Greggs PLC

LSE:GRG

Earnings Call Transcript 2018-Q4

[Roger Whiteside, CEO & Director]

Good morning, everybody. Thank you for joining us this morning. We're going to follow the usual format, for those of you who've been before. So in a moment, I'll hand over to Richard, who will take us through the financial results in more detail. Then, I'll do the strategic progress update, as we normally do, before we then go on to talk about current trading and taking questions as usual.So just before I get -- hand over to Richard, the highlights. 2018 was -- proved a testing year for us. It tested the resilience of the model and showed that all of the investments we've been making over the past few years are starting to pay dividends.The first half was very significantly impacted, as you know, by the weather. But despite that, the fact that we've been investing in food-on-the-go, the customer experience, new shop locations and everything else that we've been up to, that we managed to maintain positive sales even through that period and then have a very much stronger second half.So total sales were up 7.2%. We broke through the billion pound mark for the first time. Took us 80 years to get there, slightly longer than Kylie Jenner, but we got there eventually. And sales are up 2.9% in the like-for-like sense. And that tale, as I said, of 2 halves Richard will talk about -- talk us through later.So operating profits, up to another record, up 9.1%. So this is operating profit excluding property profits and exceptional items, to GBP 89.1 million. And of course, we remain strongly cash generative, so we're able to support our investment program and strong shareholder returns.The ordinary dividend is up, consistent with the policy that I think you're all familiar with. But because of our cash position, we currently expect to declare a special dividend with our interim results in the summer. And then, unless you've been living in a cave somewhere, you may have noticed we've started the year rather strongly. So like-for-like sales, so far, up 9.6% in the first 7 weeks is what we reported to the city a couple of weeks back.While all that's been going on, of course, we've still been making very good progress with the transformation investment program, which has created an upheaval, especially in our supply chain and systems. And I'll review that in a few moments. But for now, I'm just going to hand back to Richard.

[Richard John Hutton, Finance Director & Executive Director]

Thanks, Roger. I just realized you just stumbled over what the headline should have been, "investment pays dividends." That would have been the headline, damn. Anyway, strong performance will do.So I'm just going to walk you through what that means and give you some of the numbers. So just headlines from the increment expenditure, okay? First time we've been through GBP 1 billion. I know it's just a number, but I think, internally, that's something we're all quite proud of about being a GBP 1 billion business. Sales to get to that were up 7.2% year-on-year, and the profit that followed, both at the operating and the EBIT level, was up 9%.You can see we had a continuation of the restructuring of exceptional charges that we've been taking you through as part of this major investment program. So GBP 7.2 million exceptional charge, less than the GBP 10 million we had last year. And I'll give you more of the detail on that in just a moment.So we start by focusing on the sales line. Like-for-like sales, this is -- has been quite an extraordinary year if you look at the chart on Page 6. You can see the pattern.So if I take you back to this time last year, of course, we were just all recovering from the Beast From the East, the snow. We started that year quite well, but got absolutely hammered last week last year, and you can see the damage it did to quarter 1. And then right through Easter, the weather was terrible, the whole -- it wasn't just us. Everybody was finding things really, really slow. So we got to the halfway point in the year, we'd only have 1.5% like-for-like growth.And you can see then what happened, I mean we -- if anything, things were still being held back at the end of quarter 2, start of quarter 3 because we had the heat wave. And actually, I think we performed quite resiliently through that, but it did hold back sales of the things that we make ourselves, which was difficult for us. But really, from August onwards, it started to bounce back quite strongly. And you can see we've already reported that in quarter 4 we turned in like-for-like growth of 5.2%, so a very strong finish to the year. So it's very much a year of 2 halves, 4.2% in the second half, compared with that 1.5% in H1.And as Roger has already indicated, we've come out strongly into this year. So we already had good momentum coming out of Christmas. And clearly, for reasons we will explain later, we've gone very strongly into the first 7 weeks of this year.A few people asked me why haven't you updated that to give us the first 9 weeks. We could have done -- we think it would have been misleading. The reality is week 10 was very much in line with that trend. Week -- sorry, week 8 was in line with that trend. Week 10 -- week 9, sorry, would have been ridiculous because it compares with the Beast From the East last year, so we had a ridiculously high like-for-like figure that just would not fit into my chart last week. So slightly misleading, which is why we've stuck with the guidance for weeks 1 to 7, which we think is more representative.Okay. Moving on then to the structure of the P&L. We had a fairly stable gross margin year-on-year. So in order to achieve that, of course, we had to recover some quite significant cost pressures on the ingredients side in particular, but we have gotten benefit of some of the manufacturing consolidation from the change program starting to come through in that line.The flip side of that is in distribution and selling. We're now sort of seeing some of the increasing costs on the distribution side of the business because