain unchanged.
Roger Whiteside
Chief Executive
1 March 2016
Greggs plc Annual Report and Accounts 2015
19
Directors’ ReportAccountsStrategic Report
Financial review
“Cash generation continued
to be strong, supporting
investment for future
growth of the business as
well as a record dividend.”
Richard Hutton, Finance Director
Revenue
Operating profit* (excluding
property profits)
Property profits
Operating profit*
Operating margin*
Finance (expense)/income
Exceptional items
Profit before taxation
* excluding exceptional items in 2014
2015
£m
2014
£m
835.7
806.1
71.9
1.2
73.1
8.7%
(0.1)
0.0
73.0
56.5
1.5
58.0
7.2%
0.2
(8.5)
49.7
20
Greggs plc Annual Report and Accounts 2015
In 2015 we delivered an excellent financial performance,
combining good sales growth with strong returns on investment
and firm cost control. Strong cash generation allowed us to invest
in the business for future growth whilst making record dividend
distributions to shareholders.
Sales
Total Group sales for the 52 weeks ended 2 January 2016 were
£835.7 million (2014: £806.1 million), an increase of 3.7 per cent.
Excluding the impact of the additional week in 2014 the growth in
total Group sales compared with the same 52 weeks in 2014 was
5.2 per cent. Company-managed shop like-for-like sales grew by
4.7 per cent across the year as a whole, measured on
a consistent 52 week basis.
Profit
Operating profit was £73.1 million (2014: £58.0 million before
exceptional items), a 25.9 per cent increase on an underlying
basis. The result reflects further good like-for-like sales growth
combined with significant savings arising from structural changes
and our investment in better processes and systems.
After net finance costs of £0.1 million (2014: £0.2 million income)
pre-tax profit was £73.0 million (2014: £49.7 million, £58.3 million
excluding exceptional items).
Operating margin
Operating margin was 8.7 per cent (2014: 7.2 per cent before
exceptional items).
Within this gross margin increased to 63.5 per cent
(2014: 62.2 per cent excluding exceptional items) reflecting
structural changes made in 2014 and the operational gearing
impact of strong like-for-like sales growth in the absence of
significant inflationary pressure. Whilst the outlook for ingredient
costs remains deflationary we have agreed enhanced pay awards
for our retail colleagues in the year ahead. The cost of these
awards, in excess of the annual award agreed for all other
employees, will amount to £3 million annually.
We continued to seek efficiencies from our cost base in 2015 and
realised further benefits from our significant programme
of investment in better processes and systems. Including the
annualisation of our restructuring activity from 2014 we realised
total cost reduction benefits of £12 million in 2015, helping to
fund the investment required for the future whilst also enhancing
our operating margin.
In 2015 we recognised gains on the disposal of freehold
properties totalling £1.2 million (2014: £1.5 million) largely
as a result of the sale of freehold shops on closure. On the basis
of our pipeline of activity for 2016 we expect property gains to
make a similar contribution in the year ahead.
Financing charges
There was a net financing expense of £0.1 million in the year
(2014: £0.2 million income) reflecting finance income of
£0.2 million and a £0.3 million charge in respect of the funding
position of the defined benefit pension scheme. In the year
ahead we expect to incur a small financing expense relating to
the net liability of the pension scheme at the end of the year.
Taxation
The Group’s effective tax rate was 21.1 per cent (2014: 24.0 per
cent before exceptional items). The effective rate primarily
reflected reductions in the headline rate of corporation tax and
the impact of the Group’s share price on allowances for share
scheme costs. We expect the effective rate for 2016 to be around
22 per cent, and to remain around two per cent above the
headline corporation tax rate going forward.
Earnings per share
Diluted earnings per share were 55.8 pence (2014: 43.4 pence
before exceptional items), an increase of 28.6 per cent. Basic
earnings per share were 57.3 pence (2014: 44.0 pence before
exceptional items).
Dividend
The Board recommends a final ordinary dividend of 21.2 pence
per share (2014: 16.0 pence). Together with the interim dividend
of 7.4 pence (2014: 6.0 pence) paid in October 2015, this makes a
total ordinary dividend for the year of 28.6 pence (2014: 22.0
pence). This is covered two times by diluted earnings per share in
line with our progressive dividend policy. In addition in July 2015
the Group paid a special dividend of 20.0 pence per share. Total
dividends paid in the year therefore amounted to £43.7 million
(2014: £19.6 million).
Subject to the approval of shareholders at the Annual General
Meeting, the final dividend will be paid on 20 May 2016 to
shareholders on the register on 22 April 2016.
Capital expenditure
We invested a total of £71.7 million (2014: £48.9 million) on
capital expenditure in the business during 2015. This included
£36.3 million on 202 shop refurbishments, the conversion of
20 existing bakery cafés and the opening of 61 new shops
(excluding franchises). We continued to invest in shop equipment
to support further growth in sales of coffee and hot sandwiches,
totalling £6.9 million, and also invested £7.0 million in our
programme of process and systems improvement. Investment in
our supply chain of £17.8 million included £8.9 million in the year
in respect of the acquisition of our new distribution facility in
Enfield. Depreciation and amortisation in the year was
£40.1 million (2014: £38.0 million).
Net of disposal proceeds the total incremental cash cost of
the programme compared to our previously planned capex
is expected to be no greater than £30 million. Once the
programme is complete we anticipate the overall incremental
cash benefit to be around £10 million per year (£7 million after
depreciation) from 2020 onwards, delivering a strong return on
investment as well as a more flexible and capable supply chain.
Return on capital
We manage return on capital against predetermined targets and
monitor performance through our Investment Board, where all
capital expenditure is subject to rigorous appraisal before and
after it is made. For investments in new shops and refurbishments
we target an average cash return on invested capital of 25 per
cent, with a hurdle rate of 22.5 per cent, over an average
investment cycle of seven years. Other investments are
appraised using discounted cash flow analysis.
The investment returns on our refurbishment expenditure in the
year were good, with 2015 investments meeting our return hurdle
and more mature refurbishments showing very strong returns,
well above our target. The performance of new shops was
excellent, with prior year openings maturing well and newer
shops making a very strong start. In the year ahead we will
increase the rate of openings further, as long as we continue
to see strong investment returns.
We delivered an overall return on capital employed (ROCE) for
2015 of 26.8 per cent (2014: 22.4 per cent excluding exceptional
items). The stronger ROCE reflects the improved operating
performance in the year as well as good capital investment returns.
Cash flow and capital structure
The net cash inflow from operating activities in the year was
£103.7 million (2014: £97.1 million). At the end of the year the
Group had net cash and cash equivalents of £42.9 million
(2014: £43.6 million) and a short-term cash deposit of £nil
(2014: £10.0 million). The year-end cash position includes
£6.5 million from the sale of a piece of land at Southall, which
was not required as part of our future supply chain plans.
Following the success of our 2015 capital investment programme
we plan capital expenditure of around £85 million in 2016. This
will support further conversion of our core shops to the bakery
food-on-the-go format, continued growth and diversification of
the estate and more work on the upgrading of our process and
systems platform. We plan to refurbish around 200 shops in 2016
and expect to invest in 80-90 new Company-managed shops,
with further openings funded by franchise partners. The 2016
capital expenditure plan also includes the first phase of the
proposed programme of investment in our supply chain.
In 2015 the Board reviewed the capital structure of the Group
and its distribution policy, taking into account the views of
shareholders and advisers. The Board continues to be mindful
of the leverage inherent in the Group’s predominantly leasehold
shop estate (which will in due course appear as part of the
balance sheet in line with new accounting requirements) and of
working capital requirements. As a result we have concluded that
it is not currently appropriate to take on structural debt and we
will aim to maintain a year-end net cash position of around
£40 million to allow for seasonality in our working capital cycle.
Our proposed £100 million investment programme in
manufacturing and distribution operations comprises £75 million
of capital expenditure and £25 million of one-off cash-related
change costs over a five-year period. Property disposal proceeds
following the proposed bakery closures are expected to be
significant, in the case of the Twickenham site in particular, and we
therefore expect to fund this investment programme from cash
flow. Detailed planning on investment phasing is ongoing and we
will provide further details as they become available; however, in
the next 12 months these proposed changes would result in £12
million of capital expenditure and one-off change costs of around
£7 million (of which £6 million would be a cash cost).
Looking forward we intend to maintain our progressive dividend
policy, and, to the extent that we have material surplus capital
within the Group, the Board would expect to return capital to
shareholders. This was the case in 2015, when a distribution of
£20 million was made through a special dividend. In 2016 we
expect that cash flows will be sufficient to meet the Group’s
investment plans whilst maintaining a year-end net cash position
in line with our stated target.
Richard Hutton
Finance Director
1 March 2016
Greggs plc Annual Report and Accounts 2015
21
Directors’ ReportAccountsStrategic Report Key financial performance indicators
We use eight key financial performance indicators to
monitor the performance of the Group against our
strategy. These KPIs and how we performed against
them are detailed below:
Total sales growth:
5.2%
2015
2014
2013
2012
2011
2014: 4.7%
Like-for-like sales growth:
2014: 4.5%
5.2%
4.7%
4.8%
3.8%
4.7%
2015
2014
-0.8%
2013
-2.7%
2012
5.8%
2011
1.4%
4.7%
4.5%
The percentage year-on-year change in total sales for the
Group, adjusted for the impact of a 53 week year in 2014.
Total sales grew to £835.7 million in 2015, up 5.2 per cent
on a comparable 52 week basis and up 3.7 per cent when
compared to the 53 week financial year in 2014.
Compares year-on-year sales in our Company-managed ‘core’
shops, i.e. it is not distorted by shop openings and closures.
Like-for-like sales growth includes selling price inflation and
excludes VAT. Company-managed shop like-for-like sales grew
by 4.7 per cent in 2015 (2014: 4.5 per cent). We saw strong
growth throughout the year although customer footfall in some
shopping locations was subdued in the final quarter, resulting
in slower growth in this period.
Adjusted operating profit:
2014: £58.1m
Operating margin:
2014: 7.2%
£73.1 million
8.7%
2015
2014
2013
2012
2011
£73.1m
£58.1m
£41.5m
£51.3m
£53.0m
2015
2014
2013
2012
2011
8.7%
5.4%
7.2%
7.0%
7.6%
Shows the adjusted operating profit of the Group as
a percentage of turnover. Operating margin for the year
has increased to 8.7 per cent (2014: 7.2 per cent).
Reflects the performance of the Group before financing and
taxation impacts and excludes any exceptional items arising in
the year. Adjusted operating profit for the year increased by
25.9 per cent to £73.1 million (2014: £58.1 million). The result
reflects further good like-for-like sales growth combined with
significant savings arising from structural changes and our
investment in better processes and systems.
22
Greggs plc Annual Report and Accounts 2015
Adjusted diluted earnings per share (pence):
2014: 43.4p
Capital expenditure:
2014: £48.9m
55.8p
£71.7 million
2015
2014
2013
2012
2011
55.8p
43.4p
30.6p
38.3p
38.8p
2015
2014
2013
2012
2011
£71.7m
£48.9m
£47.6m
£46.9m
£59.1m
Calculated by dividing profit attributable to shareholders
before exceptional items by the average number of dilutive
outstanding shares. Diluted earnings per share increased by
28.6 per cent to 55.8p (2014: 43.4p).
The total amount incurred in the year on investment in fixed
assets. Capital expenditure in 2015 was £71.7 million (2014:
£48.9 million). This reflected continued investment in shop
refurbishments, an increased rate of new shop opening,
the purchase of a distribution facility in north London and
further investment in our programme of process and
systems improvement.
EBITDA:
2014: £96.2m
Return on capital employed (ROCE):
2014: 22.4%
£113.3 million
26.8%
2015
2014
2013
2012
2011
£113.3m
£96.2m
£77.0m
£84.3m
£83.9m
2015
2014
2013
2012
2011
26.8%
22.4%
16.4%
21.3%
24.4%
Earnings (excluding exceptional items) before interest, tax,
depreciation and amortisation. EBITDA in 2015 was £113.3
million (2014: £96.2 million).
Calculated by dividing profit before tax before exceptional
items by the average total assets less current liabilities for the
year. ROCE increased to 26.8 per cent in 2015 (2014: 22.4 per
cent). The year-on-year increase reflects the higher overall
operating profits in 2015 and continued good returns on
invested capital.
Greggs plc Annual Report and Accounts 2015
23
Directors’ ReportAccountsStrategic Report Principal risks and uncertainties
The Board has carried out a robust assessment of the
principal risks facing the Company, including those that
would threaten its business model, future performance,
solvency and liquidity. These risks are described below,
together with a brief description of mitigating activity.
Our risk management approach
Greggs’ approach to risk management has a number of
components, which combine to ensure that significant risks are
identified, evaluated, recorded and managed.
Whistle-blowing
All staff have an opportunity to raise matters of concern with
senior management through our whistle-blowing policy as
detailed on page 43, which is advertised across the business.
Board of Directors
The Board has ultimate accountability for ensuring that risks are
managed appropriately, although it delegates the detailed
implementation of risk processes and mitigating actions to
management. Significant risks (i.e. those which could prevent
the business from achieving its objectives were they to occur)
are considered at each meeting, with the associated controls
being monitored and reviewed. The Board also debates
whether any new or emerging risks require assessment by
management, delegating any such risks to the Risk Committee
for their consideration.
Insurance cover provides a means of mitigation for a number
of risks facing the business. On an annual basis, the Board reviews
the cover in place and considers whether it is appropriate.
Through regular reporting, the Board is kept apprised of any
issues or business changes which may impact on the
Company’s risk profile. The Audit Committee reviews risk
management procedures at least annually, and reports its
findings through to the Board.
Operating Board
The Operating Board supports the Chief Executive in
implementing the Board’s decisions, and comprises Directors
representing each of the organisation’s main functions:
Finance, Retail, Commercial, Supply Chain, People, Business
Development and Property, and Corporate Affairs.
Responsibility for the day-to-day management of risks sits
with this group. All key strategic risks identified by the business
are owned by an Operating Board member.
Risk Committee
The Risk Committee is a management committee meets on
a quarterly basis to discuss risks in greater detail than can be
done during Operating Board meetings. It comprises the Chief
Executive, the Operating Board, and a number of heads of
business functions. Its responsibilities include analysing,
assessing, measuring and understanding the Company’s risk
exposure, as well as developing an appropriate risk
management strategy for the business. Significant areas
of concern identified by this body will be reported through
to the Board, generally via the Audit Committee. Although
the group’s remit extends to all risks faced by the Company,
it will focus on key strategic risks and their associated controls.
The Risk Committee also considers new and emerging risks
as a standing agenda item, including those identified by the
Board of Directors.
24
Greggs plc Annual Report and Accounts 2015
Business Assurance
The Business Assurance function provides independent internal
audit coverage for the entire business operation, and also
supports risk management activity across the organisation.
The Information Security and Compliance Manager now forms
part of the team, having previously reported into the Head of IT.
This improves the independence of our IT governance and
strengthens the profile of information security within the business.
Audit findings are reported to management and to the Audit
Committee, whose meetings are all attended by the Head
of Business Assurance. The Business Assurance team has
authority to access all areas of the business, all senior
managers and the Chair of the Audit Committee, as required.
Principal risks and uncertainties
The Board has carried out a robust assessment of the principal
risks facing the Company, including those that would threaten
its business model, future performance, solvency and liquidity.
These risks are described on the following page, together with
a brief description of mitigating activity.
Greggs is exposed to a wider range of risks than those listed.
However, these are the risks which are considered to be
the most important to the business’ future development,
performance or position. The risks identified are those to which
the Board considers there is a disproportionate exposure, relative
to the food-on-the-go sector. The impact of these risks occurring
has been considered in developing the scenarios tested as part
of the financial viability statement on the following page.
Additional risks and uncertainties, not presently known to
management, or deemed to be less material currently, may also
have an adverse effect on the business.
Greggs’ exposure to risks evolves as we take mitigating actions, or
as new risks emerge. The following subjects have been removed
from our principal risks list this year, as we believe our exposure is
no more significant than other comparable businesses in our sector:
– Information security and cyber risk.
– Market saturation.
However, the Board continues to oversee and receive reports
on the management of these risk areas in line with our normal
business practice. In particular, the Company’s approach to
cyber risk is driven by a cross-functional working group, which
sets the priorities and monitors progress. Both the Audit
Committee and the Board receive reports on information
security and cyber risk, ensuring that an appropriate level
of risk management is in place.
The following risks are in no particular order.
Area of principal risk or uncertainty
Mitigating actions and controls
Risk rating
Business change – Greggs is implementing a strategic
plan to transform the business from a decentralised
traditional bakery to a centralised modern food-on-the-
go brand. This involves a major programme of business
change involving restructuring, new systems, increased
capital investment and a major overhaul of every aspect
of the business.
Progress may not be in line with plans, disruption could
occur and financial returns may fall short of expectation.
Product quality and safety – Greggs is unusual in the
food-on-the go sector in that it is vertically-integrated,
owning its own manufacturing and supply chain
operations. In addition, we freshly prepare food on the
premises. This exposes us to greater risk in ensuring
good food safety than many of our competitors.
The project delivery is overseen by the Operating
Board, under the guidance of a project sponsor,
providing robust governance. Regular updates are
provided to the Board, to monitor progress against
clearly defined timelines and financial forecasts.
No change
Procedures are in place throughout our operations
to ensure that food safety is maintained. These
procedures are supported by robust audit processes,
both internally, and by regulatory bodies.
No change
Food scare – Greggs may suffer from a loss of customer
confidence due to a major food scare beyond its
control. Dependent upon the nature of this, it may
have a disproportionate impact on Greggs.
The majority of products for sale in our shops have
been manufactured by our staff in our bakeries. Checks
are carried out to confirm the integrity of our products
and ingredients as part of routine processes.
Loss of production – Some of our products are
produced in one location and distributed nationwide.
Any disruption to supply would have a significant
impact on our customers.
Market pressures – Changing shopping habits driven
by the convenience of new customer channels and
locations may have a greater impact on Greggs due to
our historical bias to shops located on high streets.
Consumer trends – Increasing customer concern with
health and nutrition may affect demand for some of our
traditional bakery product ranges.
Contingency plans are in place for our supply sites, and
these are regularly tested. Our property insurers carry
out annual site inspections, which help to protect our
facilities from loss. We have alternative supply sources
for key products, and these are periodically tested.
Greggs operates a leasehold shop estate with typically
five-year break provisions, allowing us to change
locations in line with customer traffic trends. In
addition, new shops are predominantly opened in
locations away from the high street to offer our services
to customers who are away from home for reasons
other than shopping.
We have a proactive programme to improve the
nutritional qualities of our traditional products where
possible without impacting taste. In addition we are
extending range choice to include healthier options
branded `Balanced Choice` which is growing rapidly.
No change
No change
Improving
No change
Viability statement
The Directors have assessed the Company’s prospects and
viability taking into account its current position, plans and
principal risks. The Company remains cash-generative and has
no debt other than normal trading liabilities to creditors and
the obligations arising under commercial leases. In assessing
the Company’s viability the Board has considered potential
scenarios that have been envisaged to reflect the occurrence
of the principal risks that the business faces.
In carrying out its assessment the Board has reviewed the
three-year operational and financial plan to 2018. The Board
believes that this viability assessment period is appropriate given
its experience of the Company’s cycle of strategic plan renewal
and the fast-moving nature of the food-on-the-go market.
The principal risks to which the Company is exposed ultimately
affect the ability of its shops to trade successfully, either through
an interruption to supply or because of a loss of confidence in the
Greggs brand. A significant loss of sales would be particularly
damaging given the Company’s vertical integration in that the
cost of the internal supply chain cannot be reduced quickly.
In order to stress-test the financial resilience of the Company,
scenarios were created to simulate the impact of significant
sales declines. The Directors considered the impact of a ten
per cent annual sales decline, and also the impact of a
significant one-year reduction resulting from a brand-damaging
event. In each case the Directors reviewed the mitigating
actions that would be necessary to protect the Company’s
liquidity. These scenarios represent more extreme
circumstances than the Company has ever experienced.
Based on the results of this analysis, the Directors have a
reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due
over the three-year period of their detailed assessment.
Greggs plc Annual Report and Accounts 2015
25
Directors’ ReportAccountsStrategic Report Social responsibility
We want our business to have
a positive impact on people’s
lives – our teams, customers,
suppliers and local communities.
We believe it is our social responsibility to do business in a way
that brings benefits to people who shop with us, work for us,
supply to us, or live near us. In addition, we recognise our
broader responsibility to respect the environment.
Our social responsibility programme has five areas of focus, with
a clear commitment against each one. These commitments are
delivered through a series of projects with measurable targets.
The Chief Executive is responsible for delivering the overall
programme and an Operating Board Director has been assigned
to be a champion for each of the areas – as illustrated below.
This group meets quarterly to review progress at a steering
group convened by the Company Secretary.
Responsible
Accountable
Chief Executive
Company Secretary
Champions
Finance Director
Commercial
Director
Commercial
Director
People Director
Retail Director
Focus areas
Community
Customer health
Responsible
sourcing
People
Environment
Our commitments
We share our
success
with the people
around us
We encourage
healthy
food-on-the-go
choices
We care about
where our
ingredients
come from
We are committed
to creating a great
place to work
We aim to
use energy
efficiently and
minimise waste
2015 Highlights
Community We won the ‘Business of the Year’ award at the Third Sector Business Charity Awards, in recognition
of our work to embed a culture of supporting charities at all levels of our organisation.
Customer
health
Responsible
sourcing
People
We won the IGD ‘Health and Wellness Award’ in recognition of our work to improve the nutrient profile
of our products and how we are helping customers make informed choices.
We made a step-change in our management of farm animal welfare through the introduction
of a new policy, a move recognised by the Business Benchmark on Farm Animal Welfare scheme.
Staff engagement continues to grow with 75 per cent of our team members agreeing with the
statement ‘I would recommend Greggs as a great place to work’ – up six per cent since 2014.
Environment We met our five-year target to reduce the carbon intensity of our business by 25 per cent. We were
accredited to hold the Carbon Trust Standard in recognition of our work on carbon efficiencies.
BitC CR Index We continue to take part in the Business in the Community Corporate Responsibility Index,
achieving a two-star rating in 2014 and a three-star rating in 2015.
FTSE4Good We have been reconfirmed as a FTSE4Good index company, recognising our commitment
to corporate responsibility practices, in particular demonstrating our strong environmental,
social and governance practices against global standards.
26
Greggs plc Annual Report and Accounts 2015
COMMUNITY
Our commitment: We share our success with
the people around us
Greggs is successful because of the support we receive from
our customers and employees. We repay that loyalty by
choosing to help others that they care about and those who
are facing tough times.
The Greggs Foundation
The Greggs Foundation was created in 1987 with an
endowment from the then Chairman Ian Gregg with the
intention of helping people in the immediate area. This
investment continues to help people in the North East via the
Hardship Fund, as well as by contributing to the core running
costs of small organisations that serve the area through the
North East Core Funding programme.
However, today, a significant proportion of Greggs Foundation’s
income comes from an annual donation from the Company of at
least one per cent of the previous year’s pre-tax profits, as well
as the generosity of our employees and customers. In 2015,
fundraising in our shops and bakeries totalled £520,370,
including £100,000 raised from the sale of our ‘Jammy Heart’
Foundation biscuit. In 2015 all funds raised by the new carrier
bag levy were also donated to the Foundation.
Supporting other charities
The Greggs Foundation is not the only charity we support.
Each year, we also fundraise for other charities which our
people and customers feel passionate about including Children
in Need, the Poppy Appeal and the Disasters Emergency
Committee (DEC). In 2015, we supported DEC’s Nepal
Earthquake Appeal, raising over £67,000 through our
customers’ generosity.
This enabled the Greggs Foundation to distribute a total of
£1.8 million in support of a wide range of local community
initiatives in 2015, including the Breakfast Club programme
(see below) and £718,000 through local community grants.
Now in its 29th year, the Foundation has given in excess of
£20 million to support our local communities.
Breakfast Clubs
One of the main beneficiaries of the Foundation’s donations is
the Breakfast Club programme which provides primary school
children in disadvantaged areas with a wholesome breakfast,
free of charge. We know that eating breakfast provides a good
start to the day helping children to concentrate and learn at
school. In this way, the Breakfast Clubs help to give children
a good start in life.
In 2015, the Breakfast Clubs supplied four million wholesome
breakfasts free of charge to children in 363 primary schools
around the UK. Each Breakfast Club receives free bread from
its local Greggs shop. The Foundation provides a cash grant
towards running costs at 161 schools. Partnership work has
been central to the growth of Breakfast Clubs and an additional
202 clubs are supported by fundraising and Greggs’ partners.
For a list of partner organisations please see the Greggs
Foundation’s website www.greggsfoundation.org.uk.
We have supported the North of England Children’s Cancer
Research charity (NECCR) since 1992 and are the main sponsor
of its annual Children’s Cancer Run. Every competitor receives
a free Greggs lunch, prepared by our staff and their families.
To date, the run has raised £6 million to fund research into
improving recovery rates.
Sharing our skills with the local community
We enable all managers to devote one day each year to
volunteering. As a result, in 2015 our people gave over 500
days of time to benefit local charities and organisations,
many deploying their professional skills to the benefit of
the charitable groups. For instance, our supply chain team
volunteered at a food bank in Newcastle and improved
production and organisation in its warehouse. In 2016, we
plan to make more of our volunteering days skills-based, by
sharing our expertise in areas like accounting, marketing,
planning, administration, legal and operations.
As part of this drive to share our skills with the wider
community, we support the Business in the Community
‘Business Connector’ initiative. Business Connectors are
selected team members who undertake a long-term
secondment from Greggs and are tasked with creating a
sustainable bridge between businesses and community
organisations in a particular area. The programme supports
our people’s skill development while harnessing their expertise
and energy to tackle local challenges.
Greggs plc Annual Report and Accounts 2015
27
Directors’ ReportAccountsStrategic Report Social responsibility
CUSTOMER HEALTH
Our commitment: We encourage healthy
food-on-the-go choices
Our customers tell us they want help eating well on-the-go.
We recognise that obesity, in particular, is a serious health issue
and want to play our part in helping people watch their weight
and manage their fat, salt and sugar intake. We know that if
we can help our customers to make healthier choices, we can
play a positive role in the health of the nation.
Growing our Balanced Choice brand
In 2015, our Balanced Choice food-on-the-go range achieved
sales over £78 million – over £13 million more than we had
forecast. Every food item in the range contains fewer than 400
calories, and is rated amber or green on the Food Standards
Agency traffic light system for fat, salt and sugar. This range
now represents almost ten per cent of our sales value and is
growing faster than our core offering.
We have increased the number of Balanced Choice sandwiches
by 43 per cent in the last 12 months, and the range now
includes flatbreads too. We have also launched a choice of
soups and freshly-prepared salads. All our own-brand soft
drinks have ‘no added sugar’.
Our Balanced Choice range won the IGD ‘Health and Wellness
Award’, 2015 and, at the British Sandwich Association’s Sammies
Awards, our Cajun Chicken flatbread was highly commended.
“Greggs is a great example of how
an organisation has taken the needs
of its customers to heart and delivered
a new range of healthy products.
It wasn’t just the exceptional products
it developed that impressed the
judges; it was how the Company
is going about it.”
