Greggs sales up but expansion slowing

By Lorraine Heller

- Last updated on GMT

Related tags: Greggs

Greggs Plc, the UK bakery business that has stood out as a growth
success story in a sector cramped by obesity concerns, last week
unveiled first-half results that suggest it may be running out of
steam in selling ever more bread to Britons on the High Street.

The parent company of Bakers Oven and Greggs bakery chains reported a 15 per cent increase in pre-tax profit. However over half of this increase was due to the rise in interest income received on the company's mounting cash pile.

The company remained strongly cash positive, with the cash earned from its operations more than covering its investment spending, and leaving it with cash in hand of £69.6m (€101.6m), almost double the cash on its books in June last year.

Yet the company appears to be slowing down its expansion plans, despite such ample funding, raising speculation that some of the group's mounting cash might be returned to shareholders as a special dividend.

Greggs Plc opened around 60 new stores in each of 2003 and 2004, and 25 in the first half of 2005, but said that only a further 20 openings were planned for the rest of this year.

Capital spending, however, was planned at double last year's levels, thanks to an extensive push into new plant and structural work on the central savouries factory in Newcastle.

This emphasis on booting up savouries capacity, while slowing down new shop openings, reflects the group's push into a business based on a higher proportion of sales of savouries.

Sales of traditional bakery staples such as bread and rolls continued to decline in the first half, a downswing that has seen no improvement in over two years.

The company is instead concentrating on boosting sales of its popular savoury products, which are making good progress despite hot weather, which led to a drop in demand in the six weeks to July 30.

Sandwiches and sweet lines also fared well in the first half, with strong growth reported for takeaway food.

Good sales in these categories should help to cushion the impact of increased costs due to new minimum wage regulations and higher energy and fuel costs.

A 2.9 per cent year-on-year retail price hike is also offsetting higher costs.

The bakery group reported a 9 per cent increase in sales compared to last year, pushing total revenue up to £236m (€343m).

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