this is a trade-off between manufacturing costs reducing, but having to invest in greater distribution at the same time, and the phasing of that is interesting over this year and last year.On the admin expenses line, given the start we've had the -- we did hold the overheads fairly tight, and so with 7% sales, you get quite a strong operational sort of gearing effect there. So overall, EBIT margin was just slightly ahead of last year, which I wouldn't have bet on that at the half year point last year, so it was a very good recovery in the second half.Just to talk you through the bridge that takes you from year-to-year in profit terms, so we're now on Slide 8. The cost inflation headwinds that we faced was about GBP 28 million. So effectively, that's what you've got to recover through your like-for-like sales growth and through efficiencies. And you can see that we recovered most of that through the 2.9% like-for-like growth that we had on company-managed shops, but also some growth on franchise estate and a very small amount in our wholesale business.Cost savings drove GBP 7.4 million of efficiencies during the year, so that partially recovered the remaining cost inflation, but also moved profits ahead slightly as well. And then the contribution from growth in our estate of both company-managed and franchise shops delivered the rest of the increase. So that's the pattern of movement year-to-year.The exceptional charges that I mentioned earlier, although it was GBP 7.2 million, only GBP 6 million of that related to the supply chain change program. We had a real one-off really, which relates to -- this is something you'll see across a lot of companies, guaranteed minimum pension equalization. So this relates to a case in the High Court in October with Lloyds Banking Group, where we now have to go back to pensions which were earned -- accrued back in the 1990s and make sure that we have equalized the guaranteed minimum pensions for men and women.The actuaries estimate of the cost of that is GBP 1.7 million, and we've booked that as an exceptional, which I think, talking to the audience, is everybody is doing because it relates to ancient history and is generally a one-off. And there was a little bit of release from some property provisions in the past. So a net position of GBP 7.2 million.I'll also won't dwell too long on it. I've laid out on Slide 10 the phasing of the charges we expect on the supply chain program. So you can see we're still expecting that the cash exceptional will be about GBP 25 million over the program, closer to GBP 30 million once you include the non-asset-related charges.You can see there the phasing of what we expect going forward. So the charges now, we're over the peak of this, with about GBP 4 million this year and another GBP 2 million the year after expected.In cash terms, there's more going out this year and next year, and that's the phasing of the voluntary redundancy payments that we'll be making, which have been provided for in the earlier years.So pretty much in line with guidance and the updated view in terms of when the benefits of these come through. So if you remember, the premise of this is about creating additional capacity for growth, but at the same time, that net reduction in the cost of supplying each shop should contribute about GBP 7 million net of depreciation to the P&L.And as a guide, we've got about GBP 3 million of that by the end of 2018. We expect the other GBP 4 million to fall across 2020, '21. Shouldn't see anything this year because we're investing in the logistics capacity ahead of delivering the manufacturing benefits.Turning then to the cost base and what's been happening there. The pie chart shows you the makeup of the cost base. The green area there represents our ingredient and packaging costs. And we've had about 3% inflation in the ingredient area in 2018. It was weighted towards the first half, so it was an improving trend. We exited the year with a relatively low level of inflation.The opposite was true on energy, where energy costs picked up in the second half, and we're carrying that through the first half of this year. It's a double-digit rate of increase on energy, which is a smaller commodity for us anyway. It's about 4% of the overall cost dynamic.We've been buying into what we believe is an improving market in inflationary terms, and so we've extended our forward cover on contracted prices to about 6 months. Usually, we run for 6 months. We're at the kind of higher end of that at the moment. So that means we've got agreed sterling prices with our suppliers for about 6 months' worth of our ingredient and energy costs. So that's okay in terms of contracted positions.But the other aspect of this is physical stock, which is a concern over the coming weeks and months, obviously, with the potential disruption that we could see if there is a hard Brexit. So we've taken the view that we will carry more stock where possible to give us some insulation against that. So we spent GBP 2.7 million building stocks, where we can, of things that can be stock-built, so typically frozen stocks of key ingredients, to give us some protection if there is to be a disruption to the flow of goods into the U.K.Now we've done that ahead of April, whether that's right or not, we don't know. If the whole thing gets deferred, then we're going to have to roll that position, but we think that was a sensible thing to do.You can only do it so much. So we haven't been able to do that on fresh produce, so that's probably the key exposure that would affect us if there's disruption. Salads, items, fresh onions, those sorts of things. All those sort of things typically come from Spain at this time of the year, so there's not much you can do about that. You get into then, I think, questions about recipe reformulation and that sort of thing. But for some of our core products, where we've got key inputs, we have built some stock.And looking forward at the year ahead, we're expecting the food and energy cost area we'll see about 2% to 3% overall