Financial Planning in

Uncertain Economic Times

DUNCAN SMITH

Head of Finance

Contents

The Greggs Story Business Structure The High Street Financial Planning Challenges Summary Questions

2

The Greggs Story

Bakery Heritage 1930s Bike delivery – yeast, eggs, flour 1951 First shop in Newcastle 1960s Bakery, vans and shop expansion 1970s Scotland, North West and Yorkshire 1984 Business floated on Stock Exchange 1980s Midlands, Wales and the South East

Acquired Bakers Oven 1990s Cumbria and savoury plant. Re-

branded Greggs 2009 Business Centralisation

4

The Business Today

1,500+ shops – high street and ‘smart’ 19,000 employees 10 regional bakeries 375 delivery vehicles Central savoury plant 2 distribution centres 6 million customers / week Turnover £662m, PBT £52m (2010)

5

Product Focus

Bakery - making and baking Bread and cakes in early days Supermarket strength Growth of FOTG Growth of hot and cold drinks 2011 - coffee, breakfast, hot sandwiches

6

Changing Sales Mix

7

8The 1960s

9The 1980s

10The 1980s

11

Today

University

Petrol Filling Station

Business Structure

Structure & Planning 1,500 shops->150 area managers->30 regional

managers ->7 heads of retail->retail director=> Multi tiered, week by week plan Hundreds of SKUs->30 sub categories->5 categories=> Multi tiered category forecast & margins 10 bakeries, 3 production plants and 2 distribution

centres=> Supply chain a series of cost centres Overhead costs at head office and across the country=> Top down v bottom up

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Structure Challenges

Vertical Integration – 1 P&L Structural Complexities 2 views of sales Large quantity of data Manufacturing

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The High Street

Like-for-like sales: % change year-on-year

-8

-6

-4

-2

0

2

4

6

8

D J2009

F M A M J J A S O N D J2010

F M A M J J A S O N D J2011

F M A

% c

ha

nge

on

a y

ear

ag

o

3-months ended:

Non-food

Food

All sales

Source: BRC-KPMG RSM (food & drink data from IGD)

Footfall – town centres & retail parks

Inflation - CPI 4.5%, RPI 5.2%

Annual inflation rates - 12 month percentage change

Source: Office of National Statistics

Average Weekly Earnings

The High Street

Retail like-for-like growth Town centre footfall Competition tough Consumers facing higher inflation with

lower pay rise Family spending power ↓7.1% in April

(Asda)

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Financial Planning Considerations

Uncertain External Factors Economic forecast

interest rates? inflation? unemployment?

Consumer squeeze Commodity prices - harvests & World supply Fuel and energy prices - Middle East stability The weather…

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Volatile commodity markets

Coffee

Electricity

Oil

Wheat

Lastsix

yearsprice

trends

The Weather

Source: Met Office website

Planning Considerations

Retail – consumer wealth Conservative sales forecast? Efficiency improvement Capital spend Long v short term…

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Planning Horizons

Long term (3-5 years) – directional Annual budget – commitments 1/4ly forecasts – adjust for changes Monthly – detailed sales and margin Weekly – ad hoc modelling & scenarios

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Systems & Processes

No more spreadsheets! Business wide co-ordination Fast data crunching Scenario building System integration Focus on management insight not accounting

processes

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Summary

• Complexities in business structure

• Uncertainty in the economy

• Need for multiple plans and scenarios

• Backed by great planning systems

• Focus needs on management insight not finance process

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Questions?