Judge of IGD Award
Working to improve the nutritional value of our savouries
We recognise that our savouries are a major driver of customers
to our shops. We have long been committed to improving the
nutritional value of these core products: since 2009 our
products have contained no added trans fats, no artificial
colours and no artificial flavours. In 2012, we also removed all
monosodium glutamate (MSG). In recent years we have added
fat and salt reduction to our objectives, focusing on
reformulating some of our iconic products while ensuring
the taste everyone loves. The focus on salt reduction has been
felt elsewhere in our portfolio too: we are proud that all our
bread, rolls and savouries now contain less salt than the limits
recommended by the Department of Health Responsibility
Deal targets.
Helping our customers make informed choices
We believe in helping people make informed choices about
what they eat and drink. Building on our 2011 commitment
through the Department of Health Responsibility Deal pledge
on out of home calorie labelling, we provide nutritional
information about our products on our website, on the Greggs
mobile phone app and in leaflets available in our shops. In
addition, customers can easily access information about the
presence of all major serious allergens, by recipe.
We have also enhanced the information displayed at point of
sale by using icons to inform our customers about important
features of a particular product, such as ‘vegetarian’, ‘no
mayonnaise’ or ‘1 of your 5 a day’.
28
Greggs plc Annual Report and Accounts 2015
RESPONSIBLE SOURCING
Our commitment: We care about where
our ingredients come from
Our customers trust us to do the right thing. That’s why we
continually improve the environmental, social and ethical
standards of the products we sell.
Partnering with our suppliers
As both a retailer and manufacturer of products, we stay close
to the roots of where our food comes from. We focus on
purchasing quality goods from over 2,500 great food producers,
a number of whom we have been working with for decades.
We pride ourselves on paying promptly and rewarding suppliers
of quality products with long-term relationships.
We are embarking on a journey with our producers to ensure
that our relationships include engagement on sustainability.
A key part of this is the development of a balanced scorecard
for suppliers that will enable us to collaborate on improving
performance on social and environmental factors.
We are members of the Supplier Ethical Data Exchange
(SEDEX), an organisation dedicated to driving improvements
in responsible and ethical business practices in global supply
chains. We are encouraging our supply base to join the
platform to help us ensure that labour standards in our
supply base are observed.
Promoting Fairtrade and environmental stewardship
We are not only committed to our suppliers themselves but
recognise the positive role we can play in the communities
and environment that surrounds their operations. We are
active supporters of Fairtrade: all the tea, coffee, hot chocolate,
sugar sachets, orange juice and apple juice we sell are certified
Fairtrade. We also recognise that the palm oil industry can
do enormous damage to forests and wildlife habitats. We
are working closely with our suppliers in the first half of the
year to insist that 100% of the palm-derived fats and oils we
use in our products are certified as sustainable.
Animal welfare
We use meat, fish, eggs and dairy products in our recipes
and take care to ensure that these are produced and delivered
in a way that avoids abuse or exploitation of animals. In 2015,
we introduced the Greggs Farm Animal Welfare policy, a
standard based on existing legislation and farm animal welfare
certifications such as the RSPCA’s Five Freedoms and the Red
Tractor assurance scheme. We have shared this policy with all
our suppliers and will regularly review our work in the area.
Today, all the whole eggs we buy are free range and we are
proud to have received the Good Egg award from Compassion
in World Farming (CiWF) as a result. Additionally, all our prawns
are sourced from MSC certified sustainable sources, and we are
working to make our tuna supplies free from fish aggregating
devices (known as FADs).
The Business Benchmark on Farm Animal Welfare is the leading
global measure of company performance on farm animal
welfare. As a result of our Farm Animal Welfare policy and
approach, Greggs moved from tier five to tier three in their
six-tier benchmark.
Food assurance
In 2015, The Food Standards Agency placed Greggs in seventh
place in its food hygiene ranking of the 20 biggest high street
chains in the UK. In total, nine out of ten Greggs shops received
the maximum score of ‘very good’, and none were found to
be unsatisfactory.
We also take food hygiene, safety and integrity seriously in
our supply chain, assessing all our suppliers against the British
Retail Consortium Global Standard for Food Safety, and
introducing controls to reduce possible risks. By the end of
2016, we will have audited all of our production sites against
the latest version of these standards, to ensure that each one
has maintained their certification status within this UKAS
accredited scheme.
Greggs plc Annual Report and Accounts 2015
29
Directors’ ReportAccountsStrategic Report
Social responsibility
PEOPLE
Our commitment: We are committed to creating
a great place to work
Our people are the heart of our business and if they are happy,
our customers are happy. We listen, develop and reward our
20,000 colleagues, and as they thrive, so do we.
Keeping our people safe
Making sure our people and customers are safe is our top priority.
In 2015, we reduced reportable accidents in our supply chain
by more than 30 per cent, exceeding our target. In part, we
achieved this through our ‘near miss’ programme which records
potential hazards, raising awareness of areas of risk and
encouraging our teams to take these seriously. In 2015, there
was an 80 per cent increase in reports of ‘near misses’ and
a corresponding 28 per cent reduction in minor incidents.
Three of our 12 major sites had no reportable incidents.
Within our retail operations, we fell short of the ambitious
target we had set ourselves but still delivered progress. We
began developing more engaging materials to help our shop
teams to prioritise and improve health and safety performance,
and held two health and safety awareness weeks.
Listening to our people
Every year we survey the opinions of our employees in order to
hear their feedback and understand how they feel about their
jobs. In 2015, 93 per cent of our team members completed the
survey and we achieved another high engagement score of
79 per cent, up four per cent since 2014.
We know it is the people on the ground who have the best
ideas for business improvements, so in 2014, we introduced
‘Your Ideas Matter’, a feedback mechanism for our people to
use on a daily basis. During 2015, 295 people shared useful
ideas about how we can improve our business.
Rewarding our people
We believe everyone who works here should share in the
Company’s success and, each year, distribute ten per cent
of all profits between our team members. For 2015, our
people will be sharing a record £8.1 million as a result of our
strong performance.
Team members are invited to join the Greggs Share Incentive
Plan which lets them reinvest their profit share into Greggs
shares. We also have a Greggs Share Save scheme which allows
people to save money and invest in Greggs shares. In 2015,
2,542 team members participated in ‘Share Save’.
Developing our people
We are helping to grow the nation’s skills base by giving all our
team members quality training.
All new starters complete a 12-week programme, known as
Your Greggs Welcome, that teaches them everything they need
to know about health and safety, customer service and how we
operate. High potential team members are invited to join our
Career Pathways programme which provides support to prepare
them for management roles. For those who are already
managers, we have created the ‘Brilliant’ programme of bespoke
workshops to help our people grow the specific skills we know
30
Greggs plc Annual Report and Accounts 2015
they need to succeed. In 2015, 93 per cent of our managers
received development support.
Women in the workplace
We are proud of our reputation for bringing the best talent
through the business regardless of gender. This year our
people were recognised for this success, with Suzanne Cooper,
Bakery Manager at our Manchester site appointed a ‘Retail
Ambassador of the Year’ at the EveryWoman Awards.
In total, 71 per cent of our workforce and almost half of our
management population are female. Of the eight Board posts,
three are held by women.
Gender of workforce
3
51
344
14,544
100%
80%
60%
40%
20%
0%
5
Board
86
369
5,929
Senior
managers
All graded
managers
All
employees
Female
Male
Giving people a Fresh Start
We know the passion and energy for work that comes from
people who are given an opportunity to kick-start their careers
or to turn their lives around, and have programmes in place to
recruit and train accordingly. These programmes sit under the
banner of ‘Fresh Start’.
We believe in the principle that ‘no member of the Armed
Forces Community should face disadvantage in the provision
of public and commercial services compared to any other
citizen’ and work closely with services and veteran groups
to support the employability of veterans.
We provide training and work experience for people who are
transitioning into work. We deliver training sessions in prisons
for people who are nearing the end of a sentence and we give
work experience to those who demonstrate potential. In 2015,
more than 600 people benefitted from a training session and
52 participants completed a four-week work placement with us.
As a result, 47 of them secured a permanent job with us.
Additionally, we partner with Job Centre Plus to offer the
long-term unemployed work experience or paid employment.
In 2015, we gave three people a work placement and provided
24 with paid employment.
The methodology used to calculate our emissions is based
on the UK Government’s Environmental Reporting Guidance
(2013) and emission factors from UK Government’s GHG
Conversion Factors for Company Reporting.
Our 2014 emissions were verified by the Carbon Trust and,
in 2015, we were again accredited to hold the Carbon Trust
Standard in recognition of our work on carbon efficiencies.
Our 2015 emissions are currently being verified by the Carbon
Trust. In addition, we disclose our greenhouse gas emissions
through the CDP.
Waste management
We divert 99.6 per cent of waste from our manufacturing sites
away from landfill. We continue to work closely with our waste
management partners to ensure that all of our waste streams
are processed through the most sustainable routes.
To avoid wasting edible food in our shops, we aim to give away
unsold food to community groups and charities. In the last year,
we achieved our target of doubling food donations and have
ambitious plans to grow this more in the years ahead. Some of
our shops have direct links with local organisations and we also
partner with the Trussell Trust and FareShare to donate food
to worthy causes. We have now been working with FareShare
for over a decade and supply eight of their regional
distribution centres.
ENVIRONMENT
Our commitment: We aim to use energy efficiently
and minimise waste
The success of our business is based on offering excellent value
to our customers. One of the ways we do this is by paying close
attention to every cost to our business, including our energy
use or how much food waste we create.
Our carbon footprint
Our net carbon footprint in the 2015 financial year was 124,776
tonnes of carbon dioxide and equivalent gases (CO2e), which
represents an absolute reduction of seven per cent on our 2014
emissions, and a 10.7 per cent reduction in intensity (which we
measure as tonnes of CO2e per £ million turnover).
We are pleased to report that we have achieved our 2010
ambition to reduce our emissions intensity by 25 per cent by
2015. In the last year alone, we have reduced the energy intensity
of our manufacturing operations by 4.94 per cent and retail
operations by 6.23 per cent (calculated as kwh/£m turnover).
Our photovoltaic arrays, which are installed on the roofs of ten
of our bakeries, generated 1,012,696 kWh of electricity in 2015,
saving almost 468 tonnes of carbon.
In line with Companies Act 2006 (strategic report and
Directors’ report) Regulations 2013, we are reporting on our
greenhouse gas (GHG) emissions as part of our annual strategic
report. We have reported on all of the emission sources which
we deem ourselves to be responsible for.
Our GHG reporting year is the same as our financial year,
4 January 2015 to 2 January 2016.
Current
reporting
year
2015
(tonnes
CO2e)
Comparison
year
2014
(tonnes
CO2e)
31,509
31,313
4,360
5,691
89,375
97,919
125,244
134,923
124,776
134,327
149.3
167.1
Scope 1
Scope 2
GROSS
emissions
NET
emissions
NET intensity
measure
Combustion of fuel &
operation of facilities
Fugitive emissions from
refrigeration
Electricity purchased for
own use (including PV
generated electricity)
Total scope 1 and 2
CO2e emissions
Total emissions excluding
PV generated electricity
Tonnes of CO2e per
£ million of turnover
adjusted to account for
use of renewable energy
Greggs plc Annual Report and Accounts 2015
31
Directors’ ReportAccountsStrategic Report
Social responsibility
Social responsibility:
achievements and targets
Green indicates the target has been met.
Amber indicates that the target/commitment is progressing on schedule but was not completed.
Red indicates we did not meet the requirement for the given period of time.
We will extend the
Greggs Breakfast
Club scheme,
developing
the model’s
sustainability
through
partnerships
and dedicated
fundraising.
We will increase
employee
awareness of the
work of the Greggs
Foundation.
We will trial
an education
partnership to
promote greater
understanding of
food and nutrition.
We will continue
to increase
the number of
healthier options
for customers.
Community. We share our success with the people around us
2015 Achievements
19% increase on 2014.
We are now funding 363 Breakfast Clubs.
Measured by
10% increase on 2014.
Fund 330 Breakfast Clubs.
2016 Targets
Extend the Greggs Breakfast Club
scheme to 400+ schools, working
with our partners.
Team members agree: ‘I am proud
of the work Greggs Foundation
does in our local communities’
(Employee Opinion Survey).
Pilots conducted.
89% of team members are proud
of the work Greggs Foundation does
in our local communities.
Support the Greggs Foundation
to donate more than £2.0 million
through our fundraising activity.
We supported the Newcastle Falcons
Foundation’s ‘Tackling Health’ initiative
and, whilst we did not pilot our own
planned initiative, we have made
progress on this goal and will achieve
it in the first half of 2016.
Support the delivery of engaging
nutritional education in schools.
Measured by
Increase sales of Balanced Choice
range by 15% to £65 million.
Customer health. We encourage healthy food-on-the-go choices
2015 Achievements
Annual sales of Balanced Choice products
were £78.8 million, an increase of
42% on 2014.
2016 Targets
Target to increase Balanced
Choice sales value by at least
£5 million for 2016.
100% of pastries to meet DoH
Responsibility Deal out of home
salt targets.
100% of bread and rolls to meet
DoH Responsibility Deal 2012
salt targets.
100% of pastries now meet DoH
Responsibility Deal out of home salt targets.
Introduce a Healthy Children’s
Meal Menu.
100% of bread and rolls meet DoH
Responsibility Deal 2012 salt targets.
To minimise the use of unfamiliar
ingredients in our products we will
initiate a structured plan for the
implementation of Clean Label.
100% own label cold drinks to
contain ‘no added sugar’.
100% of our own label cold drinks now
contain ‘no added sugar’.
We will develop
customer
communications
re: allergens.
Roll out of new customer
communications plan re: allergens.
Conduct benchmarking survey
of allergen data available
to customers.
Customers can now access information
about the presence of all major serious
allergens, by recipe, in shops and online.
We conducted a thorough allergen data
review of our competitors. As a result,
it was concluded that our allergen data
provision is in line with the industry.
Therefore, we have continued with our
current format and no further action
was required.
32
Greggs plc Annual Report and Accounts 2015
Responsible sourcing. We care about where our ingredients come from
2015 Achievements
Measured by
We implemented an animal welfare policy.
Implement animal welfare strategy.
2016 Targets
Only source Tuna from ‘FAD free’,
‘FAD entanglement free’ or ‘pole
and line’ methods of harvesting.
Achieve tier 3 ranking in the
Business Benchmark on Farm
Animal Welfare.
We achieved tier 3 ranking in Business
Benchmark on Farm Animal Welfare.
Develop and trial a balance
scorecard for suppliers.
We developed and trialled a balanced
scorecard.
Develop standards and controls
for Field to Fork (Spork) for our
fresh produce.
Achieve BRC Global Standard
V7 at all bakery sites (certified as
Grade A).
People. We are committed to creating a great place to work
2015 Achievements
3% increase in staff agreeing with the
statement ‘I would recommend Greggs
as a great place to work’.
Measured by
2% increase in staff agreement with
the statement ‘I would recommend
Greggs as a great place to work’.
2016 Targets
Maintain our 2015 employee
engagement target (Employee
Opinion Survey).
30% of our committed volunteering
days are matched to people’s skills
and abilities.
29% of committed days were matched
to people’s skills and abilities.
Ensure 30% of our volunteering
days are matched to people’s skills
and abilities.
100% of teams participate
in ‘Superstar Service’.
All team members across the business
are invited to participate.
100% of teams participate
in ‘Your Ideas Matter’.
All team members across the business
are invited to participate. In total we
received 295 suggestions through
‘Your Ideas Matter’.
We will drive our
diversity agenda.
80 apprenticeships given
to school leavers.
91 apprenticeships were given to
school leavers.
10% reduction of reportable
incidents per hours worked in
supply chain.
We achieved a 28% reduction in
reportable incidents per hours worked
in our supply chain operations.
5% reduction of reportable
incidents per hours worked in retail.
We did not achieve a reduction in
reportable injuries in our retail operations.
Team members are encouraged
to support the programme.
People are given support through
the programme.
111 graded managers supported the
programme.
611 people given support through the
programme.
Continue to engage colleagues
with ‘Superstar Service’
business-wide.
Further drive our service culture
through continued focus on ‘Your
Ideas Matter’ to achieve a 100%
response rate.
Undertake a National Equality
Standards audit in 2016 enabling
a three-year plan to be developed
to receive accreditation in 2019.
Supply: 10% reduction
of reportable incidents per
hours worked.
Retail: 5% reduction
of reportable incidents per
hours worked.
Increase the impact of our Fresh
Start programmes through
offering 450 opportunities in 2016.
Environment. We aim to use energy efficiently and minimise waste
2015 Achievements
We improved fuel efficiency in our
logistics distribution by 0.5%.
Measured by
Deliver 1.5% improvement in
logistics distribution fuel efficiency
(measure in ‘miles per gallon’).
2016 Targets
Complete certification of our
Environmental Management
System to ISO 14001.
Reduce electricity usage
across our retail operations
by 3% (measured in Kwh per
£million turnover).
We reduced the amount of energy we use
in our retail operations by 6.2%.
Reduce energy usage (electricity
and gas) in our supply chain
operations by 3% (measured in Kwh
per £million turnover).
We reduced the amount of energy
we use in our supply chain operations
by 4.9%.
100% increase on 2014
Donate 200 tonnes.
We gave away 423.1 tonnes of food to
good causes, double our target.
Minimise the impacts from
Climate Change through the
development and delivery of an
engagement plan for our staff
and customers.
Further develop waste
management practices to
ensure long-term focus on
resource efficiency over and
above recycling.
Increase the amount of unsold
food that we donate to good
causes by at least 50% (based
on 2015 result).
Greggs plc Annual Report and Accounts 2015
33
We will work with
our suppliers
to ensure high
standards of
animal welfare.
We will make
Greggs an even
greater place
to work.
We will use our
volunteering days
to develop our
people and add
real value to our
local communities.
We will drive our
service culture
across the
business.
We will improve
employee safety/
reduce RIDDOR
accidents.
We will continue
to utilise the skills
of our people
to improve the
employability
of people from
marginalised
groups.
We will complete
our five-year
target to reduce
our carbon
emission per £m
turnover by 25%
(compared to 2010
baseline).
We will again
double the
amount of unsold
food that we
donate to
good causes.
Directors’ ReportAccountsStrategic Report Board of Directors and Secretary
Name and title
Ian Durant
Chairman
Roger Whiteside
Chief Executive
Richard Hutton FCA
Finance Director
Raymond Reynolds
Retail Director
Biography
Ian has a background in
international finance and
commercial management,
with experience in the retail,
property, hotels and
transport sectors. His career
includes leadership roles
with the retail division of
Hanson and Jardine
Matheson, HongKong Land,
Dairy Farm International,
Thistle Hotels and Sea
Containers and as Finance
Director of Liberty
International.
Appointed since
5 October 2011
Roger began his career at
Marks and Spencer where
he spent 20 years, ultimately
becoming head of its food
business. He was then one of
the founding team of Ocado,
serving as Joint MD from
2000 to 2004. From 2004 to
2007 Roger led a successful
turnaround as Chief
Executive of the Thresher
Group off-licence chain
before joining Punch
Taverns, ultimately
becoming Chief Executive.
Roger was appointed as
Chief Executive of Greggs
on 4 February 2013.
17 March 2008 (Non-
Executive Director until
3 February 2013)
Richard qualified as a
Chartered Accountant with
KPMG and gained career
experience with Procter
& Gamble before joining
Greggs in 1998. Richard
has previously been a
non-executive director of
Northern Recruitment
Group and is a trustee of
the Greggs Foundation.
Raymond is a career retail
professional. He joined
Greggs in 1986 in field
management and
progressed his career
through a number of roles
in Scotland, ultimately
becoming Managing
Director for that region in
2002. He was appointed to
the Board in 2006 after four
successful years growing the
Scottish arm of the business.
13 March 2006
18 December 2006
Independent
Yes
Not applicable
Not applicable
Not applicable
External
appointments
Chairman of Capital and
Counties PLC; Non-
Executive Director of Greene
King plc and Home Retail
Group PLC.
No external appointments.
Member of Business in
the Community’s Finance
and Risk Committee.
Trustee of the Alnwick
Garden Trust.
Director of the Sunderland
Business Improvement
District and North East
Chamber of Commerce
Board member.
Committee
membership
Chair of Nominations
Committee
Not applicable
Not applicable
Not applicable
34
Greggs plc Annual Report and Accounts 2015
Allison Kirkby
Non-Executive
Director
Helena Ganczakowski
Non-Executive
Director
Peter McPhillips
Non-Executive
Director
Sandra Turner
Senior Independent
Non-Executive
Director
Jonathan Jowett
Company Secretary
and General Counsel
Allison is currently the
President and CEO of Tele 2
AB, a major European
telecoms company. Prior to
Tele 2 AB, where she joined
as CFO, Allison spent two
decades in the FMCG sector
at Procter & Gamble in a
variety of senior financial and
operational roles before
moving to the TMT sector,
first at Virgin Media and then
as Group CFO at Shine,
a division of 21st Century
Fox. Allison is a Fellow of
the Chartered Institute of
Management Accountants.
Helena worked for Unilever
for 23 years and held
senior positions in brand
management and marketing,
including UK Marketing
Director and ultimately
Head of Global Agencies.
Helena has a PhD in
Engineering from the
University of Cambridge.
Peter spent most of his
executive career in food
manufacturing, having held
a number of executive
positions including Divisional
Managing Director of
Hillsdown Holdings, Director
of Terranova (the chilled
foods business demerged
from Hillsdown Holdings)
and ultimately as UK
Managing Director of Uniq
plc. More recently, Peter was
European Chairman of Hain
Celestial Group.
Sandra has been involved in
the retail sector throughout
her career and was
employed by Tesco PLC from
1987 to 2009, latterly as
Commercial Director for
Tesco Ireland. Prior to this
she worked in sales and
marketing roles for Unilever
and Wilkinson Sword.
Jonathan is a lawyer by
profession and has held
the position of Company
Secretary for a number of
FTSE 250 and FTSE Smallcap
companies. His previous
employers include Avon
Cosmetics Limited, SSL
International plc, Wagon plc
and Bakkavor Group.
30 January 2013
2 January 2014
10 March 2014
1 May 2014
12 May 2010
Yes
Yes
Yes
Yes
Not applicable
No additional activities.
Non-Executive Director
of Croda International Plc
and also owner-manager
of a consulting business
working with companies
ranging from start-up
businesses to FTSE 100
constituents, helping
them to develop and
implement strategies.
Non-Executive Director
of Browns Food Group,
a privately-owned chilled
and frozen food producer.
Non-Executive Director
of Carpetright plc, McBride
plc and Huhtämaki OYJ.
Member of the British Retail
Consortium Policy Board;
Trustee director of the Percy
Hedley Foundation.
Chair of Audit
Committee; Remuneration
and Nominations
Committee member
Audit, Remuneration
and Nominations
Committee member
Audit, Remuneration
and Nominations
Committee member
Chair of Remuneration
Committee; Audit
and Nominations
Committee member
Secretary to the Board and
all its Committees
Greggs plc Annual Report and Accounts 2015
35
Strategic ReportAccountsDirectors’ Report Report of the Directors
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 at
3 January 2015 and 2 January 2016, are set out in Note 26 to the accounts. Details of the Directors’ share options are set out in
the Directors’ remuneration report on page 62.
In accordance with provision B.7.1 of the Governance Code, all Directors will retire from the Board at the AGM and offer
themselves for re-election by shareholders.
The Nominations Committee has considered the appropriateness and suitability of each Director standing for election and has
recommended to the Board that each individual should be put forward for re-election.
Directors’ indemnities and conflicts
As at the date of this report, indemnities are in force under which the Company has agreed to indemnify the Directors, to the
extent permitted by law, in respect of losses arising out of or in connection with the execution of their duties, powers or
responsibilities as Directors of the Company. The indemnities do not apply in situations where the relevant Director has been
guilty of fraud or wilful misconduct.
Under the authority granted to them in the Company’s articles of association, the Board has considered carefully any situation
declared by any Director pursuant to which they have or might have a conflict of interest and, where it considers it appropriate to
do so, has authorised the continuation of that situation. In exercising its authority, the Directors have had regard to their statutory
and other duties to the Company.
Additional information
– The information set out within the governance report in pages 38 to 43 forms part of the Directors’ report.
– Greenhouse gas emissions: All disclosures concerning the Group’s greenhouse gas emissions (as required to be disclosed
under the Companies Act 2006 (strategic report and Directors’ report) Regulations 2013, are contained in the social
responsibility section of the strategic review on page 31.
Authority to purchase shares
At the AGM on 30 April 2015, the shareholders passed a resolution authorising the purchase by the Company of its own shares
to a maximum of 10,350,000 ordinary shares of 2p each.
That authority had not been used as at 3 January 2016.
The authority remains in force until the conclusion of the AGM in 2016 or 31 July 2016, whichever is the earlier. It is the Board’s
intention to seek approval at the 2016 AGM for the renewal of this authority.
Takeover directive information
Following the implementation of the European Directive on Takeover Bids by certain provisions of the Companies Act 2006
(CA 2006), the Company is required to disclose certain additional information in the Directors’ report. This information is set
out below:
– The Company has one class of share in issue being ordinary shares of 2p each. As at 1 March 2016, there were 101,155,901 such
ordinary shares in issue. There are no shares in the Company that grant the holder special rights with regard to the control of
the Company.
– At general meetings of the Company, on a show of hands every shareholder present in person or by proxy has one vote only
and, in the case of a poll, every shareholder present in person or by proxy has one vote for every share in the capital of the
Company held by him or her.
– The Company’s articles of association set out the circumstances in which shares may become disenfranchised. No shareholder
is entitled, unless the Directors otherwise determine, in respect of any share held by him to be present or vote at a general
meeting either personally or by proxy (or to exercise any other right in relation to meetings of the Company) in respect of
that share in certain circumstances if any call or other sum is payable and remains unpaid, if the shareholder is in default in
complying with a duly served notice under section 793(1) of the CA 2006 or if any shareholder has failed to reply to a duly
served notice requiring him or her to provide a written statement stating he or she is the beneficial owner of the shares.
– A notice convening a general meeting can contain a statement that a shareholder is not entitled to attend and vote at a general
meeting unless his or her name is entered on the register of members of the Company at a specific time (not more than 48
hours before the meeting) and if a shareholder’s name is not so entered he or she is not entitled to attend and vote.
– Under the Company’s articles of association the Directors may, in their absolute discretion, refuse to register the transfer of a
share in certified form in certain circumstances where the Company has a lien on the share (provided that the Directors do not
exercise their discretion so as to prevent dealings in partly paid shares from taking place on an open and proper basis), where
a shareholder has failed to reply to a duly served notice under section 793(1) CA 2006 or if a transfer of a share is in favour of
more than four persons jointly. In addition, the Directors may decline to recognise any instrument of transfer unless it is in
respect of only one class of share and is deposited at the address at which the register of members of the Company is held (or
at such other place as the Directors may determine) accompanied by the relevant share certificate(s) and such other evidence
36
Greggs plc Annual Report and Accounts 2015
as the Directors may reasonably require to show the right of the transferor to make the transfer. In respect of shares held in
uncertificated form the Directors may only refuse to register transfers in accordance with the Uncertificated Securities
Regulations 2001 (as amended from time to time).