inflation in 2019.People costs. There, we saw a 3.6% inflation last year and then an additional GBP 2 million relating to pensions costs. We're expecting that to be slightly more inflationary in the year ahead. Wage settlements are coming in higher than they have been, and the living wage is going to go up by 4.9% in April. So we're expecting that our base sort of wage and salary inflation, rolling all that together, is going to be about just over 4% in 2019. And the auto enrollment cost that come from April will add in the calendar year GBP 3.3 million extra for pensions costs. So slightly less food inflation next year. Slightly more wage and salary inflation.And then in the rents and shop occupancy costs, we continue to see very good rent reductions in traditional locations, high streets, those areas where we're renegotiating leases. And typically, the areas we're going into, we've not come around to rent reviews on those. We would expect those to be more robust when they come around, but the average we're seeing in terms of new rents is about GBP 40,000 a year in terms of the rent costs. That's higher than the average in the estate. The traditional estate, the average is GBP 33,000. So you can see we're taking slightly bigger shops or shops with higher rents. And it is skewed by some of these very high-profile openings we've had, for example, in some of the railway stations.Rolling on then. The tax charge is slightly down year-on-year, helped by the release of some provisions on settlement of previous year tax comps. The underlying EPS you can see is up just over 10% on a diluted and a basic basis. And so we've put up the ordinary dividend by the same amount, so 10.5% growth in the ordinary dividend.And just to remind you of our policy on dividends, when we come to interim stage, we'll pay out 1/3 of that just in a formulaic way. When it comes to full year, we're looking for 2x earnings cover. So that's why it's grown broadly in pace with earnings per share. And I'll come back to this later, of course. If we find ourselves with material surplus cash, which I think inarguably we have done, we would return that by way of a special dividend.Turning to the capital expenditure plan. We spent GBP 73 million investing in the business last year. If you look at the various lines, you can see that we are relatively consistent to the new shops and openings, which is understandable. I mean, if you look at the very bottom of the chart, you'll see that the number of new shops is relatively consistent. 87 in the year compared with 86 the year before, and we're expecting 90 in the year ahead. That's in terms of company-managed openings, where we're committing capital.Shop fitting costs are running very low at the moment, and this will be the lowest point in the cycle. So we're in a lull in the refit cycle having caught up with ourselves and converting bakery shops to food-on-the-go. We don't have to reinvest at this point, but that will increase, as you'll see on the next charts over the coming years. So we're only going to reinvest in 55 shops in the year ahead, so we're only spending that GBP 4 million on shop fitting.Shop equipment, we'll be spending a bit more there to support the plans we've got for growth categories. So investing in hot cabinets to boost our hot food sales. And also, coffee will be an important part of that. So we're investing in our fleet of coffee machines, as we call it.On the supply chain side, this will be a big year. We're continuing that consolidation of manufacturing. We're also building our latest distribution center down at Amesbury in Wiltshire. That's a GBP 12 million project, which will be complete at the end of this year. So big year for supply chain. And the rest of that, I think, is pretty much in line with what you'd expect. So we're expecting that GBP 90 million of CapEx next year.If I just roll that forward, on Slide 14, you can see where we are in the middle there, that GBP 90 million is right in the center of that chart. The profile of the capital plan is smooth rather. We were expecting a real sharp peak, but we spent less last year than we first expected to. Some of that is pushed into the years ahead. And we now expect that the overall CapEx will decline from the GBP 90 million level towards just over GBP 80 million by 2022.And you can see the contributors, too, there. If you look at the green segments, that's what we're spending on the supply chain. That will gradually step down as we complete this investment program. At the same time, this cyclical thing with the refits kicks in. So if you look at the numbers at the very bottom of this chart, you'll see we're doing around 55 refits this year. That will be close to 200 when we get to 2022. And therefore, the step up in the blue bar, which is the expenditure on the retail estate, is quite significant. So effectively, retail spend will be placing a decline in the supply chain, but we'll be in that GBP 90 million to GBP 80 million range, we think, in the 3 years looking forward. So I hope that helps you.A bit of new information, next, which is designed to try and help you understand the dynamic of adding franchise shops rather than company-managed shops, which I think is being slightly unclear. And because we don't segment them formally, we thought it will be helpful to sort of just play this out and just explain how it works.So if we open a company-managed shop, these -- the figures in these columns are the averages across the whole estate. So it's the average contribution from a company-managed shop, the average contribution from a franchised shop.In the company-managed estate, you can see we would average income at GBP 568,000. For the franchise, it's GBP 211,000. If you then step it down, you get a shop-level contribution, which is pure sort of shop EBITDA, if you like, and then an allocation support cost, which are relatively direct in that they do vary with shop numbers. So there would be things like supporting shop growth with regional management and that sort of thing or safety auditing, that