Greggs is to make £45m of capital expenditure in 2018 as it continues the consolidation of its manufacturing and logistics operations.
The business said this would be a record year of investment as it announced a 7.4% year-on-year increase in total sales to £960m in the 12 months to 30 December 2017.
Underlying operating profit, excluding property profits and exceptional items, rose 4.6% to £817m, although pre-tax profit fell 4.3% to £71.9m.
Food ingredient and labour cost hikes – plus a slowdown in consumer disposable income growth - took a toll on Greggs’ margins, although the company said productivity improvements mitigated some of the pressure. Operating margin including exceptional items fell from 8.4% in 2016 to 7.5% in 2017.
The exceptional items included the continuation of Greggs’ transformation of its supply chain, which kicked off in 2016 and is due to end in 2020. While Greggs said the move is creating thousands of roles in retail and distribution operations, it has meant the loss of manufacturing jobs.
“We have been able to agree a way forward on a basis of voluntary redundancy in the majority of cases,” stated the company.
Last year’s activity included the relocation of yum yum manufacturing to its Glasgow site, which was expanded to consolidate distribution activity in Scotland following the closure of the Edinburgh bakery. Greggs also consolidated manufacturing of small cakes and muffins at its Leeds bakery and relocated pizza manufacturing to its Manchester site.
In the coming year, the business will develop a ‘centre of excellence’ for doughnuts at its Gosforth Park bakery.
As previously stated, Greggs is also planning to accelerate its shop growth, aiming to add 110 to 130 net new shops in the 2018, increasing its presence in travel, leisure and work-centred locations.
The company said the start of this year had been encouraging, with like-for-like sales through company-managed shops up 3.2% in the eight weeks to 24 February, and total sales are up 6.2%.
“In 2017 we delivered another strong performance in challenging economic circumstances as rising inflation impacted both our own costs and customers’ disposable income,” said chief executive Roger Whiteside. “At the same time, we continued to make good progress with our business transformation programme, investing in new systems and processes as well as increased capacity and efficiency in our supply chain.
“We are successfully developing our product offer to meet customer needs and investing in improved customer service, in addition to accelerating growth in shop numbers.”
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