– Under the Company’s code on dealings in securities in the Company, persons discharging managerial responsibilities and
some other senior executives may in certain circumstances be restricted as to when they can transfer shares in the Company.
– There are no agreements between shareholders known to the Company which may result in restrictions on the transfer of
shares or on voting rights.
– Details of significant holders of the Company’s shares are set out on page 43.
– Where, under an employee share plan operated by the Company, participants are the beneficial owners of shares but not
the registered owner, the voting rights are normally exercised by the registered owner at the direction of the participant.
– The Company’s articles of association may only be amended by special resolution at a general meeting of the shareholders.
– The Company’s articles of association set out how Directors are appointed and replaced. Directors can be appointed by the
Board or by the shareholders in a general meeting. At each Annual General Meeting, any Director appointed by the Board
since the last Annual General Meeting must retire from office but is eligible for election by the shareholders. Furthermore,
the Board has resolved that, in line with Governance Code provision B.7.1, all the Directors will be subject to annual re-election
by shareholders. Under the CA 2006 and the Company’s articles of association, a Director can be removed from office by the
shareholders in a general meeting.
– The Company’s articles of association set out the powers of the Directors. The business of the Company is to be managed
by the Directors who may exercise all the powers of the Company and do on behalf of the Company all such acts as may be
exercised and done by the Company and are not by any relevant statutes or the Company’s articles of association required to
be exercised or done by the Company in general meeting, subject to the provisions of any relevant statutes and the Company’s
articles of association and to such regulations as may be prescribed by the Company by special resolution.
– Under the CA 2006 and the Company’s articles of association, the Directors’ powers include the power to allot and buyback
shares in the Company. At each Annual General Meeting, resolutions are proposed granting and setting limits on these powers.
– The Company is not party to any significant agreements which take effect, alter or terminate upon a change in control of the
Company, following a takeover bid.
– There are no agreements between the Company and its Directors or employees providing for compensation for loss of office
or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid.
Details of the Directors’ service agreements and terms of appointment are set out in the Directors’ remuneration report on
pages 49 to 65. However, provisions in the employee share plans operated by the Company may allow options to be exercised
on a takeover.
Employees
Applications for employment of disabled persons are always fully considered, bearing in mind the aptitudes of the applicant
concerned. In the event of members of staff being disabled every effort is made to ensure that their employment within the
Company continues and that appropriate training is arranged. It is the policy of the Company that the training, career
development and promotion of disabled people should, as far as possible, be identical to that of other employees.
The Directors recognise the importance of good communications and good relations with employees. Communication takes a
number of forms including weekly briefings and bulletins. More details on our employee relations can be found on page 30 in the
social responsibility report.
Significant relationships
The Group does not have any contractual or other relationships with any single party which are essential to the business of the
Group and, therefore, no such relationships have been disclosed.
Greggs plc Annual Report and Accounts 2015
37
Strategic ReportAccountsDirectors’ Report Governance
The Board has an excellent
commitment to team performance
and a positive determination to
drive the business forward.
Our two main committees, Audit and Remuneration, have
again had a quieter year in terms of their need to adopt new
legal and governance requirements. The Audit Committee
reports on pages 44 to 48 on how it has risen to the new
requirements of the September 2014 UK Corporate
Governance Code, which has applied to the Company
throughout the financial year.
I would also draw your attention to the new requirement
for the Board to make a ‘viability statement’. The Board’s
consideration of this can be found on page 25.
I look forward to welcoming shareholders to the AGM which
will be held on 10 May 2016 and to receiving and answering
your questions.
Ian Durant
Chairman
1 March 2016
Chairman’s introduction
Dear shareholder,
Welcome to the Board’s governance report for 2015.
Following the changes that were made in 2014, the Board
composition has remained stable during 2015, which has
enabled the Non-Executive Directors to build upon their
knowledge to ensure that they can support and challenge
the management team in its execution of our strategy.
We undertook our first externally-facilitated Board evaluation,
and the results are set out below. The report concludes that
“there is an excellent commitment to team performance and a
positive determination to drive the business forward”. I would
like to take the opportunity to thank Nigel Davies, of NJMD
Corporate Services, for conducting the evaluation on our behalf.
The Board has worked together really well, despite the short
terms of office of several of the Non-Executive Directors and
I see strong, but challenging, relationships being built with
the Chief Executive and his senior team. We continue to
operate in our culture of openness, challenge and debate,
and the size of the Board facilitates this. Each of the Non-
Executive Directors serves on each of the three main Board
committees and is able to take account of the relationship
between the work of the committees.
During the year, the Board has been able to focus on
overseeing the delivery by the executive of the key priorities
that were set for the business, and as reported elsewhere,
we have had another successful year.
As we did for the first time at our 2014 Annual General Meeting
(AGM), in April 2015, we asked shareholders to vote by poll.
I am pleased to say that the process is now established, and
the resolutions were strongly supported by shareholders both
institutional and private, for which I offer my thanks on behalf
of the Board.
38
Greggs plc Annual Report and Accounts 2015
The Company is subject to the UK Corporate Governance
Code issued by the Financial Reporting Council. The edition
of the Code issued in September 2014 applied throughout
the 2015 financial year. This Governance report, together with
information contained elsewhere within the Directors’ report,
describes how the relevant principles and provisions of the
Governance Code were applied in 2015 and will be relevant
to the Company for the 2016 financial year.
The Company was re-elected to the FTSE 350 index on
22 December 2014 and has remained a constituent of that
index throughout 2015. The Company maintains a Premium
listing on the London Stock Exchange.
The Board confirms that it was compliant with the Governance
Code throughout the year, and all of the policies and terms of
reference referred to in this report are available on the
corporate website at: http://corporate.greggs.co.uk.
The Board
Effectiveness
The Chairman chairs the Nominations Committee whose
primary function is to consider the blend of skills and
experience that the Directors bring to the Board. This includes
independent and objective experience of food retailing and
manufacturing, finance, marketing, property and corporate
finance to complement the existing skills and experience of
the Executive Directors.
The Board meets regularly to discharge its duties. At these
meetings, it reviews strategy and financial performance against
key indicators, resources, risk management and other matters
reserved for the Board. Whilst executive responsibility for
running the Company’s business rests ultimately with the
Chief Executive, the Non-Executive Directors ensure that
the strategies proposed by the Chief Executive and the
Executive Directors are fully discussed and critically examined
prior to adoption.
The Board generally schedules six meetings per year and
meets on an ad hoc basis as required. In 2015 one additional
short meeting was held to consider the plans for the
redistribution of capital.
The Board also holds one session each year, with all of the
Operating Board in attendance, to consider strategy and key
priorities in the next financial year.
Attendance at scheduled meetings held during the year is
recorded in the table below, where the number of meetings
actually attended are shown with the number of meetings that
the individual could have attended.
Main Board
Audit
Committee
Remuneration
Committee
Nominations
Committee
Number of
meetings held
Ian Durant
Roger Whiteside
Richard Hutton
Raymond Reynolds
Helena Ganczakowski1
Allison Kirkby
Peter McPhillips2
Sandra Turner
7
7/7
7/7
7/7
7/7
6/7
7/7
7/7
7/7
4
–
–
–
–
3/4
4/4
4/4
4/4
3
–
–
–
–
3/3
3/3
2/3
3/3
2
2/2
–
–
–
2/2
2/2
2/2
2/2
1. Helena was unable to attend one Board and an Audit Committee meeting (held on
the same day) but had reviewed all papers beforehand and provided a number of
observations and questions that were raised by other Directors.
2. Peter provided his views on the Remuneration Committee meeting that he could
not attend, to the Chair in advance.
The Board
Audit Committee
Chief Executive
Remuneration
Committee
Nominations
Committee
Operating Board
Social Responsibility
Steering Group
Risk Committee
Greggs plc Annual Report and Accounts 2015
39
Strategic ReportAccountsDirectors’ Report Governance continued
During the year, the Chairman and the Non-Executive Directors undertook a number of visits and
meetings as part of the day-to-day running of the business, in order to ensure that they were sufficiently
well-versed in operations to facilitate strong support and challenge. This is what the Non-Executive
Directors had to say about their experiences:
“ It is important that
Non-Executive Directors
understand all aspects
of the business, including
3am shop deliveries
of fresh sandwich
ingredients.”
“ Seating is what our
customers have said
they want, and we try
to accommodate them
wherever possible.”
Ian Durant
Night-time deliveries
Allison Kirkby
Visit to new Glasgow mall shop
“ Freshers’ Fairs show
the potential for Greggs
among the student
population on campus.”
Helena Ganczakowski
Attending Freshers’ Fair with the Marketing team
“ It is critical that we
look at our shops as
customers actually
experience them, and
hear first-hand their
feedback.”
Sandra Turner
Visiting shops with the Retail team
40
Greggs plc Annual Report and Accounts 2015
“ Seeing the supply
chain from crops in
the field to flour in the
bakery helps to provide
an understanding of raw
material costs.”
Peter McPhillips
Accompanying the Commercial Director
on a supplier visit
Where a Director is unable to attend a meeting, the Chairman
solicits his or her views on key items of business ahead of the
meeting, in order that all individual views are presented at
the meeting.
All Directors are invited to attend the Audit Committee
and the Chief Executive attends the Remuneration and
Nomination Committees.
In addition, the Non-Executive Directors meet formally twice
each year and from time to time, as required.
Board modus operandi
The Board has a policy on the separation of the roles of the
Chairman and the Chief Executive. The Chairman sets the
agenda for Board meetings in accordance with a specific
Schedule of Matters Reserved policy (which is reviewed and
approved annually), 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.
At each Board meeting, the Board receives and discusses
reports from each of the Executive Directors and the Company
Secretary. Additionally, and as part of the process of
maintaining an awareness of the Company’s activities and
assessing the ability of the management team, members of the
senior management team are invited to attend Board meetings
to present papers to the Board. This process also affords senior
managers the opportunity to bring matters to the attention
of the Board. During the year, the Board received regular
updates including:
– Key priority progress and strategic developments.
– Customer insight, competitor activity, marketing
and category plans.
– The ERP integration programme.
– Supply chain developments.
– Wage negotiations and people issues.
– Food safety and health and safety.
Succession, development and evaluation
The Board is satisfied that a process 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.
The Chief Executive meets with the Chairman and the
Non-Executive Directors on a regular basis in order that
succession and development plans can be drawn up for
Executive Directors and members of the Operating 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 on
all governance matters.
Evaluation
The performance of the Board, its Committees and of all
Directors is evaluated annually by a formal and rigorous process.
In 2014 the Board identified that it should review the way in
which social responsibility was positioned at Board meetings
to include a consideration of the Company’s vision and values.
As a consequence of that review, progress against social
responsibility priorities were presented at each Board meeting
in the same way as the key priorities for the year and at the
strategy meeting held mid-year, the Board approved the social
responsibility priorities for 2016, alongside its core business plans.
For the first time in 2015 the Board had its annual evaluation
facilitated by an external consultant. The Company Secretary
conducted an informal tender process, and subsequently
the Board appointed Nigel Davies of NJMD Corporate
Services to provide support. Mr. Davies had no prior link
with the Company.
Each Director and the Secretary responded directly to
Mr. Davies’ questionnaire, which was followed up with a
face-to-face discussion. Mr. Davies then prepared a report for
the Board, which was tabled at its meeting in December 2015.
The report concluded that:
“There is an excellent commitment to team performance and a
positive determination to drive the business forward… We have
not found any areas of major concern or identified any matters
which are of a particular concern to individual Directors”.
Following a review of the report, the Directors asked a number
of questions of themselves, and agreed a number of actions to
be undertaken during 2016 including:
The Board sets itself a rolling agenda, which facilitates
agenda planning for scheduled meetings across the year.
In this way the Board monitors its activities and ensures
that it is operating effectively.
– Increase formality of risk appetite review.
– Introduce formal process for the review of
significant decisions.
Diversity
The Board believes it is in the best interests of the Company
to bring more women through to the top levels of the
organisation and, as a result of this belief, a programme was
launched in 2012 to encourage women to strive for the most
senior positions in the business. Our gender reporting is
now contained within page 30 of the social responsibility report.
The Chairman meets with the Non-Executive Directors at least
annually without the Executive Directors present, and the
Senior Independent Director meets the Non-Executive
Directors annually without the Chairman present to appraise
the Chairman’s performance.
Greggs plc Annual Report and Accounts 2015
41
Strategic ReportAccountsDirectors’ Report Governance continued
Re-election of Directors
The Board has resolved that, in line with Governance Code
provision B.7.1, all Directors will be subject to annual re-
election by shareholders. Following recommendation by the
Nominations Committee, all of the Non-Executive Directors
who will offer themselves for re-election at the Annual General
Meeting are considered by the Board to be independent in
character and judgement and are free from any business or
other relationship or circumstance which is likely to affect or
to interfere with the exercise of their independent judgement.
Board committees
The Board delegates some of its activities to the following
committees, each of which has written terms of reference,
which are available on the Company’s website. The Company
Secretary acts as secretary to and is in attendance at each of
these committees, and each of the committees is provided
with sufficient resources to undertake its duties.
The Audit Committee currently consists of four independent
Non-Executive Directors: Allison Kirkby (Chair), Helena
Ganczakowski, Peter McPhillips and Sandra Turner. The
Committee met four times in the year, and a fuller report
on its activities is set out on pages 44 to 48.
The Remuneration Committee currently consists of four
independent Non-Executive Directors: Sandra Turner (Chair),
Helena Ganczakowski, Allison Kirkby and Peter McPhillips. The
Committee’s main duties (that it discharged during the year)
are set out within the Directors’ remuneration report which is
set out on pages 49 to 65 of this annual report. This includes
for information purposes the Board’s Policy on Remuneration,
which was approved by shareholders at the AGM held on
1 May 2014. A separate Executive Director committee, after
discussion with the Chairman, sets the fees for the Non-
Executive Directors so as to ensure that no Director is involved
in setting his or her own remuneration.
The Nominations Committee currently comprises Ian Durant
(Chairman) and all of the Non-Executive Directors. The
Committee’s main functions (which it discharged during the
year) are to review the balance and constitution of the Board;
to advise the Board as to whether Directors 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 recruiting additional Directors the Nominations Committee
defines the role and uses external consultants to assist in
identifying suitable candidates from which the Committee
selects a short list and conducts interviews. The final candidate
is then subject to formal recommendation by the Committee
and approval by the Board.
The Nominations Committee did not seek external consultancy
support during 2015.
Following appointment, new Directors are subject to an
in-depth tailored induction process. In the case of Non-
Executive Directors, this includes meeting with members of
42
Greggs plc Annual Report and Accounts 2015
the Operating Board, visiting bakeries, shops and offices,
and being provided with an extensive Board Handbook which
contains key information and policies that are relevant to the
position. For new Executive Directors, and Non-Executive
Directors for whom the appointment is their first to a UK-listed
company, the induction includes details of the legal duties and
obligations of being a Director of the Company.
New Non-Executive Directors are also encouraged to provide
formal feedback of their first months on the Greggs Board
during a scheduled Board meeting.
Risk management
Details of the Company’s principal risks and the management
of them are set out within the strategic report and given on
pages 24 to 25.
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 year under review and up
to the date of approval of the annual report and accounts.
Relations with shareholders
The Board 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 receives reports on any comments received from
shareholders and market analysts following these presentations.
The Chief Executive and the Finance Director carry out
extensive engagement with institutional shareholders and
market analysts, meeting them as part of Company
presentations and briefings, holding individual meetings
or telephone calls.
The Chairman has undertaken three meetings with significant
shareholders during the year. Topics of conversation included
culture, Board composition and executive remuneration.
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 and shareholders in order to maintain
an understanding of market perceptions of the Company.
The Annual General Meeting (AGM) is well attended and
a short presentation of business performance is given to
attendees by the Chief Executive (although no non-public
sensitive information is shared). The Chairman and the Chairs
of the Board Committees are available to answer any issues
raised and any newly-appointed Directors being available to
meet shareholders. During informal sessions both before and
after the meeting, the Chairman and all Directors are available
to meet with any of the 60 or so individual private shareholders
who are in attendance and who wish to ask questions. This is
in addition to the opportunity given to shareholders to ask
questions of the Board during the formal meeting, which
session is always welcomed by those in attendance. In 2015,
information stalls were set up at the entrance to the meeting
informing shareholders of the Company’s progress on key
social responsibility topics, including farm animal welfare.
At each 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. All resolutions were strongly supported by
shareholders, and were determined by poll, in accordance
with best practice.
The Senior Independent Director is available to shareholders
if they have concerns which they have not been able to resolve
through the normal channels of the Chairman, Chief Executive
or Finance Director, or for circumstances where such contact
would not be appropriate.
The Company provides on its website: www.greggs.co.uk a
significant amount of information both about its customer
offerings in the bakery food-on-the-go market, as well as
detailed information on the governance arrangements.
Substantial shareholdings
At 1 March 2016 the only notified holdings of substantial voting
rights in respect of the issued share capital of the Company
(which may have altered since the date of such notification,
without any requirement for the Company to have been
informed) were:
Old Mutual Group
Standard Life
FMR
Norges Bank
Number of
shares held
7,957,333
5,153,213
5,027,000
3,048,851
Percentage
of issued
share capital
7.87%
5.09%
4.96%
3.01%
Accountability, audit and going concern
The Board acknowledges its responsibility to present a fair,
balanced and understandable assessment of the Company’s
position and prospects. In order to assist the Board to comply
with the requirements within the Governance Code, the Audit
Committee was requested to undertake an assessment of the
annual report and to make a recommendation to the Board.
This request has been enshrined within the Audit Committee’s
terms of reference, which are available at: www.greggs.co.uk.
The actions undertaken by the Audit Committee in confirming
its advice to the Board included the consideration of a detailed
review that has been undertaken by the Head of Business
Assurance and reviewing the annual report as a whole to
conform that it presents a fair, balanced and understandable
assessment. In considering the advice of the Audit Committee,
and having reviewed the annual report including the contents
of the strategic report on pages 01 to 33, together with the
statutory accounts themselves, the Board duly considers the
annual report and accounts, taken as a whole, is fair, balanced
and understandable, and provides the necessary information
for shareholders to assess the Company’s performance,
business model and strategy.
A statement of Directors’ responsibilities in respect of the
preparation of accounts is given on page 66. A statement
of auditor’s responsibilities is given in the report of the auditor
on page 69.
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue
in operational existence for the next 12 months. For this reason,
they continue to adopt the going concern basis in preparing
the accounts (see basis of preparation on page 76). For the first
time, the Board is required to make a ‘viability statement’ in
accordance with Code provision C.2.2; this can be found on
page 25.
Policies
Freedom of association
At Greggs, we recognise the right of all employees to freedom
of association and collective bargaining. Whilst we do not have
a formal ‘Freedom of Association’ policy, the Company
encourages all its employees in bakeries, shops and offices
to become, and remain, members of a union.
Bribery and corruption
Greggs has an ‘Anti-Bribery and Corruption’ policy which
applies to all employees and prohibits the offering, giving,
seeking or acceptance of any bribe in any form to any person
or company by anyone acting on its behalf, in order to gain an
advantage in an unethical way.
Business conduct
We have a specific policy that sets out the standards of ethical
behaviour that are expected of all employees.
Whistle-blowing
Our ‘whistle-blowing’ policy creates an environment where
employees are able to raise concerns without fears of
disciplinary action being taken against them as a result of any
disclosure. Any matters raised are treated in confidence and
an independent review will be undertaken where this is
appropriate. The Chair of the Audit Committee is the
designated first point of contact for any concerns which cannot
be addressed through normal management processes.
Political donations
Greggs has a clear policy forbidding political donations or
contributions. This includes financial and in-kind contributions
made by the Company.
Disclosure of information to the auditor
Each of the Directors who held office at the date of approval
of this Directors’ report confirms that, so far as they are
individually aware, there is no relevant audit information of which
the Company’s auditor is unaware; and that they have taken all
the steps that they ought to have taken as a Director to make
themselves aware of any relevant audit information and to
establish that the Company’s auditor is aware of that information.
By order of the Board
Jonathan D Jowett
Company Secretary
Greggs plc (CRN 502851)
Fernwood House
Clayton Road
Jesmond
Newcastle upon Tyne
NE2 1TL
1 March 2016
Greggs plc Annual Report and Accounts 2015
43
Strategic ReportAccountsDirectors’ Report Audit Committee report
The activities of the
Committee enable it to gain a
good understanding of the key
matters impacting the Company.
Introduction
I am pleased to introduce the report of the Audit Committee
for 2015.
The Committee plays an important part in the governance
of the Company with its principal activities focused on the
integrity of financial reporting, quality and effectiveness of
internal and external audit, risk management and the system
of internal control.
I have set out below the main matters considered by the
Committee during the year and the conclusions drawn.
We meet formally at key times within our reporting calendar
and the agendas for our meetings are designed to cover all
significant areas of risk over the course of the year and to
provide oversight and challenge to the key financial
judgements, controls and processes that operate within
the Company.
The Committee will continue to keep its activities under review
in the light of regulatory developments and the emergence of
best practice. In particular, the 2014 UK Corporate Governance
Code has taken effect for the first time in our 2015 financial
year and we are awaiting finalisation of the UK implementation
of the EU Directive and Regulation on statutory audit.
Overall I am satisfied that the activities of the Committee
enable it to gain a good understanding of the key matters
impacting the Company during the year, along with oversight
of the governance and operation of its key controls and
ultimately to draw the conclusions set out in the report below.
Allison Kirkby
Chair of the Audit Committee
1 March 2016
44
Greggs plc Annual Report and Accounts 2015
Meetings during the year
The Audit Committee met four times during the year. Details
of Committee members’ attendance is given on page 39.
The Committee normally invites the Company Chairman, the
Executive Directors, the Head of Business Assurance and the
external auditor to attend its meetings. Time is set aside
bi-annually for discussion with the external auditor and with the
Head of Business Assurance, in each case in the absence of all
Executive Directors. The Committee also has access to the
Company’s management team and to its auditor and can seek
further professional advice, at the Company’s cost, if required.
The Chair has regular contact with the Finance Director, and
internal and external auditors, in addition to scheduled
Committee meetings to ensure that emerging issues are
addressed. She also has access to and, in 2015, made contact
with an audit partner independent of the partner responsible
for the audit.
Financial reporting
In 2015 the Audit Committee reviewed the 2014 annual report,
interim results, preliminary results announcement and reports
from the external auditor on the outcome of their reviews
and audits.
During the year, and up to the date of this report, the
Committee considered key accounting issues and judgements
and related disclosures in the Group’s accounts. The significant
areas of judgement considered by the Committee in relation to
the financial statements for the 52 weeks ended 2 January 2016
are as follows:
Composition
The Audit Committee is comprised of the following:
Allison Kirkby (Chair)
Helena Ganczakowski
Peter McPhillips
Sandra Turner
It is the practice of the Company for all independent
Non-Executive Directors to serve as members of the Audit
Committee. There have been no changes in the composition
of the Committee during 2015.
Training is provided for any new members of the Audit
Committee by way of a thorough induction process which
includes access to the external auditor, the Head of Business
Assurance and relevant members of management.
The Directors’ biographies on pages 34 and 35 detail the
Committee members’ previous experience. The Board
considers that Allison Kirkby has recent and relevant financial
experience and is confident that the collective experience
of the members enables them to act effectively as an
Audit Committee.
Role and responsibilities
The Terms of Reference of the Committee can be accessed at:
corporate.greggs.co.uk/investor-centre/corporate-governance/
company-documents.
The key responsibilities of the Audit Committee are:
– ensuring that the accounting and financial policies of the
Company are proper and effective;
– assisting the Board in fulfilling its oversight responsibilities
by monitoring the integrity of the accounts and information
published by the Company and reviewing significant
financial judgements contained in them;
– advising the Board on whether it believes the annual report
and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Company’s position and
performance, business model and strategy;
– reviewing the internal financial controls and the Group’s
approach to risk management;
– oversight of whistle-blowing arrangements;
– monitoring compliance with the Listing Rules and the
recommendations of the Governance Code;
– oversight of the Company’s external and internal auditors
and reviewing the effectiveness and objectivity of the audit
process; and
– reporting to the Board on how it has discharged its
responsibilities.
Greggs plc Annual Report and Accounts 2015
45
Strategic ReportAccountsDirectors’ Report
Audit Committee report continued
Area of focus
Action taken
Dilapidations
Dilapidation provisions have been made based on the future expected
repair costs required to restore the Group’s leased buildings to their fair
condition at the end of their respective lease terms, where it is considered
a reliable estimate can be made.
The balance held in respect of dilapidation provisions at the end of the year
was £3,343,000 (2014: £3,456,000).
Accounting for onerous leases
Onerous lease provisions have been made for shops which have been
vacated, have been identified for closure or re-site or are not generating
sufficient profits to cover the lease costs in full. The key area of judgement
in making this provision is the determination of the length of time it will take
to find a suitable exit opportunity for each lease.
The onerous lease provision held on the balance sheet at 2 January 2016
is £2,289,000 (2014: £3,155,000).
Asset impairment
The financial statements include asset impairment provisions made by
assessing expected future cash flows. The results of the impairment reviews
were presented by management to the Committee based on the following
methodologies. For shop assets historic cash flows including attributable
overheads are used as a base, with a 0% growth rate and a discount rate of
10% applied over an appropriate period based on the remaining lease term.
For supply chain assets the potential net realisable value of the sites was
considered and the net book value of any obsolete equipment compared
to its recoverable amount.
The carrying value of fixed assets at the end of the year is reduced by
impairment provisions totalling £3,445,000 (2014: £4,186,000).
Going concern
The accounts continue to be prepared on a going concern basis.
Viability
Recent revisions to the UK Corporate Governance Code introduced a new
requirement for the Board to consider the period over which they are able
to conclude that the Company will remain viable, having taken into account
severe but plausible risks and risk combinations. On account of this being a
new requirement, the Committee considered this to be a significant
reporting matter.
Accounting for defined benefit pension schemes
The determination of the defined benefit obligation depends on the
selection of certain assumptions including the discount rate, inflation rates
and mortality rates.
The net liability held in relation to defined benefit pension schemes at
the end of 2015 was £3,910,000 (2014: £8,518,000).
Fair, balanced and understandable
The Committee is responsible for advising the Board on whether it
believes the annual report and accounts, taken as a whole, is fair,
balanced and understandable.
46
Greggs plc Annual Report and Accounts 2015
The Committee reviewed management’s assessment of the need for
dilapidation provisions and concluded that the principles applied
were appropriate.
The Committee reviewed management’s assessment in respect of these
leases and concluded that the assumptions made were appropriate.
The Audit Committee considered the sensitivities of the assumptions
used and assessed whether any reversal of impairment was indicated by
improved trading in the impaired shops. It concluded that the impairment
provisions were appropriate and that they reflected suitably the future plans
of the business.
Information provided by the Finance Director regarding future financial
plans, risks and liquidity is presented to the Committee to enable them
to determine whether the going concern basis of accounting
remained appropriate.
The Committee reviewed and challenged the assumptions used and
concluded that the Board is able to make the going concern statement on
page 43 of the Directors’ report.
The Committee reviewed the process undertaken by management to
support and allow the Directors to make the Group’s Viability Statement.