sort -- the sort of thing that flexes with shop numbers.So you get a shop contribution net of, what I call, direct support costs, beyond which there is still corporate overheads to add. And you can see GBP 84,000 a year from a company-managed shop and GBP 26,000 from a franchised shop. So that helps you to kind of model up the contribution that comes from those.If you think about it in return of capital terms, then, there's obviously a lot more investment to open a shop ourselves. So we'd spend a couple hundred thousand pounds on fitting the shop out and roughly GBP 80,000 in the long-term supporting that shop with our own supply chain, but we get a working capital inflow from the fact that we take cash on accounts and we obviously pay our suppliers on terms.Slightly different with franchise model. No capital in the shop. Again, it takes up a slot in the supply chain, so it's similar demand for supply chain capital. And there's a slight working capital drag because, of course, we're not getting the cash over the counter. We're waiting to get it from our franchise partners. So there's a different dynamic on working capital. So you can see the differences.And when you work it through, compared with our 25% target for shop returns, they both clear out quite nicely. Obviously, we get a stronger return where we're opening shops in our own names than we do with franchise partners, but both are acceptable.Obviously, we'd love to be opening these ourselves, but the reality is to get into some of these franchise locations, we have to work with partners, and that works well. So I hope that's helpful.Coming to the end now, the cash flow balance sheet position. So we had a very strong cash inflow, GBP 136 million in the year. That's enabled us to do all of this investment program, pay the ordinary dividends and fund the exceptional costs.At the end of the year, we're carrying a cash position of GBP 88 million, which is clearly above where it would normally be. About GBP 10 million of that relates to timing issues with working capital. So for example, we have a new energy supplier who is getting there billing together and we've carried that over into the new year and settled that. There are a few things like that, which would mean there's about GBP 10 million that swung over the year-end.Some of it reflects the delays to CapEx. So you've seen we've spent GBP 73 million, which was less than we've planned to. And some it is just the strength of performance as we came through the end of the year. So we did end the year with a stronger cash position than we had expected.Our target, as we've said before, is around about GBP 40 million of net cash at the end of the year. So looking forward, it's fairly clear that we've got a surplus position. We think that's not a bad place to be, given all the uncertainties in the world at the moment, so we're going to carry that through the first half.The half year is kind of the low point in the capital -- the working capital cycle, so what we've said is we'll come back at that point in July, and we'll tell you what we're going to do in terms of a special dividend. So you can assume that if nothing else comes up, there's a better opportunity. In the meantime, we'll be announcing a special return, which would go out with the interim dividend in October.The only other thing that's new news really this year, of course, is lease accounting. So I've got one slide on this. I did have 4, but I sent everybody in the room to sleep yesterday when I tried to present them. So they've insisted I cut it down to one. And the 4 slides are now in the appendix, which you can read at your leisure and I'll be very happy to talk you through. But the headlines for lease accounting, which are on Slide 17, first off, in terms of adopting this, remember this is an accounting change. It doesn't change the cash flows in the business. It doesn't change how we manage the business. It's how we present the accounts.We'll put an asset and the corresponding liability on the balance sheet, which reflects the right of use of our leased shops and company cars and those sort of things as well get caught by this, and there's a corresponding liability as well.The income statement will be affected because the way we charge the affected -- implied interest on the loan, if you like, in inverted commerce, is a bit like your own mortgage, weighted towards the front. So you get a higher charge in the earlier years and a lower charge in the later years, compared with the flat rent that we had before.And the first year that we'll be reporting on this is 2019. So at the half year, our results will reflect this. Our internal management accounts are already running on that basis, so we're already reporting under IFRS 16. And we won't be going back and restating 2018.So what you need to know is how much impact does that make. On the balance sheet, we'll be bringing on an estimated GBP 270 million of assets and liability. So that's the kind of the hidden debt, if you like, that comes with this. That's a lot higher than the figure that was traditionally disclosed as the sort of the leasing commitment because it goes beyond the break dates on these leases. So typically, our 10-year leases have a 5-year break. You ignore that for this lease accounting. And there are a few other assumptions in the appendix, which I can take you through, but GBP 270 million will be the balance sheet impact.In the P&L, profits will be reduced by GBP 4.2 million, and that's the net impact of this weighting of the interest charge towards the front end of the lease because we've put all these leases on as if they're all new leases with varying lease terms that we adopt -- transition adopt -- method we've adopted.So lots more in the appendix? Happy to take you through that, as you wish. Just to reinforce, there's no cash impact from this change. The appendix also gives you the profit impact in terms of the next couple of years, closer to GBP 5 million for 2020 and 2021.Okay. That's it for me for now, I'll hand you back over to Roger.

[Roger Whiteside, CEO & Director]

Right. So even though we cut that to one slide, we still lost the audience.So moving on then to the operational update for the business. I mean the strategic plan is one that I think you're all familiar with now. That hasn't changed, and we continue to make progress across all fronts, which I'll give a brief update on now.So great value tasting. Great tasting food is at the heart of it. And the strategy hasn't changed, the fundamentals of the strategy are that we want to protect and grow the marketing position we already occupy in our best-selling traditional bakery categories. If you like leveraging the heritage of our 80-years existence as a bakery business, whilst at the same time driving new reasons to visit Greggs by developing into growth areas.So breakfast is still a key part of that. It's still growing strongly in the marketplace, generally, and it's still the fastest-growing part of our day. So we're leaning into that by offering a wider range of breakfast options and including more of those breakfast options in the breakfast meal deal. And in that way, driving frequency visit from our most loyal customers.Awareness of the fact that we're more than bake and bap, and coffee is growing all the time. And things like fruit and yogurt and things like that are part of the menu repertoire that we now offer.We're starting to go beyond that now into hot-held, so you'll see things like fresh porridge appear and things like breakfast boxes, things that are familiar to London customers but aren't as readily available out in the provinces. And we're starting to get involved with that now at a bit -- obviously, at Greggs values, which is part of the appeal of making them more available nationwide.Strategically, it's particularly important because what it's done is diversify us in terms of demand patterns, so we're less reliant on general shopping missions. So even though shops that are still in high streets, which I'll come to later, they are trading now at times that people are out in those high streets not for shopping reasons but because they're going to work or they're traveling or whatever it is they're doing. That makes us more resilient in that sense, and it's also less sensitive to weather, we discovered. Obviously, Beast From the East is a different matter, though. General weather inclement, if you like, that people are coping with because they still need that coffee and breakfast in the morning, so that's good.Hot drinks is part of that. Obviously, coffee is a growing phenomena, still, and our reputation is growing all the time. So we have great quality, good value, good service. And we're starting to add to the repertoire. So our focus has been on best-selling coffee choices. So we're not going to have as wider choice of coffee as the coffee shops have, but we're going to sell the bestsellers. But the bestseller list is growing, and we've been successful in adding things like syrups, for example, which is extending the reach of our coffees to more customers, and we expect to keep doing that.Obviously, we're part of being concerned with the waste impact of coffee in terms of coffee cups. So reusable coffee cups is part of the repertoire as well. Offering a discount if you're using that, and encouraging people to go that way, of course, drives loyalties as well because those are the people that are drinking coffee every day.Dietary choice is the other area, which is, as you've seen from recent phenomena, an area that is of growing interest to customers. People realize that their few choices have an impact on health and has an impact on things like the environment. So things of that nature are becoming more important, and we're starting to play our role in that.We've always said we want to encourage healthier food choices alongside those traditional bakery favorites that we're seeking to protect. So right, that we've been widening the offer. So gluten-free is there, as you heard about before this year. Vegan-friendly is the latest addition to that. And Balanced Choice, preceded the 2 of those. So put all that together, people, if you're looking for lower calories, looking for gluten-free, looking for vegan or vegetarian, we're hoping to offer choice in those areas in good value, freshly prepared way, readily accessible because, obviously, we've got many 2,000 shops, hopefully, where most people are nowadays.So all of that is, we think, area for continued growth. We have an award-winning vegan-friendly Mexican bean wrap last year, which sort of has started us off in our vegan journey. And obviously, you've seen what's been happening with vegan-friendly sausage I'll come back to in a second.We're working with Public Health England, we're not hiding from this issue around the fact that we recognize it's an obesity challenging society. We've been reducing salt, fat and sugar for years. Sugar is the latest target. We've already taken 17% out of sugar in the last couple of years. And we're all -- so we're well on our way to the 20% by 2020 target the Public Health England has set. And we think all of that is all part of what we should be doing and trying to encourage people to eat more vegetables in their diet as part of Public Health England's ambition as well. We want to be part of that as well. So that's why we're getting involved in those sorts of things.And we still publish one view -- still publish all the calorie details and dietary information that people need to make informed choices. That's basically our position in that marketplace.Hot food is the other area. So hot food is still a key area of growth for us. People are wanting hot food as quick meal solutions. It's especially important for us on a strategic level because demand for cold sandwiches and traditional sweet bakery items start to peak by midafternoon. Thereafter, it's hot food that people want most. We've got hot sandwiches, we've had that for some while, and they are very successful. We're trying to broaden the repertoire again there.So we're busy now starting to roll out these hot self-serve cabinets, the ones you're familiar with, again, here in London. We've been playing with what might work in that unit for us, and we found solutions that seem to be very popular, like -- breakfast, I've mentioned, fresh porridge and protein pots and the rest. But at lunch, potato wedges, chicken goujons, pasta products, all these are showing there is demand for that type of product on-the-go. And those types of products and that capability takes you into maybe providing solutions that people are looking for in the evening, which is the day part, we believe, strategically offers opportunities later as we grow our reputation in that space.So plenty going on, on the food side. On the service side, so the customer experience side, it's absolutely moving so fast that we're really excited about the prospects that lie here.So fast and friendly service, absolutely critical to food-on-the-go. And it's not an easy