The Committee considered and provided input into the determination of
which of the Group’s principal risks and combinations thereof might have an
impact on the Group’s liquidity and solvency. The Committee reviewed the
results of management’s scenario modelling and the stress testing of these
models. The Committee reviewed and challenged the assumptions used
and concluded that the Board is able to make the viability statement on
page 25 of the strategic report.
Pension scheme liabilities are assessed on behalf of the Company by
independent actuaries. The Committee assessed the underlying
assumptions and concluded that they were appropriate and also discussed
the appropriateness of the assumptions with the external auditor.
The Committee received a report from the Head of Business Assurance who
is not involved in the preparation of the annual report and accounts and
who conducted an independent review of it. The following factors were
considered during the course of this review:
– ensuring that all the statements are consistent with one another;
– verifying that figures in the narrative sections are consistent with the
relevant financial detail;
– identifying any duplication of information;
– confirming that ‘bad news’ is included, as well as ‘good news’; and
– highlighting any inappropriate use of technical language or jargon.
The Audit Committee considered the feedback from this report alongside
its own review of the annual report and accounts when making its
recommendation to the Board regarding fair, balanced and understandable.
The Committee also considered other key accounting issues
and related disclosures in the Group’s financial statements
as follows:
– whether any changes in accounting policy were required
following changes in the business or in legislation;
– whether the Company’s tax policy remains appropriate;
– the impact of changes in accounting standards and their
relevance, if any, to the Company; and
– reports from the Company Secretary and Finance Director
which assess the Company’s compliance with Listing Rules.
External audit
Assessing external audit effectiveness
The Audit Committee discussed and agreed the scope of the
audit with the external auditor and agreed their fees in respect
of the audit.
The Committee reviewed the effectiveness of the external
audit in line with the Financial Reporting Council’s ‘Practice aid
for audit committees’ which was issued in 2015. It considered
the results of external quality inspections by the Audit Quality
Inspection Team of KPMG. It sought feedback from senior
management, by way of a detailed questionnaire, in respect of
the effectiveness of the audit process with particular reference
to audit planning and design and audit execution.
The Committee also considered the effectiveness of the audit
through the reporting from and communications with the
auditor and an assessment of the auditor’s approach to key
areas of judgement and any errors identified during the course
of the audit.
The Committee concluded that the audit was effective and that
the relationship and effectiveness of the external auditor be
kept under review.
Appointing the auditor and safeguards on non-audit services
KPMG has been the Company’s auditor for more than 20 years
and the transitional rules in the EU Directive require an initial
change of audit firms no later than 2020. Having reappointed
KPMG in 2014 following a competitive tender, the Committee
expects to change audit firms in accordance with the
requirements of the EU Directive. The Committee will continue
to consider annually whether to conduct an audit tender for
audit quality or independence reasons.
It is the responsibility of the Committee to monitor the
independence and objectivity of the external auditor (including
the impact of any non-audit work undertaken by it) and its
suitability for re-appointment.
The Company has a formal policy to ensure that the
provision of non-audit services by the external auditor does
not compromise the auditor’s independence or objectivity.
It monitors the level and type of non-audit fees on an annual
basis and ensures that the overall level of non-audit fees
remains in line with current ethical guidance governing the
accounting profession.
The Audit Committee favours a presumption that non-audit
work will be awarded to a firm other than the audit firm unless
there is a good reason to use the auditors. An annual base plan
for non-audit fees paid to the external auditor is agreed in
advance by the Audit Committee. Expenditure in accordance
with this plan can then be committed without further referral
to the Audit Committee. Expenditure that is not included in the
agreed plan is subject to strict authority limits and is reviewed
by the Committee.
All use of the external auditor for non-audit work must be
reported to and approved by the Committee. In circumstances
where non-audit fees are significant relative to the audit fee,
an explanation would be provided in the subsequent Audit
Committee report. In addition, the Audit Committee ensures
that the external auditor has its own policies and is subject to
professional standards designed to safeguard their
independence as auditor.
The Audit Committee has reviewed whether, and is satisfied
that, the Company’s auditor, KPMG LLP, continues to be
objective and independent of the Company. KPMG LLP
does perform non-audit services for the Group but the Audit
Committee is satisfied that its objectivity is not impaired
by such work.
The FRC have yet to conclude their deliberations on the
implementation of the EC Audit Directive and Regulation in
the UK. Their consultation document and emerging best
practice suggest that KPMG will not be able to undertake any
‘blacklisted’ non-audit work if they remain as auditor beyond
the effective date for the EU implementation of 17 June 2016,
but the Committee will review the position once the FRC
guidance has been finalised and take appropriate action
at that time.
In 2015, non-audit fees paid to KPMG LLP and related KPMG
operations amounted to £52,000 (which is 37 per cent of the
audit fee for the year) and principally related to taxation
services and pension scheme audits.
Reappointment of auditor
In accordance with Section 489 of the Companies Act 2006,
a resolution for the reappointment of KPMG LLP will be
proposed at the forthcoming AGM.
Risk management and internal control
Internal Control
The Committee reviewed the Company’s internal control
environment to satisfy itself that procedures are in place
to ensure that assets are well protected, authority levels
for expenditure are clear, segregation of duties exists and
performance is regularly monitored. Processes are in place
to ensure that key controls are being operated and compliance
with these processes is the subject of inspection by the Internal
Audit team and subsequent review by the Audit Committee.
Greggs plc Annual Report and Accounts 2015
47
Strategic ReportAccountsDirectors’ Report Audit Committee report continued
Whistle-blowing
The Company’s whistle-blowing policy is made available to
all employees through the intranet, as well as via posters
displayed across the business. This gives information regarding
how to raise a concern in strict confidence. Three reports were
made during the year, all relating to health and safety issues.
The events were reported either directly to the Chair of the
Audit Committee by telephone or email, or came in via another
external route. In each case the issues were investigated, a
judgement was made and action taken by senior management,
supported by Business Assurance and with an appropriate level
of discretion. The outcome of all matters was reported to the
Board during the year.
The Company’s Business Conduct policy, which documents the
whistle-blowing procedures, has been refreshed during the year.
Risk management process
The Audit Committee undertakes a review of the risk
management process in the Group at least annually, as set out
in its Terms of Reference. The process is detailed on page 24,
and has been reviewed by the Committee to confirm its
appropriateness in light of the risks identified. The key areas
that the Committee has specifically considered are as follows:
Area of focus
Review of principal risks and uncertainties
SAP implementation
Insurance review
Resource levels within the Finance function
Cyber risk assessment
Action taken
The Committee considered the proposed disclosure of principal risks and
uncertainties within the annual report which had resulted from the Risk
Committee’s review of the risks facing the Company. The Committee
recommended a focus on those risks to which Greggs is more exposed
than its peers, to provide greater clarity.
The Committee has received regular updates on the implementation
plans for SAP, including timeframes, resource requirements and
governance arrangements.
A major tendering exercise of the Company’s insurance provision was
undertaken in 2014, and the Audit Committee evaluated the outcome of
this to ensure that it was satisfied with the arrangements in place.
The Committee considered the resourcing of the Finance team, particularly
with regard to the implementation of the relevant modules within the SAP
programme. It concluded that recent appointments provided an appropriate
balance of skills within the team.
The Audit Committee Chair completed the Government’s Cyber Governance
Health Check 2015 by means of a questionnaire to assess the Board’s view
of Greggs management of cyber risk. This identified five low risk areas where
additional focus is required and actions are in progress to address each of
these. No significant areas of concern were noted.
Internal audit
The work of the Internal Audit function is set out in more detail within the Principal Risks and Uncertainties section on pages 24 to
25 of this annual report. The team is led by the Head of Business Assurance, supported by the Risk Manager, the Information
Security & Compliance Manager and 16 auditors, the majority of whom work across the retail estate to provide assurance over the
Company’s retail operations. The Audit Committee approves the annual plan for the team and monitors progress against that
plan. The effectiveness of the Internal Audit team and its level of resource are reviewed by the Committee at least annually.
Committee effectiveness
Each year the Committee reviews critically its own performance and considers where improvements can be made.
Allison Kirkby
Chair of the Audit Committee
1 March 2016
48
Greggs plc Annual Report and Accounts 2015
Directors’ remuneration report
We believe our remuneration policy
continues to deliver a robust link between
reward and performance and is aligned
with our strategic goal of delivering
long-term sustainable shareholder value.
Performance in 2015 and incentive payments
The Company performed strongly against its financial targets
as described in the financial review on pages 20 to 21. Against
the targets set at the beginning of the year for the annual
bonus, profit and sales performance resulted in 100 per cent of
the maximum potential being payable under these elements.
There was an equally strong performance with regards to the
strategic objectives that were set for cost savings and
operational efficiencies in line with our step change
programme. The cost savings targeted against operational
efficiencies and the process and systems change project, were
achieved in full and accordingly there is also a 100 per cent
bonus payment against this strategic element. Refit investment
returns exceeded our hurdle rate but did not meet the
maximum target, and so in this instance there was a 37 per cent
pay out against this strategic objective. Overall, annual
bonuses representing 117.1 per cent and 84.3 per cent of salary
will be payable to the Chief Executive and other Executive
Directors respectively. The Committee is satisfied that this level
of bonus reflects the exceptional financial performance during
the year and strong delivery of the strategic objectives. Any
element of the bonus earned above 50 per cent of the
maximum will be paid in shares for the Chief Executive and
Executive Directors subject to a two-year holding period.
Annual statement
As Chair of the Remuneration Committee and on behalf of your
Board, I am pleased to present our Directors’ remuneration
report for the 52 weeks ended 2 January 2016.
The annual report on remuneration will be subject to an
advisory shareholder resolution at the Company’s Annual
General Meeting on 10 May 2016. Our Directors’ remuneration
policy was approved by shareholders at our AGM on 1 May
2014 and became effective for three years from that date. We
have set out our policy again to allow cross-reference against
its operation during the year.
Business strategy and link to remuneration policy
Executive pay rightly continues to be high on the agenda of
shareholders and other stakeholders. It is understandable that
shareholders need comfort that the team running the business
is being paid in a way that reflects that business’s performance,
and the value they are receiving from their investment. I have
endeavoured to be as transparent as possible in this year’s
remuneration report, aiming for a report that is easy to read
with a continued emphasis on improved disclosure wherever
possible to support shareholders’ ability to hold companies
to account.
With this in mind, our annual bonus provides a strong link to
the operational delivery of the business strategy. The
Performance Share Plan focuses the Executive Directors on the
longer-term outputs of that strategy, by rewarding sustained
improvements in earnings per share and long-term return on
capital employed.
As outlined in the Chairman’s statement and Chief Executive’s
report, 2015 was another strong year operationally for Greggs
with continued good progress against the longer-term strategic
plan. Although 2016 will be another busy year, we have started
the year well and I believe this remuneration policy will support
the business in delivering continued progress in a competitive
and fast-moving market.
Greggs plc Annual Report and Accounts 2015
49
Strategic ReportAccountsDirectors’ Report
It is the intention of the Committee to undertake a full
benchmark review of salary, bonus and long-term incentives
for the Directors in 2016 to ensure that their remuneration is
in line with the current market levels, the structure continues
to support the business strategy and there remains a strong
alignment of interest with shareholders. Any resulting changes
from this exercise will be subject to consultation with
institutional shareholders and will be presented as a
proposal for the 2017 policy vote.
The Committee remains mindful of ongoing developments
in executive remuneration best practice and the views of our
shareholders and actively welcomes feedback on our
remuneration policy and its implementation.
We believe that our policy continues to deliver a robust link
between reward and performance and is aligned with our
strategic goal of delivering long-term sustainable shareholder
value. We look forward to receiving your continued support
at this year’s AGM.
Sandra Turner
Chair of the Remuneration Committee
1 March 2016
Directors’ remuneration report continued
Under the Performance Share Plan, awards made in March 2013
are due to vest in March 2016. These awards are based on EPS
growth over the three years to the end of 2015 and relative
total shareholder return (TSR) against a comparator group.
The EPS performance condition measured to the 2015 financial
year end has been achieved in full. At the time of writing it is
likely that the TSR condition will also be achieved in full,
although the final calculation is made based on the average
TSR over the one month prior to vesting in March 2016. For the
purpose of calculating remuneration payable we have assumed
a full vesting of the award, which is reflective of the current
level of performance.
Over this three-year period our EPS has grown by 47 per cent
and our TSR (based on the three-month average prior to our
year end) has been 269 per cent. The Committee is very
comfortable that this performance justifies a full vesting level
for this award.
Decisions taken by the Committee in 2015
During 2015 the business conducted by the Committee related
primarily to the more usual standing agenda items, including
the determination of base salary levels and performance
conditions for the annual bonus and the 2015 Performance
Share Plan awards.
Approach for 2016
The Committee has reviewed the operation of our
remuneration policy for 2015 and has concluded that the
policy should be implemented on an unchanged basis.
The Chairman’s fee has been reviewed and will be increased in
line with that of the base increase for the workforce generally.
The salary increase for both the Chairman and Executive
Directors was 2.75 per cent. Increases to salaries and fees took
effect from 1 January 2016.
Targets for the 2016 annual bonus have been set in line with
the financial plan for the business for the year and the rolling
five-year strategic plan. Due to the commercial sensitivity of
these they are not disclosed within this report, but will be
disclosed retrospectively in next year’s report.
Under the Performance Share Plan the Committee has
considered the performance conditions and has determined
that the EPS and ROCE performance conditions should
continue to apply with an equal weighting given to each.
Following a review of our business performance against the
strategic plan, the EPS and ROCE target ranges have been
increased for the 2016 awards, so as to ensure that they remain
appropriately stretching.
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Greggs plc Annual Report and Accounts 2015
Regulatory framework
The policy report has been prepared in accordance with the provisions of the Companies Act 2006 (the Act) and The Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the Regulations). It also meets the
requirements of the UK Listing Authority’s Listing Rules.
The policy has been developed taking into account the principles of the UK Corporate Governance Code 2012 and the views
of our major shareholders. The policy was subject to a binding shareholder vote at the 2014 AGM, and took formal effect from
that date.
The annual statement by the Chair of the Remuneration Committee and the annual report on remuneration will be subject to an
advisory vote at the 2016 AGM.
The Regulations also require our auditor to report to shareholders on the audited information within this remuneration report
and to state whether, in their opinion, the relevant sections have been prepared in accordance with the Act and the Regulations.
The auditor’s opinion is set out on pages 67 to 69 and we have indicated appropriately the audited sections of this
remuneration report.
Remuneration policy report (as approved by shareholders on 1 May 2014)
Our Directors’ remuneration policy was approved by shareholders at our AGM on 1 May 2014 and became effective for three
years from that date. We have set out our policy again in this year’s report to enable cross-reference against its implementation
during the year.
The Company’s remuneration policy is to continue to provide competitive remuneration packages that will incentivise Executive
Directors to achieve sustainable long-term growth and value that will best serve the interests of the Company, its shareholders,
its employees and customers.
Key aspects of the remuneration policy for Executive Directors
The policy for the remuneration of the Executive Directors is set out in the table below:
Element
Base salary
Benefits
Pension
Purpose
and strategy
To attract and retain
high calibre
individuals in order
to promote the
long-term success
of the business.
To support a
competitive
remuneration
package in the
marketplace.
To support a
competitive
remuneration
package in the
marketplace.
Operation
Reviewed and set annually in January.
Benchmarked periodically by the Committee against the remuneration levels
for executives in similar roles in companies of a comparable size. Individual
performance and contribution is recognised in setting salary levels.
Salaries are paid monthly in cash.
Benefits include provision of a Company car (or cash in lieu), private medical
health care, life assurance and permanent health insurance.
Executive Directors can elect to either:
– participate in the Company defined contribution pension scheme (up to
a cap). Above the cap Executive Directors receive a salary supplement; or
– take cash in lieu of this contribution paid as a supplement to their salary
on a monthly basis.
The Executive Directors are able to make this choice on an annual basis.
The remuneration adjustment is disclosed later in this report.
Maximum opportunity
Key reference points for
salary increases are market
and economic conditions and,
in line with our values, the
approach to employee pay
throughout the organisation.
No maximum limit is
prescribed particularly as the
cost of providing insured
benefits fluctuates over time.
However, the Committee
monitors on an annual basis
the overall cost of the
benefit provision.
Up to 22.5% of base salary
contribution for the Chief
Executive and up to 15% of
base salary for other
Executive Directors.
Greggs plc Annual Report and Accounts 2015
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Strategic ReportAccountsDirectors’ Report Directors’ remuneration report continued
Annual bonus
(including
profit share)
To support a
competitive
remuneration package
in the marketplace.
The bonus will be based on a mix of business KPIs, with operating profit being
the largest component of the mix of metrics and this will not be less than 50%
of the overall mix.
Targets for each metric are set in advance and in line with business planning
objectives set by the Committee.
Each Executive Director is entitled to participate in the Company’s profit
sharing scheme available to all employees. The value of this is then deducted
from their annual bonus and is subject to the individual cap.
The Committee will use appropriate underpins for any non-profit-based
element of the annual bonus such that payment under these elements may be
scaled back (potentially to zero), at the discretion of the Committee, in the
event that the operating profit performance for the year is judged to be running
significantly below that required for the achievement of the long-term strategy.
Any bonus paid in excess of 50% of the maximum will be payable in shares,
deferred for two years with vesting subject to continued service.
The dividends payable on deferred bonus shares are paid to the individual as
they fall due.
Recovery and withholding provisions allow the Company to recoup annual
bonus payments within three years in the event of misstatement of
performance, error or misconduct, where this has led to an overpayment in
the view of the Committee. There is a flexible mechanism which allows the
Company to withhold outstanding deferred or future remuneration, or recover
the overpayment direct from the individual concerned.
Awards are granted under the PSP annually at the discretion of the Committee.
Performance conditions will be based on an equal split of two different financial
measures, EPS and ROCE (for discrete parts of an award). Targets will be set for
each metric which reflect the strategic plan and business outlook over the
respective performance period. The mix may alter for future awards and/or
different metrics, such as TSR, may be used. Performance will be measured over
a three-year period with an additional mandatory holding period of two years
for the vested shares (net of tax).
Recovery and withholding provisions allow the Company to recoup vested
Performance Share awards within three years in the event of misstatement of
performance, error or misconduct, where this has led to an overpayment in
the view of the Committee. There is a flexible mechanism which allows the
Company to withhold outstanding deferred or future remuneration, or recover
the overpayment direct from the individual concerned.
No performance conditions have been attached to options granted pursuant
to the Company’s SAYE Scheme, which is available for all employees.
The rules of that scheme require that all options granted must be on the
same terms.
Capped at 125% of base
salary for the Chief Executive
and 90% of base salary for
other Executive Directors.
On target performance
delivers a bonus of 60% of
the maximum.
No more than 25% of the
bonus opportunity is payable
under each element for
threshold performance.
90% of base salary for CEO
and 70% of base salary for
other Executive Directors.
120% of base salary in
exceptional circumstances.
Threshold vesting at 25%
of the maximum.
Executives may enter into
a contract to save up to the
maximum allowed under
HMRC guidelines.
The Chief Executive is required to build up a shareholding of 150% of base
salary within five years of appointment.
n/a
Other Executive Directors are required to build up a shareholding of 100%
of their respective base salaries within a five-year period.
This is achieved through vested awards granted via the PSP and deferred
bonus shares.
Performance
Share Plan
(PSP)
To incentivise
long-term value
creation, retention of
our talent and ensure
alignment of Executive
Directors’ and
shareholders’
interests.
Saving Related
Share Option
Scheme (SAYE)
Share retention
guidelines
To encourage
employees at all levels
within the Company to
understand better and
so participate in the
growth in value of the
Company.
To further align the
interests of Executive
Directors to those of
shareholders.
Executive Share Option Scheme
The Committee is responsible for overseeing the operation of all the share-based incentives deployed in the Company. The 2014
Company Share Option Plan and the 2014 Executive Share Option Scheme were approved by shareholders at the 2014 AGM.
Choice of performance measures and approach to target setting
The annual bonus is based on performance against a range of financial and strategic performance measures. This range of metrics
measures achievement of the Company’s key operational objectives. The Committee reviews the Key Performance Indicators
(KPIs) each year and varies them as appropriate to reflect the priorities for the business in the year ahead. Where appropriate a
sliding scale of targets is set for each KPI to encourage continuous improvement, or sustained high levels of performance.
The PSP is based on an equal split of EPS and ROCE performance. EPS, which is a direct measure of profit performance, is our
primary long-term KPI. ROCE is considered to be particularly relevant at the current time as this will focus Executives on re-
deploying capital efficiently through the planned investment programme, whilst continuing to create returns well above the
WACC. The relative mix of the performance measures may be altered for future awards.
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Greggs plc Annual Report and Accounts 2015
A sliding scale of challenging performance targets is set for each measure. The Committee will review the choice of performance
measures and the appropriateness of the performance targets prior to each PSP award. The Committee has discretion to set
different targets for future awards. The targets for awards granted under this remuneration policy are set out for shareholder
approval in the annual report on remuneration.
Policy discretion
The Committee will operate incentive plans in accordance with their respective rules, the Listing Rules and the HMRC rules where
relevant. The Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and
administration of certain plan rules. These include (but are not limited to) the following:
– who participates;
– the timing of the grant of award and/or payment;
– the size of an award (up to plan/policy limits) and/or a payment;
– the result indicated by the relative TSR performance condition may be scaled back (potentially to zero) in the event that the
Committee considers that financial performance has been unsatisfactory and/or the outcome has been distorted due to the
TSR for the Company or any comparator company being considered abnormal;
– discretion relating to the measurement of performance in the event of a change of control or reconstruction;
– determination of a good leaver (in addition to any specified categories) for incentive plan purposes and the treatment
of leavers;
– adjustments required in certain circumstances (e.g. rights issues, corporate restructuring and special dividends); and
– the ability to adjust existing performance conditions for exceptional events so that they can still fulfil their original purpose.
Legacy arrangements
For the avoidance of doubt, in approving this policy report, authority is given to the Company to honour any commitments
entered into with current or former Directors (such as the payment of a pension or the unwinding of legacy share schemes) that
have been disclosed to shareholders in previous remuneration reports. Details of any of these payments to former Directors will
be set out in the annual report on remuneration as they arise.
Non-Executive Directors
In order to ensure that no Director is involved in deciding his/her own remuneration, the fees payable to Non-Executive Directors
are set, after consultation with the Chairman, by a committee of the Board consisting only of the Executive Directors. The fees
payable to the Chairman are set by the Remuneration Committee.
These fees are reviewed and set annually in December and implemented from 1 January.
Element
Purpose and strategy
Operation
Non-Executive
Chairman and
Directors’ fees
To attract and retain high quality
and experienced Non-Executive
Chairman and Directors.
The Chairman is paid an all-encompassing fee.
Non-Executives Directors are paid a basic fee and the Chairs
of the Main Board Committees and the Senior Independent
Director (SID) are paid an additional fee to reflect their additional
responsibilities. Where the SID role is combined with that of
chairing a Committee then only one fee is paid.
Non-Executive Directors are not eligible for pension scheme
membership, bonus or incentive arrangements.
Maximum opportunity
There is no prescribed
maximum.
Non-Executive Directors are appointed subject to the Company’s articles of association, retiring and seeking election at the first
AGM after appointment. Thereafter, every Director will be subject to annual re-election by shareholders. The Nominations
Committee advises the Board as to whether Directors should be nominated for re-election. Non-Executive Directors are not
entitled to compensation for early termination of their appointments prior to the date on which they would next be due to offer
themselves for election or re-election, or if not re-appointed at such time.
The following table shows the effective date of appointment for each Non-Executive Director:
Non-Executive Director
Ian Durant
Allison Kirkby
Helena Ganczakowski
Peter McPhillips
Sandra Turner
Original date of appointment
5 October 2011
30 January 2013
2 January 2014
10 March 2014
1 May 2014
Non-Executive Directors are appointed on an understanding that the appointment will last for six years, but without any
commitment by either party.
Greggs plc Annual Report and Accounts 2015
53
Strategic ReportAccountsDirectors’ Report Directors’ remuneration report continued
Difference in remuneration policy across the Group
The remuneration policy for the Executive Directors is designed having regard to the policy for employees across the Group
as a whole.
There are differences in salary levels and in the levels of potential reward depending upon seniority and responsibility, although a
key reference point for executive salary increases is the average increase across the general workforce. A higher proportion of the
Executive Directors’ remuneration package is delivered through performance-related pay and in share-based form, which provide
a good link to long-term Company performance.
All employees, with one year’s service or more, may participate in the SAYE schemes and in the Share Incentive Plan (SIP) that
are run annually. Under the SAYE scheme, at the end of a three-year saving period, employees can buy Greggs shares at a
discounted rate.
With the SIP, all employees may purchase Company shares from pre-tax salary subject to HMRC limits.
After six months’ service all employees are eligible to participate in the profit sharing scheme in which all employees share ten
per cent of our profits.
The Committee does not currently consult with employees on Directors’ pay policy, although the Committee will keep this
under review.
Policy on recruitment remuneration
The Committee will aim to set a new Executive Director’s remuneration package in line with the Company’s approved policy at the
time of appointment. The Committee will take into account, in arriving at a total package and in considering the quantum for each
element of the package, the skills and experience of the candidate, the market rate for a candidate of that experience as well as
the importance of securing the best available candidate.
Annual bonus and PSP awards will not exceed the policy maxima (not including any arrangements to replace forfeited deferred
pay). Participation in the annual bonus plan and PSP will normally be pro-rated for the year of joining. The Committee may make
one-off additional cash and/or share-based awards as it deems appropriate, and if the circumstances so demand to take account
of deferred pay forfeited by an Executive on leaving a previous employer. Awards to replace deferred pay forfeited would, where
possible, reflect the nature of awards forfeited in terms of delivery mechanism (cash or shares), time horizons, attributed expected
value and performance conditions. Other payments may be made in relation to relocation expenses and other incidental
expenses as appropriate.
In the case of an internal appointment, any variable pay element awarded in respect of the prior role would be allowed to pay out
according to its terms and any other ongoing remuneration obligations existing prior to appointment would continue.
For the appointment of a new Chairman or Non-Executive Director, the fee arrangement would be set in accordance with the
approved remuneration policy at that time.
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Greggs plc Annual Report and Accounts 2015
Service contracts and policy on cessation
Executive Directors’ service contracts contain the following remuneration-related aspects:
Provision
Detailed terms
Remuneration
– salary, pension and benefits;
– Company car or cash allowance;
– private medical health care for the Director;
– permanent health insurance;
– participation in annual bonus and profit share (subject to scheme rules);
– participation in long-term incentive schemes or similar arrangements (subject to scheme rules); and
– life assurance.
Notice period
– Chief Executive’s contract is terminable on 12 months’ notice served by either the Company or the Director;
– other Executive Directors’ service contracts are terminable on 12 months’ notice served by the Company or by six months’
notice served by the Director; and
– any future Executive Directors’ service contracts will be terminable on 12 months’ notice served by either party.
Termination
payment
– payment in lieu of notice equal to any unexpired notice of termination given by either party; and
– payment in lieu shall not include:
– any bonus payment;
– any payment in respect of benefits which the Director would have been entitled to receive; and
– any payment in respect of any holiday entitlement that would have accrued during the period for which the payment in lieu
is made.
Details of the circumstances in which the Committee has the ability to exercise discretion with regards to termination payments
are set out below.