thing to deliver, so our teams do a great job. We've been working with them with a program called The Greggs Way, trying to spread out best practice so that all of us do it the quickest way as well as being still investing in our personalities of our team so that they can continue to score highly for the friendliness of their service.But we're starting now to think about how we invest in other ways. One way we've already invested is in the investment of the systems. So systems in terms of central fulfillment are driving better availability and lower waste. That's part of what we've been seeking to do. And the environment is difficult because we sell, basically, daily sell out products in most places.But we've been doing trials in other areas. We're just starting to pay dividend. So click and collect is in trials in shops and the delivery service, working with both Uber and Deliveroo, have shown that there is demand for our products, even without revenue development that we intend in the future.So we want to roll those out, too. So we're just going to start rolling out click and collect across the country this year, and we'll start rolling out delivery service as well. And then as we move forward in the future, we intend to invest in our own capability to try and make sure we make that a seamless experience for customers linked to our Greggs Rewards scheme. That's basically the vision that we envisaged for that in the years ahead.We've always held back in the past few years of this program of change in Greggs. We've held back from the marketing end because we didn't feel we wanted to reach out to new customers at a point when we were still sort of still tidying up the operation, if you like.Now that we've got the shops broadly in the shape we want -- so you've seen the refit program is at its low ebb, we think Greggs has changed, and we want to try and invite people to reappraise the Greggs brand and, in that way, drive frequency from existing customers and start to attract new customers.So marketing has been part of that, and we've invested in a Customer Director. As you know she's here, Hannah, at the back of the room. And that has started to really make a difference, as you see. We've been improving in all areas. So it's not just what you see, but at the front end of it, the customer insight side of it. So we understand what's going on, what's driving customer choices. That through -- that comes through in terms of decision-making around product packaging, shop point of sale and the way that we communicate the brand.And the social media channels, clearly, are what we see as a way of playing a key role in driving that reappraisal, if you like, of the brand and the awareness of the brand. So the most -- the best example of that, of course, is the vegan-friendly sausage roll. And that just shows you what the scale of the impact can be if you get it right.So that was obviously a deliberate campaign, but it's obviously sent a massive impact in its time, but it comes on the back of a series of initiatives, which have all been building brand awareness over time and driving -- we can see in our own measurement of these things, visits to Greggs, and we're hoping reappraisal, therefore, of the Greggs brand and especially amongst the non-users.So we've got insight from our Greggs Rewards scheme, which is critical to this. But we've also worked with outside agencies to assess the extent to which we've been able to acquire new customers and the extent to which we're getting repeat purchase patterns for these types of products that we're hoping to attract these customers as well.So the metrics are quite interesting, I mean, 1 in 8 customers we think began buying the vegan roll are new to Greggs. So the question is will they stay with Greggs now that they've discovered that we do things like this, whereas in the past they may have thought, strange, why would Greggs get involved in something like that.And from the Greggs Rewards scheme, you can see the repeat -- those repeat purchase for these products. So we've already seen people are buying it again and again, and the most loyal customers are built into that menu of what they buy from Greggs, and they're claiming -- and proof of the pudding will be in the long run, I guess, that they are therefore coming more often because they've got more reasons to come because that's basically what we're trying to achieve.So the brand -- the line is popular as well as everything else. And the brand awareness is running at a 7-year high, and we need to try and obviously maintain that.But we're not a high-spend marketing brand. So some of the media have asked me what's the size of our marketing team. It's not much because most of our marketing activity is within the shop or just outside, if you like. What we don't do is spend in broadcast media and all those sorts of things, but we are able, we think, to strike up conversations with our Greggs brand followers within social media channels. And if some of those conversations turn out to be exciting, and they escape beyond our community into the wider community, in that way, we drive awareness for new followers. So that's really what the plan has been.So moving on then. Back to shops, because, at the end of the day, the #1 thing in food-on-the-go is convenient access. So if you're not conveniently located immediately where people are, then you will not get their business, and we've been busy in transforming this state, as you know, with seating and extended trading hours and, most importantly, looking for different location types, which is where you wouldn't put a bread shop in the past, as I keep saying. So those have been incredibly successful for us.And in 2018, we opened 149 new shops of that type. 62 of those were franchised units, and they're all in transport locations, obviously. We closed 50, and the 50 we closed are basically in the high street. So that's growing the estate. So the 19 of the 53. We'll pass through the 2,000-mark this year.And franchises are now up to 262 of them. So what's interesting about this past year is that we've started to strike out with more confidence into new areas. So really high-profile transport, whereas typically, before, we've shied away from the rental costs, have proved to be very successful.So Birmingham New Street station, Glasgow, Buchanan Bus Terminal, East Midlands Airport. And here, in London, Westminster underground. And then, very recently, London Bridge. And London Bridge has quickly become one of our busiest shops already. So that gives us the confidence to think about how we can move more quickly into that type of space as we grow, obviously, as a business, as we reach out to get to 2,500 shops, which is our medium-term target.The refurbishment program, Richard has already said, that's slowed down because we basically completed most of what we want to do in terms of transformation. So there were 89 last year, and it included 11 from the franchise partners because the franchise partners have come around in the cycle in terms of them having to refresh their own units. We've got that 62 this year, and then we'll get up to around about 200 in a couple -- in 3 years' time, as Richard has already outlined to you. So that's the plan as far as that's concerned.Shop opening, still, the pipeline is very strong. So we're confident about this year, 2019. We've got at least 100 net new shops this year, we think. About 50 of those will be franchised. So that's excess part of the 2,000, I've already said. And it's all -- again, in all these travel, leisure, work center catchments, not really in high streets, unless it's a completely new territory.So in strategic terms, again, set out the journey 5 years ago, 20% non-high street. We're now at 37% non-high street. As we look forward, we think that, that's -- that proportion is going to rise further, still.So this next slide tries to give you a sense of that because the quality of the estate is improving as we change its shape. And we recognize, obviously, the Internet was going to have a significant impact on footfall in the high street. We wanted to move away from the dependence on that where we had in the past.So 37%, as I've said. These non-high street shops, they, on average, are higher returns, they're better margins and they have stronger returns on capital. So they are improving the quality of the estate over time.And now as we project forward to the 2,500-mark, we actually think it's likely to be close to 60% non-high street, 40% high street, whereas we have been saying on route to this journey that we thought it was going to end up about 50-50. We're now beginning to think it will -- our better view is that we'll end up on that type of shape.So that's the front of house, if you like. Back of house is still where most of what we've been doing is going on. So we are right in the peak of supply chain changes. And it was -- 2018 was another very big year for that as we, obviously, consolidate manufacturing and then, at the same time, increase our logistics capacity to support the shop growth.When we get there, which will be mid-2021, we think, we're going to have the capacity we need then to complete the journey to 2,500 shops. And it's already starting to deliver improvements in product quality and in our competitiveness.So last year, just so you're aware of how much was achieved, we did consolidate donut base production, so we now make all donut bases at our Gosforth Park bakery in Newcastle.We transferred pizzas, so they are all made now at our Manchester site. And we also put our new roll plant into Manchester, so that was a major undertaking.The last of our bakery closures took place. We closed our little bakery we had in Norwich. And we made our center of excellence, as we call them, for fresh green products at Leeds. So some big achievements last year.The year ahead is just as busy. We've got to finish the consolidation program. So all the rest of the product will be consolidated through the course of this year. And we're going to start working on our next dedicated, brand-new DC for distribution, which obviously is in line with our desire to build capacity in logistics. So that's -- the spades already in the ground down at Amesbury in Wiltshire. That we -- we expect that to be complete this year, operational in 2020.And then the last thing left to be done we will be Birmingham. Birmingham is currently, still, producing and distributing. Birmingham will become a dedicated DC. So during 2020, we'll make that change. And then 2021, Birmingham will be operational as a dedicated distribution center.Whilst we're being on that journey, we've discovered another opportunity to increase efficiency. So quite a lot of what we're doing involves trunking frozen products around the country. We work with third-party suppliers for a lot of that. We've seen an opportunity to build an automated frozen facility of our own at Newcastle, bolted onto our sausage roll factory there, which gives very strong returns to shareholders. So that's a 2-year project, and it will reduce our reliance on third-party providers, which, again, is a good use of shareholder capital to gain good returns.So I always had this opportunity. I did last year, and I will again this year, especially, to make a special thank you to our supply chain teams. Because what they've been able to achieve, when you consider every bakery facility has been a building site, is to maintain levels of service, whilst we've been growing their business and all of that change is going on. That's an amazing achievement. And they just spent -- they deserve a special call out in terms of thanks for their ability to do that. It's been challenging, certainly.Investments go along -- systems go alongside that. So IT, there, there's light coming -- we can start to see light at the end of the tunnel. We've been at this for a few years now.2018 was big. We've put in some new systems around product ranging and pricing, human resources and property management, all integrated within SAP. We made progress with the preparations for the final steps, which are payroll rollout this year and the rollout of SAP across the supply chain solution, which goes in tandem with the manufacturing changes and logistics capacity that we're building.So it will still be there for the next couple of years, while we make those changes. But we can see light at the end of that tunnel. And of course, what's exciting is now is we can start to think about how those teams can deploy themselves to build our capability in the digital space because that's the area that we see as being a core competency of ours as we compete for future customers.And then lastly is an area, which I always spend too much time talking about. I try to cut it down, but there's so much great stuff that goes on here, and that's part of why the Greggs brand is successful. It's absolutely integral to the brand. So you'll forgive me, but I'm going to have to tell you about some of it. Otherwise, I'll feel that we've undersold ourselves.So we are a business that wants to be commercially successful, but we want to do it in a way that has a positive impact on people's lives. And we have these drivers that we seek to make progress with each year. And this healthier food-on-the-go choice is part of it.So we work with Public Health England, not against them, to make -- and we want customers to make good informed choices about what they eat. Balanced Choice was part of that, but these dietary choices now, like vegan and gluten-free, are all part of it as well. And we've been -- we're keen to keep going in that direction because we know that's where they want to go. We know that's actually where customers want to go.So it does come through in the end, as vegan sausage roll is showing. And reductions in salt, fat and sugar are all part of it so that people can make these choices and lead healthier lives at the same time. That's really important.But we also work at