The Company’s policy is that current Executive Directors’ service contracts do not have a specific duration but may be terminated
with 12 months’ notice from the Company and six months notice from the Executive Director. Any future Executive Directors’
service contracts will be terminable on 12 months’ notice served by either party. Under their service contracts the Executive
Directors are entitled to salary, pension contributions and benefits for their notice period save where a payment in lieu is to be
made. The Company would seek to ensure that any payment is mitigated by use of phased payments and offset against earnings
elsewhere in the event that an Executive Director finds alternative employment during his notice period. There are no contractual
provisions in force other than those set out above that impact any termination payment.
Areas where the Committee can exercise discretion with regards to termination payments:
– annual bonus may be payable pro-rated for that part of the year worked;
– any unvested awards held under the deferred annual bonus will normally lapse at cessation unless the individual is leaving for
certain reasons (defined under the plan as death, injury, ill-health, disability, redundancy, retirement, his office or employment
being with either a company which ceases to be a Group member or relating to a business or part of a business which is
transferred to a person who is not a Group member, a change of control or any other reason the Committee so decides).
In these circumstances unvested awards will normally vest at the cessation (unless the Committee decides they should vest
at the normal vesting date);
– any unvested awards held under the PSP will lapse at cessation, unless the individual is leaving in the circumstances set out
above for the deferred annual bonus. In these circumstances, unvested awards will normally vest at the normal vesting date
(unless the Committee decides they should vest at cessation) subject to performance conditions being met and scaling back
in respect of actual service as a proportion of the total vesting period (unless the Committee decides that scaling back is
inappropriate); and
– the Committee may agree to payment of disbursements such as legal costs and outplacement services if appropriate and
depending on the circumstances of cessation.
The table below sets out the details of the Executive Directors’ service contracts:
Director
Roger Whiteside
Raymond Reynolds
Richard Hutton
Date of contract
4 February 2013
18 December 2006
7 April 2006
The service contracts are available for inspection during normal business hours at the Company’s registered office, and are
available for inspection at the AGM.
Greggs plc Annual Report and Accounts 2015
55
Strategic ReportAccountsDirectors’ Report Directors’ remuneration report continued
Expected value of the proposed annual remuneration package for Executive Directors
The following charts indicate the level of remuneration payable to Executive Directors in 2016 based on policy at ‘minimum’
remuneration, remuneration in line with ‘on target’ Company performance, and the maximum remuneration available.
Chief Executive – Roger Whiteside
£1,771,331
26%
37%
37%
£1,354,422
17%
35%
48%
£650,890
100%
Minimum
On target
Stretch
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
PSP
Bonus
Fixed Remuneration
Finance Director – Richard Hutton
£647,211
16%
30%
54%
£350,104
100%
£835,360
26%
32%
42%
Minimum
On target
Stretch
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
PSP
Bonus
Fixed Remuneration
Retail Director – Raymond Reynolds
£581,393
16%
30%
54%
£316,830
100%
£749,823
26%
32%
42%
Minimum
On target
Stretch
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
PSP
Bonus
Fixed Remuneration
Assumptions used in the charts:
Minimum remuneration assumes no award is earned under the annual bonus plan and no vesting is achieved under the PSP.
On target remuneration assumes the target level is reached for each of the elements under the annual bonus plan and 50 per cent vesting is achieved under the PSP.
Maximum remuneration assumes full vesting under the annual bonus plan and PSP.
Base salary levels as at 1 January 2016.
The value of taxable benefits is based on the cost of supplying those benefits (as disclosed) for the 52 weeks ended 2 January 2016.
Share price movement and dividend accrual have been excluded.
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Greggs plc Annual Report and Accounts 2015
Shareholder engagement
The Committee considers shareholder feedback received in relation to the AGM each year and otherwise from time to time.
This feedback is then considered as part of the Company’s annual review of remuneration policy.
The Committee engages pro-actively with shareholders, and takes their views seriously. When any material changes are made
to the remuneration policy, the Committee Chair will inform major shareholders of these in advance, and will offer to attend a
meeting with those shareholders to discuss any concerns they may have.
Details of votes cast for and against the resolution to approve last year’s remuneration report during the year are provided in the
annual report on remuneration.
External appointments
Executive Directors may take up one Non-Executive Directorship outside of the Company subject to the Board’s approval and
provided that such an appointment is not likely to lead to a conflict of interest. It is recognised that this can support a Director’s
development and enhance experience as well as benefit the Company. Executive Directors will be entitled to retain the fees of
such an appointment.
Annual report on remuneration
Implementation of our policy in 2016
The section below summarises the implementation of our Remuneration Policy for 2016.
Base salaries
The annual base salaries for the Executive Directors are:
Director
Roger Whiteside
Richard Hutton
Raymond Reynolds
Salary as at
1 January
2015
Salary as at
1 January
2016
£507,187 £521,135
£289,734 £297,702
£258,531 £265,641
% Increase
2.75%
2.75%
2.75%
Increases are in line with the base increase of the workforce. In addition in 2016 we awarded 13,500 of our hourly paid retail employees
a five per cent pay award (2.25 per cent above the base increase) and 2,700 shop managers and assistant shop managers will receive a
four per cent pay award (1.25 per cent above the base increase).
Pension contribution
The pension contribution rates (all of which are cash in lieu) are:
Roger Whiteside
Raymond Reynolds
Richard Hutton
22.5%
14%
13%
Annual bonus
For 2016 the performance conditions will provide a strong link between bonus payments and our business strategy.
Profit
50% of total
Bonus metrics
Sales
20% of total
This will be based on meeting and
exceeding budget for the year
Based on Company-managed shop like-for-like
sales excluding any additional shops opened
during the bonus year
Strategic Objectives
30% of total
Detailed below
The strategic objectives for each bonus cycle will be based on measures which will provide a strong link to future value creation.
For the 2016 bonus the three strategic objectives, each relating to ten per cent of the bonus opportunity, will be:
(i) customer transaction percentage growth;
(ii) cost savings; and
(iii) specific project delivery within our change programme regarding processes and systems with four elements measured
independently, each element being worth 2.5 per cent.
Sliding scales will be set where possible.
Greggs plc Annual Report and Accounts 2015
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Strategic ReportAccountsDirectors’ Report Directors’ remuneration report continued
There will be an underpin to the sales and strategic objectives elements of the bonus whereby any payment under these elements
may be scaled back (potentially to zero) at the discretion of the Committee, in the event that the profit performance for the year is
judged to be running significantly below that required for the achievement of the long-term strategy.
The Committee has chosen not to disclose, in advance, the performance targets for the forthcoming year as these include items
which the Committee considers to be commercially sensitive. Retrospective disclosure of the targets and performance against
them will be made in next year’s annual report on remuneration.
2016 PSP Award
Performance conditions will be based on an equal split of two different financial measures, EPS and ROCE (for discrete parts of an
award)*. Targets have been set for each metric which reflect the strategic plan and business outlook over the performance period.
The EPS and ROCE ranges have been increased to ensure that they remain appropriately stretching in light of our business
strategy and higher profitability outlook, without encouraging undue risk taking.
For the 2016 awards the target ranges will be as follows:
– The EPS performance condition will require average annual growth of RPI +two per cent to +eight per cent over three years
from the 2015 financial year end.
– The ROCE condition will require average annual ROCE over the three year performance period (2016, 2017 and 2018) to be in
the range 22 per cent to 27 per cent.
In both cases 25 per cent of an award will vest on achieving threshold performance and thereafter straight-line sliding scales will
apply until stretch performance is achieved.
In order to improve alignment of interest between Executives and shareholders further, a holding period will be attached to
vested PSP awards granted in the policy period, requiring the vested shares to be held (net of tax) for a further two years.
*EPS and ROCE are measured excluding exceptional items.
Non-Executive Directors’ fees
The Chairman’s fee for 2016 is £159,263.
The Non-Executive Directors are paid an annual base fee which is currently £42,457 and additional responsibility fees of £6,299
for the role of Senior Independent Director (SID) or for chairing a Board Committee. Where the SID role is combined with the role
of chairing a Committee then only one fee of £6,299 will be paid.
Details of the fees being paid to Non-Executive Directors in 2016 are set out below:
Ian Durant
Allison Kirkby
Helena Ganczakowski
Peter McPhillips
Sandra Turner
£159,263
£48,756
£42,457
£42,457
£48,756
Chairman
Chair of the Audit Committee
Non-Executive Director
Non-Executive Director
SID & Chair of the Remuneration Committee
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Greggs plc Annual Report and Accounts 2015
Remuneration payable for 2015 for each Executive Director (Audited)
The following table presents the remuneration payable for 2015 (showing the equivalent figures for 2014) for the
Executive Directors:
Roger Whiteside
2015
2014
Richard Hutton
2015
2014
Raymond Reynolds
2015
2014
Pension
contribution
(including salary
in lieu)
£
Salary
£
Taxable
benefits
£
Annual
incentives
(including
profit share)
£
Long-term
incentives*
£
Total
remuneration
£
507,188
495,300
114,118
111,442
12,397
12,381
594,043
619,125
1,357,891
–
2,585,637
1,238,248
289,736
282,944
258,530
252,472
37,233
52,508
31,804
31,060
13,659
11,491
244,334
254,650
493,628
141,043
1,078,590
742,636
13,949
12,433
218,019
227,225
440,465
125,858
962,767
649,048
* Pursuant to evolving best practice following the introduction in 2013 of the Remuneration Reporting Regulations, the basis on which the long-term incentives vesting values have been
determined has been changed for 2015. The 2015 long-term incentive vesting values are based on the forecast value of the awards due to vest on 27 March 2016 (50 per cent of the
award is based on EPS performance measured over the three financial years to 2 January 2016 and 50 per cent of the award is based on relative TSR measured over the three years to
27 March 2016). The EPS performance measured to 2 January 2016 exceeded the maximum performance conditions and 100 per cent of this part of the award is due to vest and forms
part of the 2015 long-term incentive value. Relative TSR performance (based on an assessment of performance measured to 2 January 2016) is forecast to exceed the maximum
performance requirement and the 2015 long-term incentive value therefore assumes 100 per cent of this part of the award is due to vest. The share price for the purposes of valuing
the award is the three-month average share price to 2 January 2016 (£11.99). This value will be trued up in the 2016 report to reflect the actual level of vesting and share price at the
vesting date. The 2014 long-term incentive value has been restated and reflects the actual value of the awards that vested in April 2015.
Fees payable for each Non-Executive Director (Audited)
Ian Durant
2015
2014
Allison Kirkby
2015
2014
Helena Ganczakowski1
2015
2014
Peter McPhillips2
2015
2014
Sandra Turner3
2015
2014
Fees
£
155,000
131,405
47,361
46,251
41,231
39,631
41,231
32,667
47,361
30,834
1. Appointed 2 January 2014.
2. Appointed 10 March 2014.
3. Appointed 1 May 2014 and appointed SID and Chair of Remuneration Committee.
No detailed disclosure has been provided for Non-Executive Directors other than that relating to their fee, as this is the only form
of remuneration they receive.
Greggs plc Annual Report and Accounts 2015
59
Strategic ReportAccountsDirectors’ Report
Directors’ remuneration report continued
Annual bonus payments to Executive Directors
The table below outlines the bonus payments to Executive Directors in respect of 2015.
Measure
Strategic objective
Weighting
Entry
Target
Stretch
Actual
% of
maximum
All Executive Directors
Profit (£)
Profit before tax
(excluding
exceptional items)
To deliver profit
target
Sales (%)
Strategic (%)
Strategic (£)
Company-managed
shop like-for-like
sales
To deliver target
increase
To deliver target
percentage
To deliver target
savings
Refit return
on investment
Operational
efficiencies &
saving from
processes and
systems change
50% £58.0m
£62.5m
£67.0m £73.0m
50%
20%
1.5%
2.0%
2.5%
4.7%
20%
10%
22.5%
25.0%
20%
£10.7m
£11.7m
–
–
22.9%
3.7%
£12.1m
20%
Total weighting based on balance scorecard
100%
Bonus achieved for 2015
Roger Whiteside
Richard Hutton
Raymond Reynolds
As % of maximum
93.7%
93.7%
93.7%
Any element of the bonus earned above 50 per cent of the maximum will be paid in shares for the Chief Executive and Executive
Directors subject to a two-year holding period. The number of shares will be calculated by dividing 43.7 per cent of the net bonus
by the closing market share value on the date of payment. Full details will be provided in the 2016 Directors’ remuneration report.
Vested PSP awards
The PSP award granted in 2012 measured EPS performance by reference to the three financial years to 3 January 2015 and TSR
performance by reference to the three years from date of grant. The performance targets that were set, together with the
performance delivered, are set out in the table below. This table provides an update on the vesting level estimated for this
award in last year’s annual report on remuneration.
Metric
Condition
Threshold Target
Stretch Target
Actual
RPI +3%
(12.5% vesting)
RPI +8%
(100% vesting)
RPI +1.3%
% Vesting
0%
50th percentile
(12.5% vesting)
75th percentile
(100% vesting)
67th percentile
37.4%
Total vesting
37.4%*
Earnings per share
(50%)
Total shareholder
return (50%)
Normalised EPS growth
of RPI +3% p.a. to RPI
+8% p.a. over three
financial years.
TSR against a peer group
of 24 companies TSR
measured over three years
with a one-month average
at the start and end of the
performance period.
* Estimated last year at 25 per cent.
This PSP award vested on 2 April 2015.
60
Greggs plc Annual Report and Accounts 2015
The PSP award granted in 2013 measures EPS performance by reference to the three financial years to 2 January 2016 and TSR
performance by reference to the three years from date of grant. The performance targets that were set, together with the
performance delivered, are set out in the table below.
Metric
Condition
Threshold Target
Stretch Target
Actual
RPI +3%
(12.5% vesting)
RPI +8%
(100% vesting)
RPI +14%
% Vesting
50%
50th percentile
(12.5% vesting)
75th percentile
(100% vesting)
94th percentile
50%*
Earnings per share
(50%)
Total shareholder
return (50%)
Normalised EPS growth of
RPI +3% p.a. to RPI
+8% p.a. over three
financial years.
TSR against a peer group
of 16 companies TSR
measured over three years
with a one-month average
at the start and end of the
performance period.
Total vesting
100%
* The percentage vesting under the TSR condition is based on an estimate and the value of the vested shares is based on the average share price during the three-month period from
1 October 2015 to 31 December 2015 of £11.99. This performance measure will be formally measured on the third anniversary of grant and the shares may then vest, subject to
continued employment. The results of this final measurement will be disclosed in the 2016 Directors’ remuneration report.
Legacy defined benefit pension scheme (Audited)
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:
Executive Director
Richard Hutton
Raymond Reynolds
Date of birth
3/6/68
4/11/59
Date service
commenced
1/1/98
1/12/86
Accrued annual
pension
entitlement as at
3 January 2015
£
Accrued annual
pension
entitlement as at
2 January 2016
£
Increase in
accrued pension
entitlement for
the year
£
Increase in
accrued pension
entitlement for
the year net of
inflation of 1.2%
£
Transfer value of
increase in
accrued pension
entitlement for
the year
£
18,522
69,535
18,522
69,535
–
–
–
–
–
–
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 1.2 per cent 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.
Richard Hutton
Raymond Reynolds
Cash equivalent
transfer value as
at 3 January 2015
£
Cash equivalent
transfer value as
at 2 January 2016
£
307,293
278,220
1,442,044
1,340,108
Increase in the
cash equivalent
transfer value
since 3 January
2015
£
–
–
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.
The main features of the defined benefit scheme are:
– pension at normal retirement age of 1/60th of member’s final pensionable salary for each complete year and a proportionate
amount for each additional complete month of service from the date of joining the scheme until 5 April 2008 when the scheme
was closed to future accrual;
– choice of giving up part of the pension in exchange for a tax-free cash sum subject to a limit of 25 per cent of the total value of
the member’s benefits under the scheme;
– pension payable in the event of ill health;
– spouse’s pension on death; and
– normal retirement at age 65.
Greggs plc Annual Report and Accounts 2015
61
Strategic ReportAccountsDirectors’ Report
Directors’ remuneration report continued
Performance Share Plan awards made during 2015
Executive
Type of award
Basis of award granted
Share price
at date of
grant
(26 March
2015)
Number of
shares over
which award
was granted
% of face
value that
would vest at
threshold
performance
Face value
of award
Roger Whiteside
£nil cost option
90% of salary
£10.350
44,103 £456,466
Richard Hutton
£nil cost option
70% of salary
£10.350
19,595 £202,808
Raymond Reynolds
£nil cost option
70% of salary
£10.350
17,485 £180,970
25%
25%
25%
Vesting determined
by performance over
Three financial
years to
29 December
2018
Executive Director share awards and share options (Audited)
The following table sets out details of the PSP, executive and savings related share options (all of which were granted at a £nil cost
to the Executive Director concerned) held by, or granted to, each Executive Director during the year:
At 3 January
2015
number
Granted
number
Exercised
number
Lapsed
number
At 2 January
2016
number
Exercise
price
Date of
grant
Market price
of each
share at date
of grant
Date from
which
exercisable
Expiry date
Scheme
Roger
Whiteside
Richard
Hutton
Raymond
Reynolds
113,252
90,191
–
449
–
–
–
44,103
–
215
203,892
44,318
–
–
–
–
–
–
–
–
–
–
–
–
113,252
90,191
44,103
449
215
248,210
26,750
62,640
36,334
41,170
40,072
–
423
400
449
–
–
–
–
–
–
19,595
–
–
–
215
26,7502
62,6403
13,5884
–
–
–
4235
–
–
–
–
–
22,746
–
–
–
–
–
–
–
–
–
–
41,170
40,072
19,595
–
400
449
215
208,238
19,810
103,401
22,746
101,901
26,750
62,640
32,421
36,736
35,757
–
423
400
449
–
–
–
–
–
17,485
–
–
–
26,7502
–
–
–
–
–
4236
–
–
–
–
20,296
–
–
–
–
–
–
–
62,6401
12,125
36,736
35,757
17,485
–
400
449
195,576
17,485
27,173
20,296
165,592
£nil
£nil
£nil
£4.65
£8.18
£4.07
£3.56
£nil
£nil
£nil
£nil
£4.68
£4.14
£4.65
£8.18
£4.07
£3.56
£nil
£nil
£nil
£nil
£4.68
£4.14
£4.65
Mar 13
Mar 14
Mar 15
Apr 14
Apr 15
Aug 06
Apr 09
Apr 12
Mar 13
Mar 14
Mar 15
Apr 12
Apr 13
Apr 14
Apr 15
Aug 06
Apr 09
Apr 12
Mar 13
Mar 14
Mar 15
Apr 12
Apr 13
Apr 14
£4.735
£4.9425
£10.350
Mar 16
Mar 17
Mar 20
Jun 17
Jun 18
Mar 23
Mar 24
Mar 25
Nov 17
Nov 18
£5.260
£4.735
£4.9425
£10.350
£5.260
£4.735
£4.9425
£10.350
Aug 09
Apr 12
Apr 15
Mar 16
Mar 17
Mar 20
Jun 15
Jun 16
Jun 17
Jun 18
Aug 09
Apr 12
Apr 15
Mar 16
Mar 17
Mar 20
Jun 15
Jun 16
Jun 17
Aug 16
Apr 19
Apr 22
Mar 23
Mar 24
Mar 25
Nov 15
Nov 16
Nov 17
Nov 18
Aug 16
Apr 19
Apr 22
Mar 23
Mar 24
Mar 25
Nov 15
Nov 16
Nov 17
PSP
PSP
PSP
SAYE
SAYE
Exec
Exec
PSP
PSP
PSP
PSP
SAYE
SAYE
SAYE
SAYE
Exec
Exec
PSP
PSP
PSP
PSP
SAYE
SAYE
SAYE
1. Performance conditions have been achieved and the shares remain exercisable.
2. The market value on the date of exercise was £9.704 and the resultant gain on exercise was £150,709.
3. The market value on the date of exercise was £11.457 and the resultant gain on exercise was £494,668.
4. The market value on the date of exercise was £10.300 and the resultant gain on exercise was £139,956.
5. The market value on the date of exercise was £11.980 and the resultant gain on exercise was £3,088.
6. The market value on the date of exercise was £11.960 and the resultant gain on exercise was £3,079.
62
Greggs plc Annual Report and Accounts 2015
Options granted under the all-employee SAYE scheme are not subject to performance conditions.
The mid-market price of ordinary shares in the Company as at 2 January 2016 was £13.14. The highest and lowest mid-market
prices of ordinary shares during the financial year were £13.55 and £7.225 respectively.
Directors’ shareholding and share interests (Audited)
The Company’s share retention guidelines require the Chief Executive to build up a shareholding of 150 per cent and other
Executive Directors to build up a shareholding of 100 per cent of their respective base salary in a five-year period. This can be
achieved by holding vested shares via the PSP and/or deferred annual bonus.
Details of the shareholdings of each Executive Director as of 2 January 2016 and their interests in shares are detailed below with
the percentage holding calculated using the share price at that date:
Director
Roger Whiteside*
Richard Hutton
Raymond Reynolds
Ian Durant
Allison Kirkby
Helena Ganczakowski
Peter McPhillips
Sandra Turner
Beneficially
owned at
2 January 2016
Beneficially
owned at
3 January 2015
Outstanding PSP
awards
Outstanding
deferred bonus
awards
Outstanding
option awards
% shareholding
guideline
achieved at
2 January 2016
75,998
77,923
59,244
11,700
1,600
1,000
500
1,000
72,253
55,787
53,224
11,700
1,600
1,000
–
–
247,546
100,837
102,103
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
62,640
–
–
–
–
–
197%
353%
301%
n/a
n/a
n/a
n/a
n/a
* As disclosed in a previous Directors’ remuneration report, 60,000 of these shares were granted to Roger Whiteside as a transitional bonus in compensation for his loss of bonus from his
previous employer. The award of half of the shares was deferred for two years and the other half for three years but are not subject to performance conditions other than continuity of
employment and not having resigned or been given notice of termination when the respective award is due to vest. The first 30,000 shares vested unconditionally during the year. This
award will be subject to tax and NI in respect of the award of the shares.
Exit payments or payments to past Directors (Audited)
There were no payments to past Directors in the 52 weeks ended 2 January 2016. No payments for compensation or loss of office
were paid to, or receivable by, any Director.
External directorships
There are none currently in place.
Performance graph
The graph below shows a comparison of the total shareholder return for the Company’s shares for each of the last seven financial
years against the total shareholder return for the companies comprised in the FTSE Mid 250 Index (excluding Investment Trusts)
and the FTSE 350 (excluding Investment Trusts).
These indices were chosen for this comparison because they include companies of broadly similar size to the Company.
550
500
450
400
350
300
250
200
150
100
50
J
a
n
-
0
9
D
e
D
e
D
e
D
e
D
e
D
e
D
e
c
-
0
9
c
-
1
0
c
-
1
1
c
-
1
2
c
-
1
3
c
-
1
4
c
-
1
5
FTSE 350
(excluding investment trusts)
FTSE 250
(excluding investment trusts)
Greggs
Greggs plc Annual Report and Accounts 2015
63
Strategic ReportAccountsDirectors’ Report Directors’ remuneration report continued
Remuneration outcomes for the Chief Executive over last seven years
The table below shows the total remuneration figure for the Chief Executive over the same seven-year period. The total
remuneration figure includes the annual bonus, pension and PSP/option awards which vested based on performance in
those years.
Director
2009
2010
2011
2012
2013
2014
2015
Total remuneration (£’s)
£646,313 £767,397 £707,245 £635,030
£1,011,381
£1,238,248
£2,585,637
Bonus (% of max potential)
PSP/Options (% max potential)
30%
n/a
56.6%
38.6%
18%
n/a
0%
78.3%
20%*
n/a
100%
n/a
93.7%
100%
* This figure includes only the performance-related bonus that was achieved in 2013 and not the bonus share award given to CEO.
Percentage change in remuneration of Director undertaking role of Chief Executive
The table below sets out the percentage change in remuneration for the Chief Executive compared to the wider workforce. For
this purpose the wider workforce is defined as all full-time head office management employees as they too are entitled to receive
benefits and annual bonus awards.
Chief Executive (£)
– salary
– benefits
– performance pay
Average per employee (£)
– salary
– benefits2
– performance pay
% change from
2014 to 2015
2.4%
0.1%
215.3%1
2.87%
(4.9%)
436%3
1. The increase in performance pay is due to PSP vesting in 2015, while there was no vesting in 2014.
2. The average employee benefits figure is based on tax year 2013/14 for 2014 and tax year 2014/15 for 2015.
3. Bonus was extended to all graded management teams in 2013 (first payout in March 2015).
Relative importance of spend on pay
The table below shows the expenditure and percentage change in the overall spend on staff costs compared to other key
financial indicators.
Staff costs
Dividends
Retained profit (excluding exceptional items)
Tax (excluding exceptional items)
Composition of the Committee
The following Non-Executive Directors were members of the Committee during 2015:
Member
Sandra Turner (Chair since appointment)
Allison Kirkby
Helena Ganczakowski
Peter McPhillips
2015
£m
314.0
43.7
57.6
15.4
2014
£m
% change from
2014 to 2015
311.3
19.6
44.3
14.0
0.9%
123%
30%
10%
Date of appointment
1 May 2014
30 January 2013
2 January 2014
10 March 2014
64
Greggs plc Annual Report and Accounts 2015
Remuneration advice
The Chief Executive along with Jonathan Jowett (Company Secretary and General Counsel) and Roisin Currie (People Director)
are normally invited to attend the Committee meetings in order to provide advice and support to the Committee. During the year
New Bridge Street (NBS) supported the Committee.
NBS is a signatory to the Remuneration Consultants’ Code of Conduct and adheres to the Voluntary Code of Conduct in relation
to executive remuneration consulting in the UK. The Committee has reviewed the operating processes in place at NBS and is
satisfied that the advice it receives is objective and independent.
Fees paid to NBS during the year were £17,000.
Approval by shareholders
At last year’s AGM, the Directors’ remuneration report received the following votes from shareholders:
For
Against
Total votes cast (excluding votes withheld)
Votes withheld
Total votes cast (including votes withheld)
Approve the remuneration report
% of votes
cast
99.56%
0.44%
100%
Total number of
votes
64,738,349
285,669
65,024, 018
841,634
65,865,652
Votes withheld are not included in the final proxy figures as they are not recognised as a vote in law.
At the AGM of the Company to be held on 10 May 2016, one resolution approving the annual statement and annual report on
remuneration will be proposed as an ordinary resolution.
This report was approved by the Board on 1 March 2016.
Signed on behalf of the Board
Sandra Turner
Chair of the Remuneration Committee
1 March 2016
Greggs plc Annual Report and Accounts 2015
65
Strategic ReportAccountsDirectors’ Report Statement of Directors’ responsibilities in respect of the annual report and accounts
The Directors are responsible for preparing the annual report and accounts and the Group and Parent Company accounts in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company accounts for each financial year. Under that law they
are required to prepare the Group accounts in accordance with IFRSs as adopted by the EU and applicable law and have elected
to prepare the Parent Company accounts on the same basis.
Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the
state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and
Parent Company accounts, the Directors are required to:
– select suitable accounting policies and then apply them consistently;
– make judgements and estimates that are reasonable and prudent;
– state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
– prepare the accounts on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company
will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and
enable them to ensure that its accounts comply with the Companies Act 2006. They have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a strategic report, Directors’ report,
Directors’ remuneration report and corporate governance statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in the UK governing the preparation and dissemination of accounts may differ from legislation
in other jurisdictions.
Responsibility statement of the Directors in respect of the annual report and accounts
We confirm that to the best of our knowledge:
– the accounts, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a
whole; and
– the strategic report and Directors’ report include a fair review of the development and performance of the business and the
position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s position and performance, business model and strategy.
Roger Whiteside
Chief Executive
1 March 2016
Richard Hutton
Finance Director
66
Greggs plc Annual Report and Accounts 2015
Independent auditor’s report to the members of Greggs plc only
Opinions and conclusions arising from our audit
1 Our opinion on the accounts is unmodified
We have audited the accounts of Greggs plc for the 52 weeks ended 2 January 2016 set out on pages 70 to 99. In our opinion:
– the accounts give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 2 January 2016 and
of the Group’s profit for the year then ended;
– the Group accounts have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union (IFRSs as adopted by the EU);
– the Parent Company accounts have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in
accordance with the provisions of the Companies Act 2006; and
– the accounts have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
accounts, Article 4 of the IAS Regulation.
2 Our assessment of risks of material misstatement
In arriving at our audit opinion above on the accounts the risk of material misstatement that had the greatest effect on our audit
was as follows:
Provisions (net charge in year £1.2 million, provision in balance sheet £5.6 million)
Refer to page 46 (Audit Committee report), pages 76 and 79 (accounting policy) and page 97 (financial disclosures).
The risk –
– The Group leases the majority of its shops and has almost 1,500 shop leases at the end of the year. It is therefore exposed to
the risk of onerous leases and dilapidation costs.
– Where shops are closed prior to the end of the lease term or are not trading sufficiently well to recover the committed lease
costs there is a risk that an element of the lease will be onerous. Determining the level of onerous lease provisions involves
estimation of the length of time and cost at which lease arrangements can be exited and forecasting and discounting future
cash flows, both of which are inherently uncertain.
– The level of dilapidation provision involves estimation of the costs anticipated to make good any alterations to properties as
required by lease agreements.
Our response –
Our audit procedures in respect of property provisions included:
– In respect of onerous lease provisions recognised we critically assessed whether the provisions identified by the Directors
met the criteria for recognition. We considered the completeness of provisions for all leases where the unavoidable costs of
meeting the lease obligation may exceed the economic benefit expected to be received under the lease through the
identification of shops closed during the year, poorly performing shops and those identified for provision in the prior year.
– For all onerous leases provided for, we tested the mathematical accuracy and challenged the reasonableness of the Group’s
model for calculating the provision, as well as agreeing key inputs such as lease term, break clauses and rental value to the
relevant lease agreements.
– For closed shops we critically assessed the Directors’ estimate of total costs to exit the lease by challenging key assumptions
including the time it would take to exit, the level of incentives to sublease or penalties to be paid to landlords and other costs
to exit or sublet a shop such as legal fees or dilapidation costs. We also considered the most recent expectation of the relevant
local in-house property surveyor responsible for each shop, supported by third-party evidence including offers made,
communications with third-party agents or contracts agreed to surrender or sublease properties. We considered the historical
experience of the Group at exiting similar properties and the costs involved in doing so. We also considered the location of
each closed shop and the impact this may have on the time and costs expected to exit these leases as well as the possible
income from subletting these shops if possible.
– We challenged the Directors’ assumptions relating to onerous lease provisions for shops still trading. This included
consideration of the discounted cash flow forecasts on a shop-by-shop basis and assessing the cash flow forecasts against the
historical performance of those shops and against the Group’s budgets.
– For dilapidation provisions we critically assessed whether provisions identified by the Directors met the criteria for recognition.
We also considered the completeness of provisions including the consideration of shops where there is indication of likely
dilapidation exposure taking into account historical experience of the Group. We considered the historical experience of the
Group in respect of likely level of dilapidation costs. We considered specific issues on certain Group properties, such as the
shops which previously had in-store bakeries, and critically assessed the impact of these on the provisions made.
– We have also considered the adequacy of the Group’s disclosures about the degree of estimation involved in arriving at the
provisions and the sensitivity to key assumptions involved.
We continued to perform procedures over the impairment of property, plant and equipment. However, following the improved
performance of the Group, we have not assessed this as one of the risks that had the greatest effect on our audit and, therefore,
it is not separately identified in our report this year.
Greggs plc Annual Report and Accounts 2015
67
Strategic ReportDirectors’ ReportAccounts Independent auditor’s report to the members of Greggs plc only continued
3 Our application of materiality and an overview of the scope of our audit
The materiality for the accounts as a whole was set at £3.6 million (53 weeks ended 3 January 2015: £2.9 million), determined
with reference to a benchmark of Group profit before tax of which it represents five per cent (53 weeks ended 3 January 2015:
determined with reference to a benchmark of Group profit before tax normalised to exclude that year’s exceptional charge as
disclosed in Note 4, of £58.3 million, of which it represents five per cent).
We report to the Audit Committee any corrected or uncorrected misstatements identified exceeding £181,000 (53 weeks ended
3 January 2015: £145,000), in addition to other identified misstatements that warranted reporting on qualitative grounds.
The Group audit team performed the audit of the Group as if it was a single aggregated set of financial information. The audit was
performed using the materiality levels set out above and covered 100 per cent (2014: 100 per cent) of total Group revenue, Group
profit before tax and total Group assets.
4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
– the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act 2006; and
– the information given in the strategic report and the Directors’ report for the financial year for which the accounts are prepared
is consistent with the accounts.
5 We have nothing to report on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to:
– the Directors’ viability statement on page 25, concerning the principal risks, their management, and, based on that, the
Directors’ assessment and expectations of the Group’s continuing in operation over the three years to 2018; or
– the disclosures on page 76 concerning the use of the going concern basis of accounting.
6 We have nothing to report in respect of the matters on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have
identified other information in the annual report that contains a material inconsistency with either that knowledge or the accounts,
a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
– we have identified material inconsistencies between the knowledge we acquired during our audit and the Directors’ statements
that they consider that the annual report and accounts taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s position and performance, business model and strategy; or
– the Audit Committee report does not appropriately address matters communicated by us to the Audit Committee.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
– the Parent Company accounts and the part of the Directors’ remuneration report to be audited are not in agreement with the
accounting records and returns; or
– certain disclosures of Directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
– the Directors’ statements, set out on pages 25 and 76, in relation to going concern and longer-term viability; and
– the part of the corporate governance statement on page 39 relating to the Company’s compliance with the 11 provisions of the
2014 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
68
Greggs plc Annual Report and Accounts 2015
Scope and responsibilities
As explained more fully in the Directors’ responsibilities statement set out on page 66, the Directors are responsible for the
preparation of the accounts and for being satisfied that they give a true and fair view. A description of the scope of an audit of
accounts is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made
solely to the Company’s members as a body and is subject to important explanations and disclaimers regarding our
responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report
as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken
and the basis of our opinions.
Mick Thompson
(Senior Statutory Auditor)
For and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Quayside House
110 Quayside
Newcastle upon Tyne
NE1 3DX
1 March 2016
Greggs plc Annual Report and Accounts 2015
69
Strategic ReportDirectors’ ReportAccounts Consolidated income statement
for the 52 weeks ended 2 January 2016 (2014: 53 weeks ended 3 January 2015)
Revenue
Cost of sales
Gross profit
Distribution and selling costs
Administrative expenses
Operating profit
Finance (expense)/income
Profit before tax
Income tax
Profit for the financial year attributable to equity
holders of the Parent
Basic earnings per share
Diluted earnings per share
2014
Excluding
exceptional items
(Restated)
£’000
2015
Total
£’000
2014
Exceptional
items
(see Note 4)
£’000
835,749
(305,116)
530,633
(412,426)
(45,094)
73,113
(85)
73,028
(15,428)
57,600
57.3p
55.8p
806,096
(304,786)
501,310
(403,003)
(40,223)
58,084
175
58,259
(13,997)
44,262
44.0p
43.4p
–
(5,932)
(5,932)
(282)
(2,302)
(8,516)
–
(8,516)
1,810
(6,706)
(6.6p)
(6.6p)
2014
Total
(Restated)
£’000
806,096
(310,718)
495,378
(403,285)
(42,525)
49,568
175
49,743
(12,187)
37,556
37.4p
36.8p
Note
1
6
3-6
8
9
9
Consolidated statement of comprehensive income
for the 52 weeks ended 2 January 2016 (2014: 53 weeks ended 3 January 2015)
Profit for the financial year
Other comprehensive income
Items that will not be recycled to profit and loss:
Re-measurements on defined benefit pension plans
Tax on re-measurements on defined benefit pension plans
Other comprehensive income for the financial year, net of income tax
Total comprehensive income for the financial year
Note
21
8
2015
£’000
57,600
4,915
(885)
4,030
61,630
2014
£’000
37,556
(8,575)
1,715
(6,860)
30,696
70
Greggs plc Annual Report and Accounts 2015
Balance sheets
at 2 January 2016 (2014: 3 January 2015)
Group
Parent Company
Note
2015
£’000
2014
£’000
2015
£’000
2014
£’000
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Assets held for sale
Cash and cash equivalents
Other investments
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Current tax liability
Provisions
Non-current liabilities
Other payables
Defined benefit pension liability
Deferred tax liability
Long-term provisions
Total liabilities
Net assets
EQUITY
Capital and reserves
Issued capital
Share premium account
Capital redemption reserve
Retained earnings
Total equity attributable to equity holders of the Parent
10
11
12
13
14
15
16
17
12
18
19
22
20
21
13
22
23
23
10,248
284,163
–
3,830
298,241
15,444
27,647
–
42,915
–
86,006
384,247
4,721
10,248
262,719 284,756
4,987
4,305
267,440 304,296
–
–
15,290
26,091
6,500
43,615
10,000
15,444
27,647
–
42,915
–
101,496
86,006
368,936 390,302
4,721
263,312
4,987
–
273,020
15,290
26,091
6,500
43,615
10,000
101,496
374,516
(92,780)
(9,580)
(3,675)
(89,954) (100,587)
(8,056)
(9,580)
(4,109)
(3,675)
(97,761)
(8,056)
(4,109)
(106,035)
(102,119)
(113,842)
(109,926)
(6,071)
(3,910)
–
(1,957)
(6,555)
(8,518)
(2,539)
(2,502)
(6,071)
(3,910)
–
(1,957)
(6,555)
(8,518)
(2,012)
(2,502)
(11,938)
(20,114)
(11,938)
(19,587)
(117,973)
266,274
(122,233)
(125,780)
246,703 264,522
(129,513)
245,003
2,023
13,533
416
250,302
266,274
2,023
13,533
416
2,023
13,533
416
230,731 248,550
246,703 264,522
2,023
13,533
416
229,031
245,003
The accounts on pages 70 to 99 were approved by the Board of Directors on 1 March 2016 and were signed on its behalf by:
Roger Whiteside
Richard Hutton
Company Registered Number 502851
Greggs plc Annual Report and Accounts 2015
71
Strategic ReportDirectors’ ReportAccounts Statements of changes in equity
for the 52 weeks ended 2 January 2016 (2014: 53 weeks ended 3 January 2015)
Group
53 weeks ended 3 January 2015
Balance at 29 December 2013
Total comprehensive income for the year
Profit for the financial year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Sale of own shares
Purchase of own shares
Share-based payment transactions
Dividends to equity holders
Tax items taken directly to reserves
Total transactions with owners
Balance at 3 January 2015
52 weeks ended 2 January 2016
Balance at 4 January 2015
Total comprehensive income for the year
Profit for the financial year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Sale of own shares
Purchase of own shares
Share-based payment transactions
Dividends to equity holders
Tax items taken directly to reserves
Total transactions with owners
Balance at 2 January 2016
Attributable to equity holders of the Company
Issued
capital
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
Retained
earnings
£’000
Total
£’000
Note
2,023
13,533
416
220,205
236,177
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37,556
(6,860)
37,556
(6,860)
30,696
30,696
5,257
(7,873)
529
(19,570)
1,487
5,257
(7,873)
529
(19,570)
1,487
(20,170)
(20,170)
2,023
13,533
416
230,731
246,703
21
23
8
Attributable to equity holders of the Company
Issued
capital
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
Retained
earnings
£’000
Total
£’000
Note
2,023
13,533
416 230,731 246,703
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
57,600
4,030
57,600
4,030
61,630
61,630
3,876
(11,125)
3,662
(43,714)
5,242
3,876
(11,125)
3,662
(43,714)
5,242
(42,059)
(42,059)
2,023
13,533
416 250,302 266,274
21
23
8
72
Greggs plc Annual Report and Accounts 2015
Statements of changes in equity continued
for the 52 weeks ended 2 January 2016 (2014: 53 weeks ended 3 January 2015)
Parent Company
53 weeks ended 3 January 2015
Balance at 29 December 2013
Total comprehensive income for the year
Profit for the financial year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Sale of own shares
Purchase of own shares
Share-based payment transactions
Dividends to equity holders
Tax items taken directly to reserves
Total transactions with owners
Balance at 3 January 2015
52 weeks ended 2 January 2016
Balance at 4 January 2015
Total comprehensive income for the year
Profit for the financial year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Sale of own shares
Purchase of own shares
Share-based payment transactions
Dividends to equity holders
Tax items taken directly to reserves
Total transactions with owners
Balance at 2 January 2016
Attributable to equity holders of the Company
Issued
capital
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
Retained
earnings
£’000
Total
£’000
Note
2,023
13,533
416
218,505
234,477
7
21
23
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37,556
(6,860)
37,556
(6,860)
30,696
30,696
5,257
(7,873)
529
(19,570)
1,487
5,257
(7,873)
529
(19,570)
1,487
(20,170)
(20,170)
2,023
13,533
416
229,031
245,003
Attributable to equity holders of the Company
Issued
capital
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
Retained
earnings
£’000
Total
£’000
Note
2,023
13,533
416
229,031 245,003
7
21
23
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
57,548
4,030
57,548
4,030
61,578
61,578
3,876
(11,125)
3,662
(43,714)
5,242
3,876
(11,125)
3,662
(43,714)
5,242
(42,059)
(42,059)
2,023
13,533
416 248,550 264,522
Greggs plc Annual Report and Accounts 2015
73
Strategic ReportDirectors’ ReportAccounts Statements of cashflows
for the 52 weeks ended 2 January 2016 (2014: 53 weeks ended 3 January 2015)
Operating activities
Cash generated from operations (see below)
Income tax paid
Net cash inflow from operating activities
Investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Proceeds from sale of property, plant and equipment
Interest received
Redemption/(acquisition) of other investments
Net cash outflow from investing activities
Financing activities
Sale of own shares
Purchase of own shares
Dividends paid
Net cash outflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the start of the year
Cash and cash equivalents at the end of the year
Cash flow statement – cash generated from operations
Profit for the financial year
Amortisation
Depreciation
Impairment
Loss on sale of property, plant and equipment
Release of government grants
Share-based payment expenses
Finance expense/(income)
Income tax expense
(Increase)/decrease in inventories
Increase in receivables
Increase in payables
(Decrease)/increase in provisions
Cash from operating activities
Group
Parent Company
Note
2015
£’000
2014
£’000
2015
£’000
2014
£’000
119,637
(15,916)
108,552
(11,462)
119,637
(15,916)
108,552
(11,462)
103,721
97,090
103,721
97,090
(65,785)
(5,981)
8,086
222
10,000
(44,456)
(3,809)
2,231
173
(7,000)
(65,785)
(5,981)
8,086
222
10,000
(44,456)
(3,809)
2,231
173
(7,000)
(53,458)
(52,861)
(53,458)
(52,861)
3,876
(11,125)
(43,714)
(50,963)
(700)
43,615
42,915
5,257
(7,873)
(19,570)
(22,186)
22,043
21,572
43,615
3,876
(11,125)
(43,714)
(50,963)
(700)
43,615
42,915
5,257
(7,873)
(19,570)
(22,186)
22,043
21,572
43,615
2015
£’000
57,600
454
39,687
66
2,952
(484)
3,662
85
15,428
(154)
(1,555)
2,875
(979)
2014
£’000
37,556
100
37,463
414
3,576
(473)
529
(175)
12,187
115
(1,079)
17,089
1,250
2015
£’000
57,548
454
39,687
66
2,952
(484)
3,662
85
15,480
(154)
(1,555)
2,875
(979)
2014
£’000
37,556
100
37,463
414
3,576
(473)
529
(175)
12,187
115
(1,079)
17,089
1,250
119,637
108,552
119,637
108,552
6
12
23
17
17
10
11
11
21
6
8
74
Greggs plc Annual Report and Accounts 2015
Notes to the consolidated accounts
Significant accounting policies
Greggs plc (‘the Company’) is a company incorporated and domiciled in the UK. The Group accounts consolidate those of the
Company and its subsidiaries (together referred to as ‘the Group’). The results of the associate are not consolidated on the
grounds of materiality. The Parent Company accounts present information about the Company as a separate entity and not about
its Group.
The accounts were authorised for issue by the Directors on 1 March 2016.
(a) Statement of compliance
Both the Parent Company accounts and the Group accounts have been prepared and approved by the Directors in accordance
with International Financial Reporting Standards as adopted by the EU (‘adopted IFRSs’), IFRIC interpretations and the Companies
Act 2006 applicable to companies reporting under IFRS. On publishing the Parent Company accounts here together with the
Group accounts, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its
individual income statement and related notes that form a part of these approved accounts.
(b) Basis of preparation
The accounts are presented in pounds sterling, rounded to the nearest thousand, and are prepared on the historical cost basis
except the defined benefit pension asset/liability, which is recognised as plan assets less the present value of the defined
benefit obligation.
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set
out in the Directors’ report and strategic report on pages 01 to 65. The financial position of the Group, its cash flows and liquidity
position are described in the Financial Review on pages 20 to 21. In addition, Note 2 to the accounts includes: the Group’s
objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial
instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Group chose not to restate business combinations prior to the IFRS transition date (1 January 2004), as no significant
acquisitions had taken place during the previous ten years. The Group’s policy up to and including 1997 was to eliminate goodwill
arising upon acquisitions against reserves. Under IFRS 1 and IFRS 3, such goodwill remains eliminated against reserves.
The accounting policies set out below have been applied consistently throughout the Group and to all years presented in these
consolidated accounts and are unchanged from previous years with the exception of the adoption of the following relevant
standards, amendments and interpretations:
– Defined Benefit Plans: Employee Contributions – Amendments to IAS 19
– Annual Improvements to IFRSs – 2010-2012 Cycle
– Annual Improvements to IFRSs – 2011-2013 Cycle
The adoption of the above has not had a significant impact on the Group’s profit for the year or equity. The other standards and
interpretations that are applicable for the first time in the Group’s accounts for the year have no effect on these accounts.
Restatement of comparatives
During the current year the Group has continued to expand its franchise operations. Certain of these arrangements include
up-front payments from franchisees receivable in respect of the capital fit-out of the franchise operators’ shops. Due to these
up-front payments becoming material in the year, the Directors have reconsidered the application of IAS 18 to these specific
transactions. They have now determined that the Group is acting as a principal in these transactions whilst previously these had
been presented as if they were acting as agents. The prior-year figures have been restated for this change in presentation. For the
53 weeks ended 3 January 2015 both turnover and cost of sales have increased by £2,135,000. There is no impact on profit,
balance sheet or cash flows for this change in presentation.
In addition, a review of income statement categorisations was carried out which identified two re-categorisations. Firstly it was
determined that it was more appropriate for all wage costs associated with bakery and distribution centre despatch activities to
be included in distribution and selling costs, rather than some being included in cost of sales. The net impact of this for the
53 weeks ended 3 January 2015 has been a decrease in cost of sales and a corresponding increase in distribution and selling costs
of £7,294,000. Secondly, early settlement discounts should have been included in administrative costs rather than cost of sales.
The net impact for the 53 weeks ended 3 January 2015 has been an increase in cost of sales and a decrease in administrative costs
of £80,000. There is no impact on profit, balance sheet or cash flows arising from these changes in categorisation.
Greggs plc Annual Report and Accounts 2015
75
Strategic ReportDirectors’ ReportAccounts Notes to the consolidated accounts continued
Significant accounting policies continued
(b) Basis of preparation continued
Going concern
Directors have reviewed the Company’s operational and investment plans for the next 12 months along with the principal risks
and uncertainties that could affect these plans or threaten its liquidity. The key factors likely to affect future performance and the
Company’s exposure to risks are set out on pages 24 to 25 of the strategic report. In addition the financial review on pages 20 to
21 sets out the Company’s net cash position and continued strong cash generation.
After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources
to continue in operational existence for the next 12 months. Accordingly, they continue to adopt the going concern basis in
preparing the annual report and accounts.
Key estimates and judgements
The preparation of financial information in conformity with adopted IFRSs requires management to make judgements, estimates
and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
year in which the estimate is revised if the revision affects only that year, or in the year of revision and future years if the revision
affects both current and future years.
Provisions
Provisions have been estimated for onerous leases and dilapidations. These provisions represent the best estimate of the liability
at the balance sheet date, the actual liability being dependent on future events such as trading conditions at a particular shop or
the ability of the Group to exit from the lease commitment. Expectations will be revised each period until the actual liability arises,
with any difference accounted for in the period in which the revision is made.
Impairment of property, plant and equipment
Property, plant and equipment is reviewed for impairment if events or changes in circumstances indicate that the carrying value
may not be recoverable. For example, bakery equipment may be impaired if it is no longer in use and/or shop fittings may be
impaired if sales in that shop fall. When a review for impairment is conducted the recoverable amount is estimated based on
value-in-use calculations which include management’s estimates of future cash flows generated by the assets and an appropriate
discount rate. Consideration is also given to whether the impairment assessments made in prior years remain appropriate based
on the latest expectations in respect of value-in-use and recoverable value. Where it is concluded that the impairment has
reduced a reversal of the impairment is recorded. The sensitivities for growth rate, discount rate and lease term have been
considered and are deemed not significant. For instance, a two per cent change in the growth rate would result in a £43,000
change in the impairment charge.
Post retirement benefits
The determination of the defined benefit obligation of the Group’s defined benefit pension scheme depends on the selection of
certain assumptions including the discount rate, inflation rate and mortality rates. Differences arising from actual experience or
future changes in assumptions will be reflected in future years. The key assumptions made for 2015 are given in Note 21.
(c) Basis of consolidation
The consolidated accounts include the results of Greggs plc and its subsidiary undertakings for the 52 weeks ended 2 January
2016. The comparative period is the 53 weeks ended 3 January 2015.
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
The accounts of subsidiaries are included in the consolidated accounts from the date on which control commences until the
date on which control ceases.
(ii) Associates
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating
policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of
another entity. At the year end the Group has one associate which has not been consolidated on grounds of materiality (see
note 12).
(iii) Transactions eliminated on consolidation
Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are
eliminated in preparing the consolidated accounts.
(d) Exceptional items
Exceptional items are defined as items of income and expenditure which are material and unusual in nature and which are
considered to be of such significance that they require separate disclosure on the face of the income statement. Any future
movements on items previously classified as exceptional will also be classified as exceptional.
76
Greggs plc Annual Report and Accounts 2015
(e) Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at
that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated
using the exchange rate at the date of the transaction. Foreign exchange differences arising on translation are recognised in the
income statement.
(f) Intangible assets
The Group’s only intangible assets relate to software and the costs of its implementation which is measured at cost less
accumulated amortisation and accumulated impairment losses.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to
which it relates. All other expenditure is recognised in the income statement as incurred.
Amortisation is recognised in the income statement on a straight-line basis over the estimated useful lives of intangible assets
from the date that they are available for use. The estimated useful lives for the current and comparative periods are five years.
Assets in the course of development are re-categorised and amortisation commences when the assets are available for use.
(g) Property, plant and equipment
(i) Owned assets
Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation (see below) and
impairment losses (see accounting policy (k)). The cost of self-constructed assets includes the cost of materials, direct labour
and an appropriate proportion of production overheads.
(ii) Subsequent costs
The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the
item if it is probable that the future economic benefits embodied within the component will flow to the Group, and its costs
can be measured reliably. The carrying value of the replaced component is derecognised. The costs of the day-to-day servicing
of property, plant and equipment are recognised in the income statement as incurred.
(iii) Depreciation
Depreciation is provided so as to write off the cost (less residual value) of each item of property, plant and equipment during
its expected useful life using the straight-line method over the following periods:
Freehold and long leasehold buildings
40 years
Short leasehold properties
10 years or length of lease if shorter
Plant, machinery, equipment, vehicles, fixtures and fittings
3 to 10 years
Freehold land is not depreciated.
Depreciation methods, useful lives and residual values (if not insignificant) are reassessed annually.
(iv) Assets in the course of construction
These assets are re-categorised and depreciation commences when the assets are available for use.
(h) Investments
Non-current investments comprise investments in subsidiaries and associates which are carried at cost less impairment.
Current investments comprise fixed-term fixed-rate bank deposits where the term is greater than three months.
(i) Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories includes
expenditure incurred in acquiring the inventories and direct production labour costs.
(j) Cash and cash equivalents
Cash and cash equivalents comprises cash balances and call deposits with an original maturity of three months or less. Bank
overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component
of cash and cash equivalents for the purpose of the statement of cash flows.
Greggs plc Annual Report and Accounts 2015
77
Strategic ReportDirectors’ ReportAccounts
Notes to the consolidated accounts continued
Significant accounting policies continued
(k) Impairment
The carrying amounts of the Group and Company’s assets, other than inventories and deferred tax assets, are reviewed at
each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s
recoverable amount is estimated. Impairment reviews are carried out on an individual shop basis unless there are a number of
shops in the same location, in which case the impairment review is based on the location.
An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses
are recognised in the income statement. Impairment losses recognised in prior years are assessed at each reporting date and
reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined,
net of depreciation, if no impairment loss had been recognised.
(l) Non-current assets held for sale
Non-current assets that are expected to be recovered primarily through sale rather than through continuing use are classified
as held for sale. Immediately before classification as held for sale, the assets are re-measured in accordance with the Group and
Company’s accounting policies. Thereafter generally the assets are measured at the lower of their carrying amount and fair value
less cost to sell. Once classified as held for sale assets are no longer depreciated or amortised.
(m) Share capital
(i) Re-purchase of share capital
When share capital recognised as equity is re-purchased, the amount of the consideration paid, including directly attributable
costs, is recognised as a deduction from equity. Re-purchased shares that are held in the employee share ownership plan are
classified as treasury shares and are presented as a deduction from total equity.
(ii) Dividends
Dividends are recognised as a liability when the Company has an obligation to pay and the dividend is no longer at the
Company’s discretion.
(n) Employee share ownership plan
The Group and Parent Company accounts include the assets and related liabilities of the Greggs Employee Benefit Trust (‘EBT’).
In both the Group and Parent Company accounts the shares held by the EBT are stated at cost and deducted from total equity.
(o) Employee benefits
(i) Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount
expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service
provided by the employee and the obligation can be measured reliably.
(ii) Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement
when they are due.