the other end of the scale. So the Greggs Foundation, that most of you are aware of, have been around for 30 years. We've got the Breakfast Club, as you know. We opened our 500th Breakfast Club, which is fantastic, but we've also wanted to work with those Breakfast Clubs, where we can, to see if we can reach further with those same children.We've started an initiative with the Premiership Rugby setup, where it's called Tackling Health. So these same kids are encouraged not just to be in the Breakfast Club, but to get light touch, let's say, education around making good food choices and exercise through tag rugby. It's really exciting.And if -- it will touch 30,000 people because we're going to do it across the country. And it's all part of this whole move around making healthier food choices over time so that people basically can lead healthier lives, so that's one thing.Then we care, obviously, where the products come from. So we've been working for Fairtrade -- with Fairtrade, I believe, over 30 years. And there's another little new initiative we've started with that, it's with an outfit called Shared Interest. It's a social lender. So these are people that have gathered members, 11,500 members across the U.K. They've got a collective investment pool of about GBP 40 million in share capital. And that money is pooled in order to try and provide access to funds for people who want to become Fairtrade suppliers. And we've -- I think we're the only one high-street company that invested in that particular initiative. We see it linked to -- as an extension to what we've been doing in Fairtrade. So again, we think it's exciting.Customers are really starting to care about animal welfare. So we set out on our journey a few years back. We're Tier 2 now in -- at farm animal welfare. We're amongst the leading companies in the world for our farm animal welfare standards. And the hurdles are getting tougher each year, and we're sticking with our rating.Other major competitors, far larger than us, are slipping back. That strategically is really important because that's all part of how customers are feeling about the food choices they're making. And it will, in the end, come through in the numbers around how people feel about us.And then last, the sharing, obviously -- it's not last, but sharing community, success with the community around us. That's something you know we've been doing for many, many years.Distributing unsold fresh food to local charities, literally hundreds of them. We've increased that tenfold in the last 5 years. And we still got a long way to go because it's not easy giving food away, especially in a world where you have to have good labeling around allergies and all those sort of things because that applies wherever you're serving that food, whether it's in a charitable arrangement or not.So -- and, obviously, our work with the Greggs Foundation and the Breakfast Club, I've already mentioned. The other area that customers are getting more and more bothered about, and rightly so, is the impact of commercial activities on the planet. The Blue Planet effect has been dramatic. So plastic is public enemy #1, and we're after it. So we've been doing tests with shop -- in certain shops around replacing all single-use plastics with an alternative.Often, the alternative is not as good, but it doesn't matter. That compromise is worthy in order to get rid of the single-use plastic. So we are going to be rolling that out this year. That will get rid of, just in Greggs alone, over 300 tons of plastic a year. Just things like forks and remaining few people that's still buying plastic bags and those things are all going to be removed from the environment because we're not going to be participating anymore in that problem in that way.And then lastly, it's creating a great place to work at Greggs, and it's absolutely critical to our success. That's one of the things we've worried about most as we've made these changes that we would somehow lose that magic.And the best barometer we have for that is the employee survey that we do each year. And that tells us that, for the last year, we had an -- engagement score actually went up to 82%. So we're still sector-leading in our engagement scores. And so people are still happy working for Greggs even though Greggs has gone through enormous change in recent years.Part of that whole ethos, if you like, is wrapped up in the way we remunerate people, and that involves sharing profit. So 10% of the profits every year are shared, which means we're up to another record now. So GBP 10 million will be shared for last year's result of our performance. So that's still all well preserved, and we hope will be for a long time in the future.So then just to end on the outlook. Obviously, the greatest uncertainty that lies ahead of us right now is the European exit and quite what it means for us. There are 4 things that concern us. Richard has touched on some of them.One is disruption at the border. If there's disruption at the border, how do we get our lettuce and tomatoes? That's basically the problem, and we've got contingency plans to deal with that.What's going to happen in tariffs, no one will tell us. If tariffs do come, then we will have to decide can we mitigate them in some way or can we in some way pass them onto customers? Obviously, we'll be in the same boat as everybody else.Third is, if that happens, then what happens to the price of the pound? So the price -- if the pound devalues again and everything goes up again, it's another inflationary pressure that we'll need to contend with and decide how do we deal with that and what impact does it have on profit versus pricing.And then lastly, what is the combination of all of that mean for consumer demand? And if consumer demand suffers from it, then, obviously, that's not good. But then, in that environment, Greggs is a value brand that has shown over time that we're obviously one of the more resilient brands faced with those circumstances.So it's not life-threatening, but it's -- these are all -- these 4 things we could do without. We've got good momentum in the business, as you've seen so far. So like-for-like sales are strongest I've known in Greggs' -- in fact, I've known in pretty much my entire life, I think. So that's great, and we want to build on that momentum. And we've got soft comparators, as you've seen, for the first half, so we should have good confidence about the first half. But obviously, we come up against our stronger comparators in the second half, so that's more difficult to predict.While that's going on, of course, as you saw it already, we've got all of these changes still to accomplish in manufacturing and supply chain, logistics and systems. So still plenty to keep us occupied, but we're in a very strong financial position to invest and carry on supporting that investment and, obviously, deliver good returns to shareholders.So that's it, I shall stop at that point. Thank you very much for coming.