(iii) Defined benefit plans
The Company’s net obligation in respect of defined benefit pension plans is calculated by estimating the amount of future
benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to
determine its present value, and the fair value of any plan assets (at bid price) is deducted. The Company determines the net
interest on the net defined benefit asset/liability for the period by applying the discount rate used to measure the defined
benefit obligation at the beginning of the annual period to the net defined benefit asset/liability.
The discount rate is the yield at the reporting date on bonds that have a credit rating of at least AA, that have maturity dates
approximating to the terms of the Company’s obligations and that are denominated in the currency in which the benefits are
expected to be paid.
Re-measurements arising from defined benefit plans comprise actuarial gains and losses and the return on plan assets
(excluding interest). The Company recognises them immediately in other comprehensive income and all other expenses related
to defined benefit plans in employee benefit expenses in the income statement.
When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service
by employees, or the gain or loss on curtailment, is recognised immediately in profit or loss when the plan amendment or
curtailment occurs.
78
Greggs plc Annual Report and Accounts 2015
The calculation of the defined benefit obligation is performed by a qualified actuary using the projected unit credit method.
When the calculation results in a benefit to the Company, the recognised asset is limited to the present value of benefits
available in the form of any future refunds from the plan or reductions in future contributions and takes into account the
adverse effect of any minimum funding requirements.
(iv) Share-based payment transactions
The share option programme allows Group employees to acquire shares of the Company. The fair value of share options
granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant
date, using an appropriate model, taking into account the terms and conditions upon which the share options were granted,
and is spread over the period during which the employees become unconditionally entitled to the options. The amount
recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due
to share prices not achieving the threshold for vesting.
(v) Termination benefits
Termination benefits are expensed at the earlier of the date at which the Group can no longer withdraw the offer of these
benefits and the date at which the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly
within 12 months of the reporting date they are discounted.
(p) Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability.
(i) Restructuring
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the
restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.
(ii) Onerous leases
Provisions for onerous leases are recognised when the Group believes that the unavoidable costs of meeting the lease
obligations exceed the economic benefits expected to be received under the lease. Before a provision is established the
Group recognises any impairment loss on the associated assets.
(iii) Dilapidations
Provisions for dilapidations are recognised on a lease-by-lease basis and are based on the Group’s best estimate of the likely
committed cash outflow.
(q) Revenue
(i) Retail sales
Revenue from the sale of goods is recognised as income on receipt of cash or card payment. Revenue is measured net of
discounts, promotions and value added taxation.
(ii) Franchise sales
Franchise sales are recognised when goods are dispatched to franchisees. Any additional franchise fee income relating to
franchise sales is recognised on an accruals basis in accordance with the substance of the relevant agreement. Capital fit-out
costs are recharged to the franchisee and recognised when they are completed.
(iii) Wholesale sales
Wholesale sales are recognised when goods are dispatched to customers.
(iv) Loyalty programme/gift cards
Amounts received for gift cards or as part of the loyalty programme are deferred. They are recognised as revenue when the
Group has fulfilled its obligation to supply products under the terms of the programme or when it is no longer probable that
these amounts will be redeemed. No adjustment is made to revenue to reflect the fair value of the free items provided under
the loyalty scheme as these would be immaterial to the accounts. The costs of these free items are expensed as the products
are provided to the customer.
(r) Government grants
Government grants are recognised in the balance sheet initially as deferred income when there is a reasonable assurance that they will
be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses
incurred are recognised in the income statement on a systematic basis in the same periods in which the expenses are incurred. Grants
that compensate the Group for the cost of an asset are recognised in the income statement over the useful life of the asset.
Greggs plc Annual Report and Accounts 2015
79
Strategic ReportDirectors’ ReportAccounts
Notes to the consolidated accounts continued
Significant accounting policies continued
(s) Operating lease payments
Payments under operating leases are recognised in the income statement on a straight-line basis over the term of the lease.
Lease incentives received are recognised in the income statement as an integral part of the total lease expense over the term
of the lease.
(t) Finance income and expense
Interest income or expense is recognised using the effective interest method.
(u) Income tax
Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it
relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of
deferred tax recognised is based on the expected manner of realisation or settlement of the carrying amounts of assets and
liabilities, using tax rates that are expected to apply when the temporary differences reverse, based on rates enacted or
substantively enacted at the balance sheet date.
Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction
that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in
subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no
longer probable that the related deferred tax benefit will be realised.
(v) Research and development
The Company continuously strives to improve its products and processes through technical and other innovation. Such
expenditure is typically expensed to the income statement as the related intellectual property is not capable of being formalised
and does not always have distinguishable research and development phases.
(w) IFRSs available for early adoption not yet applied
The following standards and amendments to standards which will be relevant to the Group were available for early adoption but
have not been applied in these accounts:
– Clarification of Acceptable Methods of Depreciation and Amortisation – Amendments to IAS 16 and IAS 38 for accounting
periods commencing on or after 1 January 2016.
– Equity Method in Separate Financial Statements – Amendments to IAS 27 for accounting periods commencing on or after
1 January 2016.
– Annual Improvements to IFRSs – 2012-2014 Cycle for accounting periods commencing on or after 1 January 2016.
– Disclosure Initiative – Amendments to IAS 1 for accounting periods commencing on or after 1 January 2016.
These standards and amendments will be adopted as they become effective and none of them is expected to have a significant
impact on the accounts.
80
Greggs plc Annual Report and Accounts 2015
1. Segmental analysis
The Board is considered to be the ‘chief operating decision maker’ of the Group in the context of the IFRS 8 definition. In addition
to its retail activities, the Group generates revenues from franchise and wholesale. However, these elements of the business are
not sufficiently significant to be ‘Reportable Segments’ in the context of IFRS 8.
Products and services – the Group sells a consistent range of fresh bakery goods, sandwiches and drinks in its shops. The Group
also provides frozen bakery products to its wholesale customers.
Major customers – the majority of sales are made to the general public on a cash basis. A small proportion of sales are made on
credit to certain organisations, including wholesale customers, but these are immaterial in a Group context.
Geographical areas – all results arise in the UK.
The Board has carefully considered the requirements of IFRS 8 and concluded that, as there is only one reportable segment
whose revenue, profits, assets and liabilities are measured and reported on a consistent basis with the Group accounts no
additional numerical disclosures are necessary.
2. Financial risk management
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations.
Retail sales represent a large proportion of the Group’s sales and present no credit risk as they are made for cash or card
payments. The Group does offer credit terms on sales to its wholesale and franchise customers. In such cases the Group operates
effective credit control procedures in order to minimise exposure to overdue debts.
Counterparty risk is also considered low. All of the Group’s surplus cash is held with highly-rated banks, in line with Group policy.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group operates with net current liabilities and is therefore reliant on the continued strong performance of the retail portfolio
to meet its short-term liabilities. This is a well-established and proven business model. Any increase in short-term liquidity risk can
be mitigated by reducing capital expenditure. The model has been tested in various scenarios for the Group’s viability statement
which is included in the strategic report on page 25. The Group had significant cash resources at the year end.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the
Group’s income or the value of its holdings of financial instruments.
Market risk is not significant and therefore sensitivity analysis would not be meaningful.
Currency risk
The Group has no regular transactions in foreign currency although there are occasional purchases, mainly of capital items,
denominated in foreign currency. Whilst certain costs such as electricity and wheat can be influenced by movements in the US
dollar, actual contracts are priced in sterling. In respect of those key costs which are volatile, such as electricity and flour, the price
may be fixed for a period of time in line with Group policy. All such contracts are for the Group’s own expected usage.
Interest rate risk
The Group has low exposure to interest rate risk. Interest only arises on its bank deposits and overdrafts and the defined benefit
pension scheme liability. Net financial expense in the year was £85,000 (2014: income of £175,000).
Equity price risk
The Group has no equity investments other than its subsidiaries and associate. As disclosed in Note 21 the Group’s defined
benefit pension scheme has investments in equity-related funds.
Greggs plc Annual Report and Accounts 2015
81
Strategic ReportDirectors’ ReportAccounts Notes to the consolidated accounts continued
2. Financial risk management continued
Capital management
The Board defines capital as the equity of the Group. The Group has remained net cash positive with funding requirements met
by cash generated from retail operations. The Board considers that it is not currently appropriate to take on structural debt given
the inherent leverage of the leasehold shop estate and working capital requirements. The Board’s policy on dividend levels is to
pursue a progressive dividend policy that pays due regard to the growth of earnings per share over the medium term, the
cash-generative nature of the business and the continuing determination to deliver value to shareholders. The Board would
expect to return any material level of surplus capital to shareholders, likely by way of a special dividend.
The Board reserves the option to purchase its own shares in the market dependent on market prices and surplus cash levels.
The trustees of the Greggs Employment Benefit Trust also purchase shares for future satisfaction of employee share options.
Financial instruments
Group and Parent Company
All of the Group’s surplus cash is invested as cash placed on deposit or fixed-term deposits.
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 below there are no financial instruments, derivatives or commodity
contracts used.
Financial assets and liabilities
The Group’s main financial assets comprise cash and cash equivalents and fixed-term deposits. Other financial assets include
trade receivables arising from the Group’s activities.
Other than trade and other payables, the Group had no financial liabilities within the scope of IAS 39 as at 2 January 2016 (2014: £nil).
Fair values
The fair value of the Group’s financial assets and liabilities is not materially different from their carrying values. Financial assets
and liabilities comprise principally of trade receivables and trade payables and the only interest-bearing balances are the bank
deposits and borrowings which attract interest at variable rates.
Interest rate, credit and foreign currency risk
The Group has not entered into any hedging transactions during the year and considers interest rate, credit and foreign currency
risks not to be significant.
3. Profit before tax
Profit before tax is stated after charging/(crediting):
Amortisation of intangible assets
Depreciation on owned property, plant and equipment
Impairment of owned property, plant and equipment
Loss on disposal of fixed assets
Release of government grants
Payments under operating leases – property rents
Research and development expenditure
Auditor’s remuneration:
Audit of these accounts
Audit of pension schemes’ accounts
Other services – tax compliance
Other services – tax advisory
All other services
2015
£’000
454
39,687
66
2,952
(484)
46,173
320
140
7
21
12
12
2014
£’000
100
37,463
414
3,576
(473)
48,451
465
140
7
21
25
5
Amounts paid to the Company’s auditor in respect of services to the Company, other than the audit of the Company’s accounts,
have not been disclosed as the information is required instead to be presented on a consolidated basis.
82
Greggs plc Annual Report and Accounts 2015
4. Exceptional items
Cost of sales
Closure of in-store bakeries – redundancy and disruption costs
– loss on disposal of assets
– dilapidations
Distribution and selling
Shop asset impairment reversal
Onerous leases
Administrative expenses
Restructuring of support functions
Total exceptional items
2015
£’000
2014
£’000
–
–
–
–
–
–
–
–
–
3,190
664
2,078
5,932
(149)
431
282
2,302
8,516
The judgements made in calculating the provisions which arose as prior year exceptional items have been revisited. No additional
amounts have been charged or reversed in the current year in respect of these. There remains some uncertainty in relation to
these provisions which will be re-assessed in future periods, with any movements being classified as exceptional.
Closure of in-store bakeries
The charge arose from the decision to consolidate the Company’s in-store bakeries into its regional bakery network and
comprised of redundancy costs, disruption costs arising on the transfer of production from stores to regional bakeries, asset
write-offs and the costs of making good the shops (dilapidations) as bakery equipment is removed.
Shop impairment and onerous leases
The charges arose from the decision to focus on reshaping the Group’s existing estate through closure and resite of shops and
withdrawal from the Greggs moment brand.
Restructuring of support functions
The charge related to the redundancy costs incurred in respect of restructuring within the support functions.
5. Personnel expenses
The average number of persons employed by the Group (including Directors) during the year was as follows:
Management
Administration
Production
Shop
The aggregate costs of these persons were as follows:
Wages and salaries
Compulsory social security contributions
Pension costs – defined contribution plans
Equity-settled transactions
2015
Number
713
454
3,029
15,651
19,847
2014
Number
698
386
3,143
15,136
19,363
Note
21
21
2015
£’000
280,559
19,485
10,302
3,662
314,008
2014
£’000
281,336
19,578
9,901
529
311,344
Greggs plc Annual Report and Accounts 2015
83
Strategic ReportDirectors’ ReportAccounts
Notes to the consolidated accounts continued
5. Personnel expenses continued
In addition to wages and salaries, the total amount accrued 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
2015
£’000
2,107
5,025
974
8,106
For the purposes of IAS 24 ‘Related Party Disclosures’ key management personnel comprises the Directors and their
remuneration was as follows:
Salaries and fees
Taxable benefits
Annual bonus (including profit share)
Post-retirement benefits
Share-based payments
2015
£’000
1,388
40
1,056
183
1,394
4,061
2014
£’000
1,657
3,952
765
6,374
2014
£’000
1,343
36
1,101
195
304
2,979
The aggregate amount of gains made on exercise of share options by the Directors was £1,195,000 (2014: £1,000). The number of
Directors in the defined contribution pension scheme and in the defined benefit pension scheme was two (2014: two).
6. Finance (expense)/income
Interest income on cash balances
Foreign exchange gain/(loss)
Net interest related to defined benefit obligation
Note
21
2015
£’000
198
24
(307)
(85)
2014
£’000
183
(10)
2
175
7. Profit attributable to Greggs plc
Of the Group profit for the year, £57,548,000 (2014: £37,556,000) is dealt with in the accounts of the Parent Company. The
Company has taken advantage of the exemption permitted by section 408 of the Companies Act 2006 from presenting its own
income statement.
8. Income tax expense
Recognised in the income statement
Current tax
Current year
Adjustment for prior years
Deferred tax
Origination and reversal of temporary differences
Reduction in tax rate
Adjustment for prior years
Total income tax expense in income statement
84
Greggs plc Annual Report and Accounts 2015
Excluding
exceptional
items
2014
£’000
Exceptional
items
2014
£’000
Total
2015
£’000
Total
2014
£’000
17,970
(530)
17,440
(1,038)
(254)
(720)
(2,012)
15,428
15,776
(229)
(1,534)
–
14,242
(229)
15,547
(1,534)
14,013
(1,471)
–
(79)
(1,550)
(276)
–
–
(276)
(1,747)
–
(79)
(1,826)
13,997
(1,810)
12,187
Reconciliation of effective tax rate
Profit before tax
Income tax using the domestic corporation tax rate
Non-deductible expenses
Non-qualifying depreciation
Loss on disposal of non-qualifying assets
Impact of reduction in deferred tax rate
Adjustment for prior years
Total income tax expense in income statement
Reconciliation of effective tax rate (underlying excluding exceptional items)
Profit before tax
Income tax using the domestic corporation tax rate
Non-deductible expenses
Non-qualifying depreciation
Loss on disposal of non-qualifying assets
Impact of reduction in deferred tax rate
Adjustment for prior years
Total income tax expense in income statement
2015
2015
£’000
73,028
20.25% 14,788
698
1,263
53
(124)
(1,250)
0.95%
1.7%
0.1%
(0.2%)
(1.7%)
2014
21.5%
1.0%
2.5%
0.1%
–
(0.6%)
2014
£’000
49,743
10,695
521
1,245
34
–
(308)
21.1% 15,428
24.5%
12,187
2015
2015
£’000
73,028
20.25% 14,788
698
1,263
53
(124)
(1,250)
0.95%
1.7%
0.1%
(0.2%)
(1.7%)
2014
21.5%
0.8%
2.1%
0.1%
–
(0.5%)
2014
£’000
58,259
12,526
500
1,245
34
–
(308)
21.1% 15,428
24.0%
13,997
On 26 October 2015 reductions in the rate of corporation tax from 20 per cent to 19 per cent with effect from 1 April 2017 and
from 19 per cent to 18 per cent with effect from 1 April 2020 were substantively enacted. Any timing differences which reverse
before 1 April 2017 will be charged/credited at 20 per cent, any timing differences which reverse between 1 April 2017 and 1 April
2020 will do so at 19 per cent and any timing differences which exist at 1 April 2020 will reverse at 18 per cent.
Tax recognised in other comprehensive income or directly in equity
Debit/(credit):
Relating to equity-settled transactions
Relating to defined benefit plans – re-measurement gains/(losses)
2015
Current
tax
£’000
2015
Deferred
tax
£’000
2015
Total
£’000
2014
Total
£’000
–
–
–
(5,242)
885
(5,242)
885
(4,357)
(4,357)
(1,487)
(1,715)
(3,202)
The deferred tax credit in the year relating to equity-settled transactions is in respect of share-based payments and arises
primarily as a result of the increased share price in the year and the stage of maturity of existing schemes.
9. Earnings per share
Basic earnings per share
Basic earnings per share for the 52 weeks ended 2 January 2016 is calculated by dividing profit attributable to ordinary
shareholders by the weighted average number of ordinary shares outstanding during the 52 weeks ended 2 January 2016 as
calculated overleaf.
Diluted earnings per share
Diluted earnings per share for the 52 weeks ended 2 January 2016 is calculated by dividing profit attributable to ordinary
shareholders by the weighted average number of ordinary shares, adjusted for the effects of all dilutive potential ordinary
shares (which comprise share options granted to employees) outstanding during the 52 weeks ended 2 January 2016 as
calculated overleaf.
Greggs plc Annual Report and Accounts 2015
85
Strategic ReportDirectors’ ReportAccounts Notes to the consolidated accounts continued
9. Earnings per share continued
Profit attributable to ordinary shareholders
Profit for the financial year attributable to equity holders of the Parent
Basic earnings per share
Diluted earnings per share
Weighted average number of ordinary shares
Issued ordinary shares at start of year
Effect of own shares held
Weighted average number of ordinary shares during the year
Effect of share options on issue
Weighted average number of ordinary shares (diluted) during the year
Excluding
exceptional
items
2014
£’000
Exceptional
items
2014
£’000
Total
2014
£’000
44,262
(6,706)
37,556
44.0p
43.4p
(6.6p)
(6.6p)
37.4p
36.8p
Total
2015
£’000
57,600
57.3p
55.8p
2015
Number
2014
Number
101,155,901
(551,314)
101,155,901
(638,815)
100,604,587
2,616,364
100,517,086
1,517,722
103,220,951 102,034,808
10. Intangible assets
Group and Parent Company
Cost
Balance at 29 December 2013
Additions
Balance at 3 January 2015
Balance at 4 January 2015
Additions
Balance at 2 January 2016
Amortisation
Balance at 29 December 2013
Amortisation charge for the year
Balance at 3 January 2015
Balance at 4 January 2015
Amortisation charge for the year
Balance at 2 January 2016
Carrying amounts
At 29 December 2013
At 3 January 2015
At 4 January 2015
At 2 January 2016
Software
£’000
Assets under
development
£’000
Total
£’000
1,715
3,809
5,524
5,524
5,981
–
2,992
2,992
2,992
5,981
8,973
11,505
–
–
–
–
–
–
–
2,992
703
100
803
803
454
1,257
1,012
4,721
2,992
4,721
8,973
10,248
1,715
817
2,532
2,532
–
2,532
703
100
803
803
454
1,257
1,012
1,729
1,729
1,275
Assets under development relate to software projects arising from the investment in new systems platforms.
86
Greggs plc Annual Report and Accounts 2015
11. Property, plant and equipment
Group
Cost
Balance at 29 December 2013
Additions
Disposals
Transfer to assets held for sale
Balance at 3 January 2015
Balance at 4 January 2015
Additions
Disposals
Balance at 2 January 2016
Depreciation
Balance at 29 December 2013
Depreciation charge for the year
Ordinary impairment charge for the year
Ordinary impairment release for the year
Exceptional impairment release for the year
Disposals
Transfer to assets held for sale
Balance at 3 January 2015
Balance at 4 January 2015
Depreciation charge for the year
Impairment charge for the year
Impairment release for the year
Disposals
Balance at 2 January 2016
Carrying amounts
At 29 December 2013
At 3 January 2015
At 4 January 2015
At 2 January 2016
Land and
buildings
£’000
Plant and
equipment
£’000
Fixtures
and fittings
£’000
Assets under
construction
£’000
Note
Total
£’000
135,031
429
(612)
(6,885)
120,152
10,121
(6,654)
–
249,194
34,278
(32,748)
–
127,963
123,619
250,724
–
278
–
–
278
504,377
45,106
(40,014)
(6,885)
502,584
127,963
70
(1,034)
123,619 250,724
45,510
(28,527)
9,265
(3,120)
278 502,584
65,735
(32,681)
10,890
–
126,999
129,764
267,707
11,168 535,638
4
31,936
2,838
–
–
–
(297)
(385)
74,701
10,529
–
–
–
(5,468)
–
129,943
24,096
974
(411)
(149)
(28,442)
–
34,092
79,762
126,011
34,092
2,772
–
–
(845)
79,762
10,544
133
–
(2,789)
126,011
26,371
537
(604)
(24,509)
36,019
87,650
127,806
103,095
45,451
119,251
–
–
–
–
–
–
–
–
236,580
37,463
974
(411)
(149)
(34,207)
(385)
239,865
– 239,865
39,687
–
670
–
(604)
–
(28,143)
–
–
–
251,475
267,797
93,871
43,857
124,713
278
262,719
93,871
43,857
124,713
278
262,719
90,980
42,114
139,901
11,168
284,163
Assets are reviewed for impairment on a regular basis and provision made where necessary. For shop assets a discounted
cashflow is calculated for each shop using historic cashflows including attributable overheads, a zero per cent growth rate, the
Group’s cost of capital of ten per cent and an appropriate assumption regarding the remaining lease term. The net book value of
the relevant assets attributable to the shop is impaired to the extent that the net present value of the cashflows is lower than the
net book value. Supply chain assets are impaired to their estimated net realisable value.
Included within disposals for the prior year were fixtures and fittings with a net book value of £849,000 which related to the
closure of the in-store bakeries. The loss on disposal of these assets was £664,000 and formed part of the exceptional charge
detailed in Note 4.
Greggs plc Annual Report and Accounts 2015
87
Strategic ReportDirectors’ ReportAccounts Notes to the consolidated accounts continued
11. Property, plant and equipment continued
Parent Company
Cost
Balance at 29 December 2013
Additions
Disposals
Transfer to assets held for sale
Balance at 3 January 2015
Balance at 4 January 2015
Additions
Disposals
Balance at 2 January 2016
Depreciation
Balance at 29 December 2013
Depreciation charge for the year
Ordinary impairment charge for the year
Ordinary impairment release for the year
Exceptional impairment release for the year
Disposals
Transfer to assets held for sale
Balance at 3 January 2015
Balance at 4 January 2015
Depreciation charge for the year
Impairment charge for the year
Impairment release for the year
Disposals
Balance at 2 January 2016
Carrying amounts
At 29 December 2013
At 3 January 2015
At 4 January 2015
At 2 January 2016
Land and buildings
The carrying amount of land and buildings comprises:
Freehold property
Long leasehold property
Short leasehold property
Land and
buildings
£’000
Plant and
equipment
£’000
Fixtures
and fittings
£’000
Assets under
construction
£’000
Note
Total
£’000
135,541
429
(612)
(6,885)
120,685
10,121
(6,654)
–
249,682
34,278
(32,748)
–
128,473
124,152
251,212
–
278
–
–
278
128,473
70
(1,034)
124,152
9,265
(3,120)
251,212
45,510
(28,527)
278
10,890
–
505,908
45,106
(40,014)
(6,885)
504,115
504,115
65,735
(32,681)
127,509 130,297
268,195
11,168
537,169
4
32,213
2,838
–
–
–
(297)
(385)
74,971
10,529
–
–
–
(5,468)
–
130,334
24,096
974
(411)
(149)
(28,442)
–
34,369
80,032
126,402
34,369
2,772
–
–
(845)
80,032 126,402
26,371
10,544
537
133
(604)
–
(24,509)
(2,789)
36,296
87,920
128,197
–
–
–
–
–
–
–
–
237,518
37,463
974
(411)
(149)
(34,207)
(385)
240,803
– 240,803
39,687
–
670
–
(604)
–
(28,143)
–
– 252,413
103,328
45,714
119,348
–
268,390
94,104
44,120
124,810
278
263,312
94,104
44,120 124,810
278 263,312
91,213
42,377
139,998
11,168 284,756
Group
Parent Company
2015
£’000
90,780
3
197
90,980
2014
£’000
93,808
1
62
93,871
2015
£’000
91,013
3
197
91,213
2014
£’000
94,041
1
62
94,104
88
Greggs plc Annual Report and Accounts 2015
12. Investments
Non-current investments
Parent Company
Cost
Balance at 29 December 2013, 3 January 2015 and 2 January 2016
Impairment
Balance at 29 December 2013, 3 January 2015 and 2 January 2016
Carrying amount
Balance at 29 December 2013, 3 January 2015, 4 January 2015 and 2 January 2016
The undertakings in which the Company’s interest at the year end is more than 20 per cent are as follows:
Shares in
subsidiary
undertakings
£’000
5,828
841
4,987
Charles Bragg (Bakers) Limited
Greggs (Leasing) Limited
Thurston Parfitt Limited
Greggs Properties Limited
Olivers (U.K.) Limited
Olivers (U.K.) Development Limited*
Birketts Holdings Limited
J.R. Birkett and Sons Limited*
Greggs Trustees Limited
Solstice Zone A Management Company Limited
* Held indirectly.
Principal activity
Country of incorporation
Proportion of voting rights
and shares held
Non-trading
Dormant
Non-trading
Property holding
Dormant
Non-trading
Dormant
Non-trading
Trustees
Non-trading
England and Wales
England and Wales
England and Wales
England and Wales
Scotland
Scotland
England and Wales
England and Wales
England and Wales
England and Wales
100%
100%
100%
100%
100%
100%
100%
100%
100%
28%
Solstice Zone A Management Company Limited was not consolidated on the grounds of materiality.
The Company’s subsidiary undertakings listed above were all entitled to exemption, under subsections (1) and (2) of section 480
of Companies Act 2006 relating to dormant companies, from the requirement to have their accounts audited.
Current investments
Fixed-term deposit
Group and Parent Company
2015
£’000
–
2014
£’000
10,000
This represents cash placed on deposit that had a maturity of between three and six months at the date of inception. The fair
value of the deposit is the same as its book value.
Greggs plc Annual Report and Accounts 2015
89
Strategic ReportDirectors’ ReportAccounts Notes to the consolidated accounts continued
13. Deferred tax assets and liabilities
Group
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Employee benefits
Short-term temporary differences
Tax assets/(liabilities)
Assets
Liabilities
Net
2015
£’000
–
8,878
32
8,910
2014
£’000
–
4,034
481
4,515
2015
£’000
(5,080)
–
–
(5,080)
2014
£’000
(7,054)
–
–
(7,054)
2015
£’000
(5,080)
8,878
32
3,830
2014
£’000
(7,054)
4,034
481
(2,539)
The movements in temporary differences during the year ended 3 January 2015 were as follows:
Property, plant and equipment
Employee benefits
Short-term temporary differences
Balance at
29 December
2013
£’000
Recognised
in income
£’000
Recognised
in equity
£’000
(8,608)
809
291
(7,508)
1,554
82
190
1,826
–
3,143
–
3,143
Balance at
3 January
2015
£’000
(7,054)
4,034
481
(2,539)
The movements in temporary differences during the year ended 2 January 2016 were as follows:
Property, plant and equipment
Employee benefits
Short-term temporary differences
Parent Company
Deferred tax assets and liabilities are attributable to the following:
Balance at
4 January
2015
£’000
(7,054)
4,034
481
Recognised
in income
£’000
Recognised
in equity
£’000
1,974
487
(449)
–
4,357
–
4,357
Balance at
2 January
2016
£’000
(5,080)
8,878
32
3,830
(2,539)
2,012
Property, plant and equipment
Employee benefits
Short-term temporary differences
Tax assets/(liabilities)
Assets
Liabilities
Net
2015
£’000
–
8,878
32
8,910
2014
£’000
–
4,034
481
4,515
2015
£’000
(4,605)
–
–
(4,605)
2014
£’000
(6,527)
–
–
(6,527)
2015
£’000
(4,605)
8,878
32
4,305
2014
£’000
(6,527)
4,034
481
(2,012)
The movements in temporary differences during the year ended 3 January 2015 were as follows:
Balance at
29 December
2013
£’000
Recognised
in income
£’000
Recognised
in equity
£’000
(8,081)
809
291
(6,981)
1,554
82
190
1,826
–
3,143
–
3,143
Balance at
3 January
2015
£’000
(6,527)
4,034
481
(2,012)
Property, plant and equipment
Employee benefits
Short-term temporary differences
90
Greggs plc Annual Report and Accounts 2015
The movements in temporary differences during the year ended 2 January 2016 were as follows:
Property, plant and equipment
Employee benefits
Short-term temporary differences
Balance at
4 January
2015
£’000
(6,527)
4,034
481
(2,012)
Recognised
in income
£’000
Recognised
in equity
£’000
1,922
487
(449)
1,960
–
4,357
–
4,357
Balance at
2 January
2016
£’000
(4,605)
8,878
32
4,305
The deferred tax asset, which principally arises in respect of employee benefits is expected to reverse within 12 months. As the
Company anticipates having sufficient taxable profits to utilise these deductions it is considered appropriate to recognise the
deferred tax asset.
14. Inventories
Raw materials and consumables
Work in progress
15. Trade and other receivables
Trade receivables
Other receivables
Prepayments
Group and Parent Company
2015
£’000
12,213
3,231
15,444
2014
£’000
11,833
3,457
15,290
Group and Parent Company
2015
£’000
9,496
4,513
13,638
27,647
2014
£’000
7,311
6,512
12,268
26,091
At 2 January 2016 trade receivables are shown net of an allowance for bad debts of £31,000 (2014: £41,000) arising in the ordinary
course of business.
The ageing of trade receivables that were not impaired at the balance sheet date was:
Not past due date
Past due 1-30 days
Past due 31-90 days
Past due over 90 days
Group and Parent Company
2015
£’000
6,089
3,283
80
44
9,496
2014
£’000
5,398
1,765
148
–
7,311
The Group believes that the unimpaired amounts that are past due by more than 30 days are still collectable in full based on
historic payment behaviour and extensive analysis of customer credit risk. Based on the Group’s monitoring of customer credit
risk, the Group believes that no impairment allowance is necessary in respect of trade receivables not past due.
16. Assets held for sale
The asset held for sale at 3 January 2015 was land at Southall which had been identified as no longer required for supply chain
expansion. An offer for the site was received in 2014 and negotiations to finalise the sale were ongoing. The sale of the site was
completed during 2015.
17. Cash and cash equivalents
Cash and cash equivalents
Group and Parent Company
2015
£’000
2014
£’000
42,915
43,615
Greggs plc Annual Report and Accounts 2015
91
Strategic ReportDirectors’ ReportAccounts Notes to the consolidated accounts continued
18. Trade and other payables
Trade payables
Amounts owed to subsidiary undertakings
Other taxes and social security
Other payables
Accruals and deferred income
Deferred government grants
Group
Parent Company
2015
£’000
42,405
–
5,912
27,085
16,910
468
92,780
2014
£’000
2015
£’000
40,865
–
5,767
24,753
18,101
468
42,405
7,807
5,912
27,085
16,910
468
89,954 100,587
2014
£’000
40,865
7,807
5,767
24,753
18,101
468
97,761
19. Current tax liability
The current tax liability of £9,580,000 in the Group and the Parent Company (2014: Group and Parent Company £8,056,000)
represents the estimated amount of income taxes payable in respect of current and prior years.
20. Non-current liabilities – other payables
Deferred government grants
Group and Parent Company
2015
£’000
6,071
2014
£’000
6,555
The Group has been awarded five government grants relating to the extension of existing facilities and construction of new
facilities. The grants, which have all been recognised as deferred income, are being amortised over the weighted average of the
useful lives of the assets they have been used to acquire.
21. Employee benefits
Defined benefit plan
Scheme background
The Company sponsors a funded final salary defined benefit pension plan (the ‘scheme’) for qualifying employees. The scheme
was closed to future accrual in 2008 and all remaining employees who are still members of the scheme are now members of the
Company’s defined contribution scheme.
The scheme is administered by a separate Board of Trustees which is legally separate from the Company. The Trustees are
composed of representatives of both the employer and employees. The Trustees are required by law to act in the interest of all
relevant beneficiaries and are responsible for the investment policy with regard to the assets plus the day-to-day administration
of the benefits.
UK legislation requires that pension schemes are funded prudently. The last funding valuation of the Scheme was carried out by
a qualified actuary as at 6 April 2014 and showed a surplus. The Company is currently not required to pay contributions into
the scheme.
Profile of the scheme
The defined benefit obligation includes benefits for former employees and current pensioners. Broadly, 60 per cent of the
liabilities are attributable to former employees and 40 per cent to current pensioners.
The scheme duration is an indicator of the weighted average time until benefit payments are made. For the scheme as a whole,
the duration is approximately 20 years.
Investment strategy
The Company and Trustees have agreed a long-term strategy for reducing investment risk as and when appropriate. This includes
a policy to hold sufficient cash and bond assets to cover the anticipated benefit payments for at least the next five years so as to
improve the cashflow matching of the scheme’s assets and liabilities.
Defined benefit obligation
Fair value of plan assets
Net defined benefit liability
92
Greggs plc Annual Report and Accounts 2015
Group and Parent Company
2015
£’000
2014
£’000
(102,918)
99,008
(106,201)
97,683
(3,910)
(8,518)
Liability for defined benefit obligation
Changes in the present value of the defined benefit obligation are as follows:
Opening defined benefit obligation
Interest cost
Re-measurement (gains)/losses:
– changes in demographic assumptions
– changes in financial assumptions
– experience
Benefits paid
Changes in the fair value of plan assets are as follows:
Opening fair value of plan assets
Net interest on plan assets
Re-measurement gains
Benefits paid
Closing fair value of plan assets
The costs (charged)/credited in the income statement are as follows:
Interest (expense)/income on net defined benefit liability
The amounts recognised in other comprehensive income are as follows:
Re-measurement gains/(losses) on defined benefit pension plans
Group and Parent Company
2015
£’000
106,201
3,751
1,384
(2,519)
(1,854)
(4,045)
2014
£’000
95,597
4,142
–
10,610
(882)
(3,266)
102,918
106,201
Group and Parent Company
2015
£’000
97,683
3,444
1,926
(4,045)
99,008
2014
£’000
95,652
4,144
1,153
(3,266)
97,683
Group
2015
£’000
(307)
2014
£’000
2
Group
2015
£’000
4,915
2014
£’000
(8,575)
Cumulative re-measurement gains and losses reported in the consolidated statement of comprehensive income since
28 December 2003, the transition date to adopted IFRSs, for the Group and the Parent Company are net losses of £21,219,000
(2014: net losses of £26,134,000).
The fair value of the plan assets is as follows:
Equities – UK
Bonds
– overseas
– corporate
– government
Absolute return funds
Property
Cash and cash equivalents/other
Group and Parent Company
2015
£’000
40,320
32,381
16,547
3,405
6,125
–
230
99,008
2014
£’000
39,432
30,878
16,765
3,512
–
2,592
4,504
97,683
Greggs plc Annual Report and Accounts 2015
93
Strategic ReportDirectors’ ReportAccounts Notes to the consolidated accounts continued
21. Employee benefits continued
Defined benefit plan continued
Principal actuarial assumptions (expressed as weighted averages):
Discount rate
Future salary increases
Future pension increases
Group and Parent Company
2015
2014
3.6%
n/a
1.7% – 2.45% 1.6% – 2.4%
3.85%
n/a
Mortality assumption
Mortality in retirement is assumed to be in line with the S2PXA tables using CMI_2013 projections and a long-term rate of 1.25 per
cent per annum. Under these assumptions, pensioners aged 65 now are expected to live for a further 22.5 years (2014: 22.1 years) if
they are male and 24.4 years (2014: 24.4 years) if they are female. Members currently aged 45 are expected to live for a further 24.3
years (2014: 23.4 years) from age 65 if they are male and for a further 26.4 years (2014: 25.9 years) from age 65 if they are female.
The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:
Discount rate
Inflation
Mortality rates
Change in assumption
Impact on scheme liabilities
0.1% increase
0.1% decrease
1 year increase
Reduction of £2m
Reduction of £1.4m
Increase of £3.1m
The other demographic assumptions have been set having regard to latest trends in the scheme.
The Group expects to contribute £nil to its defined benefit plan in 2016.
Defined contribution plan
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
£10,302,000 (2014: £9,901,000) in the year.
Share-based payments – Group and Parent Company
The Group has established a Savings Related Share Option Scheme, an Executive Share Option Scheme and a Performance
Share Plan.
The terms and conditions of the grants for these schemes are as follows, whereby all options are settled by physical delivery
of shares:
Executive Share Option
Scheme 12
Executive Share Option
Scheme 13
Executive Share Option
Scheme 14
Savings Related Share
Option Scheme 12
Executive Share Option
Scheme 15
Performance Share
Plan 3
Date of grant
Employees entitled
Exercise
price
Number of
shares granted
Vesting conditions
August 2006 Senior employees
407p
1,028,000
April 2008
Senior employees
457p
618,500
April 2009
Senior employees
356p
2,012,000
Three years’ service and EPS
growth of 3-5% over RPI on
average over those three years
Three years’ service and EPS
growth of 3-5% over RPI on
average over those three years
Three years’ service and EPS
growth of 3-7% over RPI on
average over those three years
Contractual life
10 years
10 years
10 years
April 2011
All employees
453p
697,609
Three years’ service
3.5 years
August 2011
Senior employees
482p
707,000
March 2012
Senior executives
£nil
248,922
Three years’ service and EPS
growth of 3-7% over RPI on
average over those three years
Three years’ service, EPS annual
compound growth of 3-8% over
RPI over those three years and
TSR position relative to an
appropriate comparator group
10 years
10 years
94
Greggs plc Annual Report and Accounts 2015
Savings Related Share
Option Scheme 13
Executive Share Option
Scheme 16
Transitional bonus
share award
Performance Share
Plan 4
Savings Related Share
Option Scheme 14
Recruitment share
award
Performance Share
Plan 5
Executive Share Option
Scheme 17
Savings Related Share
Option Scheme 15
Executive Share Option
Scheme 18
Executive Share Option
Scheme 18a
Performance Share
Plan 6
Savings Related Share
Option Scheme 16
Date of grant
Employees entitled
Exercise
price
Number of
shares granted
Vesting conditions
April 2012
All employees
468p
703,332
Three years’ service
March 2013
Senior employees
480p
693,000
Three years’ service and EPS
growth of 3-7% over RPI on
average over those three years
Contractual life
3.5 years
10 years
March 2013
Chief Executive
£nil
60,000
March 2013
Senior executives
£nil
305,592
Continuous service of two and
three years
3 years
Three years’ service, EPS annual
compound growth of 3-8% over
RPI over those three years and
TSR position relative to an
appropriate comparator group
10 years
April 2013
All employees
414p
699,989
Three years’ service
3.5 years
February
2014
Senior executive
£nil
5,517
Continuous service of two years
2 years
March 2014
Senior executives
£nil
224,599
April 2014
Senior employees
500p
598,225
Three years’ service, EPS annual
compound growth of 1-4% over
RPI over those three years and
average annual ROCE of 15.5-17%
over those three years
10 years
Three years’ service and EPS
growth of 1-4% over RPI on
average over those three years
10 years
April 2014
All employees
465p
696,344
Three years’ service
3.5 years
March 2015
Senior employees
1022p
298,045
May 2015
Senior employee
1056p
3,285
March 2015
Senior executives
£nil
146,174
Three years’ service and EPS
growth of 1-7% over RPI on
average over those three years
Three years’ service and EPS
growth of 1-7% over RPI on
average over those three years
Three years’ service, EPS annual
compound growth of 1-7% over
RPI over those three years and
average annual ROCE of 19-21.5%
over those three years
10 years
10 years
10 years
April 2015
All employees
818p
391,979
Three years’ service
3.5 years
Greggs plc Annual Report and Accounts 2015
95
Strategic ReportDirectors’ ReportAccounts Notes to the consolidated accounts continued
21. Employee benefits continued
Share-based payments – Group and Parent Company continued
The number and weighted average exercise price of share options is as follows:
Outstanding at the beginning of the year
Lapsed during the year
Exercised during the year
Granted during the year
Outstanding at the end of the year
Exercisable at the end of the year
2015
Weighted
average
exercise price
369p
291p
401p
749p
446p
365p
Number of
options
4,333,526
(257,187)
(882,263)
839,483
4,033,559
331,380
2014
Weighted
average
exercise price
382p
406p
404p
391p
369p
384p
Number of
options
5,155,631
(1,151,544)
(1,264,132)
1,593,571
4,333,526
640,812
The options outstanding at 2 January 2016 have an exercise price in the range of £nil to £10.56 and have a weighted average
contractual life of 5.2 years. The options exercised during the year had a weighted average market value of £11.38 (2014: £5.33).
The fair value of services received in return for share options granted is measured by reference to the fair value of share options
granted. The estimate of the fair value of the services received is measured based on the Black-Scholes model for all Savings
Related Share Option Schemes and Executive Share Option Schemes and for Performance Share Plan options granted from 2014
onwards. The Monte Carlo option pricing model was used for Performance Share Plans granted prior to 2014. The fair value per
option granted and the assumptions used in these calculations are as follows:
2015
2014
Performance
Share Plan 6
March 2015
Executive
Share
Option
Scheme 18
March 2015
Executive
Share
Option
Scheme 18a
March 2015
Savings
Related
Share
Option
Scheme 16
April 2015
Performance
Share Plan 5
March 2014
Recruitment
share award
February
2014
Executive
Share
Option
Scheme 17
April 2014
Savings
Related
Share
Option
Scheme 15
April 2014
971p
140p
145p
230p
443p
499p
48p
68p
1035p
nil
23.9%
3 years
2.13%
0.69%
1022p
1022p
23.9%
3 years
2.15%
0.64%
1056p
1056p
23.8%
3 years
2.08%
0.69%
818p
1023p
23.9%
3 years
2.15%
0.76%
498p
nil
20.6%
3 years
3.92%
1.07%
499p
nil
–
2 years
–
–
500p
500p
20.6%
3 years
3.92%
1.07%
517p
465p
20.7%
3 years
3.92%
1.07%
Fair value at grant date
Share price
Exercise price
Expected volatility
Option life
Expected dividend yield
Risk-free rate
The expected volatility is based on historical volatility, adjusted for any expected changes to future volatility due to publicly
available information. The historical volatility is calculated using a weekly rolling share price for the three-year period immediately
prior to the option grant date.
The costs charged to the income statement relating to share-based payments were as follows:
2015
£’000
–
91
1,573
1,321
677
3,662
2014
£’000
(453)
(38)
524
496
–
529
Share options granted in 2011
Share options granted in 2012
Share options granted in 2013
Share options granted in 2014
Share options granted in 2015
Total expense recognised as employee costs
96
Greggs plc Annual Report and Accounts 2015
22. Provisions
Balance at start of year
Additional provision in the year
Utilised in year
Provisions reversed during the year
Balance at end of year
Included in current liabilities
Included in non-current liabilities
2015
Dilapidations
£’000
2015
Onerous leases
£’000
3,456
1,422
(1,135)
(400)
3,343
2,632
711
3,343
3,155
581
(1,059)
(388)
2,289
1,043
1,246
2,289
Group and Parent Company
2015
Total
£’000
6,611
2,003
(2,194)
(788)
5,632
3,675
1,957
5,632
2014
Dilapidations
£’000
2014
Onerous leases
£’000
1,689
3,330
(1,249)
(314)
3,456
2,474
982
3,456
3,672
1,232
(1,369)
(380)
3,155
1,635
1,520
3,155
2014
Total
£’000
5,361
4,562
(2,618)
(694)
6,611
4,109
2,502
6,611
Provisions relate to onerous leases, dilapidations and other commitments associated with properties. Included within the provision
is £704,000 in respect of possible recourse on leases which have been conditionally assigned.
The provision for onerous leases is held in respect of leasehold properties for which the Group is liable to fulfil rent and other
property commitments for shops from which either the Group no longer trades or for which future trading cash flows are
projected to be insufficient to cover these costs. Amounts have been provided for the shortfall between projected cashflows and
property costs up to the lease expiry date or other appropriate estimated date. The majority of this provision is expected to be
utilised within four years such that the impact of discounting would not be material.
The Group provides for property dilapidations, where appropriate, based on estimated costs of the dilapidation repairs.
£2,078,000 of the additional provision made in the prior year in respect of dilapidations was exceptional and relates to the
dilapidation costs arising from the removal of in-store bakeries from shops as described in Note 4. £555,000 of this is expected
to be utilised after more than one year. The remainder of the dilapidations provision is expected to be utilised within one year.
The provisions reversed or utilised during the year do not contain any items that were included as exceptional costs in the
prior year.
23. Capital and reserves
Share capital
In issue and fully paid at start and end of year – ordinary shares of 2p
Ordinary shares
2015
Number
2014
Number
101,155,901
101,155,901
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per
share at meetings of the Company.
Capital redemption reserve
The capital redemption reserve relates to the nominal value of issued share capital bought back by the Company and cancelled.
Own shares held
Deducted from retained earnings is £13,998,000 (2014: £6,750,000) 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 857,882 shares
(2014: 805,034 shares) with a market value at 2 January 2016 of £11,273,000 (2014: £5,841,000) which have not vested
unconditionally in employees. During the year the Trust purchased 940,687 shares for an aggregate consideration of £11,125,000
and sold 887,839 shares for an aggregate consideration of £3,876,000.
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, Greggs Savings Related Share Option Scheme and Greggs Performance Share Plan
or by the trustees of the Greggs Employee Share Scheme. The trustees have elected to waive the dividends payable on
these shares.
Greggs plc Annual Report and Accounts 2015
97
Strategic ReportDirectors’ ReportAccounts Notes to the consolidated accounts continued
23. Capital and reserves continued
Dividends
The following tables analyse dividends when paid and the year to which they relate:
2013 final dividend
2014 interim dividend
2014 final dividend
2015 interim dividend
2015 special dividend
2015
Per share
pence
2014
Per share
pence
–
–
16.0p
7.4p
20.0p
43.4p
13.5p
6.0p
–
–
–
19.5p
The proposed final dividend in respect of 2015 amounts to 21.2 pence per share (£21,264,000). This proposed dividend is subject
to approval at the Annual General Meeting and has not been included as a liability in these accounts.
2013 final dividend
2014 interim dividend
2014 final dividend
2015 interim dividend
2015 special dividend
2015
£’000
–
–
16,090
7,463
20,161
43,714
2014
£’000
13,530
6,040
–
–
–
19,570
24. Operating leases
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
2015
Property
£’000
2015
Equipment
£’000
2015
Total
£’000
2014
Property
£’000
2014
Equipment
£’000
36,136
73,881
13,443
1,928
2,588
–
38,064
76,469
13,443
36,887
73,630
12,210
2,031
3,048
247
2014
Total
£’000
38,918
76,678
12,457
123,460
4,516
127,976
122,727
5,326
128,053
The Group leases the majority of its shops under operating leases. The leases typically run for a period of ten years, with an option to
renew the lease after that date. Lease payments are generally increased every five years to reflect market rentals. For a small number
of the leases the rental is contingent on the level of turnover achieved in the relevant unit; these amounts are immaterial.
The inception of the shop leases has taken place over a long period of time and many date back a significant number of years.
They are combined leases of land and buildings. It is not possible to obtain a reliable estimate of the split of the fair values of the
lease interest between land and buildings at inception. Therefore, in determining lease classification the Group evaluated whether
both parts are clearly an operating lease or a finance lease. Firstly, title does not pass for the land or buildings. Secondly, because
the rent paid to the landlord for the buildings is increased to market rent at regular intervals, and the Group does not participate
in the residual value of the land or buildings it is judged that substantially all the risks and rewards of the land and buildings are
with the landlord. Based on these qualitative factors it is concluded that the leases are operating leases.
98
Greggs plc Annual Report and Accounts 2015
25. Capital commitments
During the year ended 2 January 2016, the Group entered into contracts to purchase property, plant and equipment and
intangible assets for £2,010,000 (2014: £6,454,000). These commitments are expected to be settled in the following financial year.
26. Related parties
Identity of related parties
The Group has a related party relationship with its subsidiaries (see Note 12) and its Directors and executive officers.
Trading transactions with subsidiaries – Group
There have been no transactions between the Company and its subsidiaries or associates during the year (2014: £nil).
Trading transactions with subsidiaries – Parent Company
Dormant subsidiaries
Amounts owed to
related parties
Amounts owed by
related parties
2015
£’000
7,807
2014
£’000
7,807
2015
£’000
–
2014
£’000
–
The Greggs Foundation is also a related party and during the year the Company made a donation to the Greggs Foundation
of £700,000 (2014: £520,000).
Transactions with key management personnel
The Directors are the key management personnel of the Group. The Company has been notified of the following interests of the
Directors who served during the year (including those of their connected persons but excluding interests in shares pursuant to
unexercised share options) in the share capital of the Company as follows:
Roger Whiteside
Richard Hutton
Raymond Reynolds
Ian Durant (Non-Executive)
Allison Kirkby (Non-Executive)
Helena Ganczakowski (Non-Executive)
Peter McPhillips (Non-Executive)
Sandra Turner (Non-Executive)
Ordinary shares of 2p
(beneficial interest)
2015
(or date of
cessation
if earlier)
2014
(or date of
appointment
if later)
75,998
77,923
59,244
11,700
1,600
1,000
500
1,000
72,253
55,787
53,224
11,700
1,600
1,000
–
–
Ordinary shares of 2p
(Trustee holding with no
beneficial interest)
2015
(or date of
cessation
if earlier)
–
400,000
–
–
–
–
–
–
2014
(or date of
appointment
if later)
–
600,000
–
–
–
–
–
–
Details of Directors’ share options, emoluments, pension benefits and other non-cash benefits can be found in the Directors’
Remuneration report on pages 49 to 65. Summary information on remuneration of key management personnel is included in
Note 5.
There have been no changes since 2 January 2016 in the Directors’ interests noted above.
27. Events after the reporting period
As noted in the Chief Executive’s report on page 19 the Group has completed a detailed review of its manufacturing and
distribution operations. As a result of this, subsequent to the year end, the Board has agreed a proposal to invest substantially
to reshape its supply chain over the next five years, which includes the proposed closure of three bakery sites. Alongside an
increased level of capital expenditure the proposals would lead to one-off costs of around £7 million in 2016, of which £6 million
would be a cash cost. No liability for costs arising from this plan has been recognised in these accounts in accordance with IAS 10.
Greggs plc Annual Report and Accounts 2015
99
Strategic ReportDirectors’ ReportAccounts Ten-year history
Turnover (£’m)
Total sales growth (%)
550.8
3.3%
586.3
6.4%
628.2
7.1%
658.2
4.8%
662.3
0.6%
2006
2007
2008
20091
20101
2011
701.1
5.8%
2012
(as restated)3
2014
(as restated)1,4
2013
734.5
762.4
4.8%
3.8%
806.1
5.7%
20151
835.7
3.7%
Company-managed shop
like-for-like sales growth (%)
Earnings before interest
and tax (EBIT) excluding
exceptional items (£’m)
EBIT margin excluding
exceptional items (%)
Exceptional (charge)/credit
(£’m)
Profit on ordinary activities
including exceptional items
and before tax (£’m)
Diluted earnings per share
excluding exceptional
items (pence)4
Dividend per share (pence)2
Total shareholder return (%)
Capital expenditure (£’m)
0.5%
5.3%
4.4%
0.8%
0.2%
1.4%
(2.7%)
(0.8%)
4.5%
4.7%
42.2
47.7
44.3
48.4
52.4
53.0
51.3
41.5
58.1
73.1
7.7%
8.1%
7.1%
7.4%
7.9%
7.6%
7.0%
5.4%
7.2%
8.7%
(3.5)
2.2
4.3
–
–
7.4
1.4
(8.1)
(8.5)
–
40.2
51.1
49.5
48.8
52.5
60.5
52.4
33.2
49.7
73.0
26.2
11.6
(5%)
30.0
32.0
14.0
12%
42.3
30.6
14.9
(22%)
40.8
34.0
16.6
29%
37.3
18.2
11%
38.8
19.3
13%
30.3
45.6
59.1
38.3
19.5
(6%)
46.9
30.6
19.5
1%
43.4
22.0
70%
47.6
48.9
55.8
48.65
87.1%
71.7
Return on capital employed
23.1%
29.6%
26.2%
25.9%
25.9%
24.4%
21.3%
16.4%
22.4%
26.8%
Number of shops in
operation at year end
1,336
1,368
1,409
1,419
1,487
1,571
1,671
1,671
1,650
1,698
1. 2009 and 2014 were 53 week years, impacting on total sales growth for that year and the year immediately following.
2. All years prior to 2009 adjusted to take account of the ten for one share split which took place during 2009.
3. Restated following the adoption of IAS 19 (Revised).
4. Restated to include revenue in respect of franchise fit-out costs.
5.
Includes a special dividend of 20p.
100
Greggs plc Annual Report and Accounts 2015
Financial calendar
Announcement of results and dividends
Half year
Full year
Early August
Early March
Dividends
Interim
Final
Mid-October
20 May 2016
Annual report posted to shareholders
Annual General Meeting
Late March
10 May 2016
Secretary and advisers
Secretary
Jonathan D Jowett, LL.M. Solicitor
Registered office*
Fernwood House
Clayton Road
Jesmond
Newcastle upon Tyne
NE2 1TL
Registered number
502851
Bankers
National Westminster Bank Plc
149 High Street
Gosforth
Newcastle upon Tyne
NE3 1HA
Auditors
KPMG LLP
Quayside House
110 Quayside
Newcastle upon Tyne
NE1 3DX
Stockbrokers
UBS
1 Finsbury Avenue
London
EC2M 2PA
Nplus1 Singer LLP
Time Central
32 Gallowgate
Newcastle upon Tyne
NE1 4SR
* with effect from 16 April 2016 the Registered Office will be:
Greggs House
Quorum Business Park
Newcastle upon Tyne
NE12 8BU
Solicitors
Muckle LLP
Time Central
32 Gallowgate
Newcastle upon Tyne
NE1 4BF
Registrars
Capita Asset Services
Bourne House
34 Beckenham Road
Beckenham
Kent
BR3 4TU
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Greggs plc
Company Registered Number 502851
greggs.co.uk