Greggs Stock

So good morning. Lovely to see so many of you here this morning, and welcome to Greggs' interim results. And it's quite a momentous occasion today because it is Richard Hutton's last interim sales presentation after 20 years as CFO at Greggs and 28 years with the business.

So Richard became CFO a little over 20 years ago in May 2006. And Richard, the share price at that time was around 160p, and that is taking into account the stock up splits. And the market cap at that time was around GBP 180 million. At the time, we had 2 U.K. brands. We had Greggs, and we had Bakers Oven. And we also had a small chain of shops in Belgium at that time, Richard. So we ended that year with Richard being CFO with 1,300 shops, and we delivered GBP 40 million of PBT in that year.

Richard has also been a long-standing trustee of our Greggs Foundation, and he's been a real champion of the Greggs Breakfast Clubs from the very inception back in 1999. So he probably sits here very proudly being able to talk about the fact that we feed 75,000 children every school day that would, otherwise, not have a breakfast when they turn up at school. So can I just ask you to give him a huge round of applause?

Richard sees most of what we're going to deliver today, but he hasn't seen any of that. What I would say is the great news is he remains in role until the end of this year. So you still will have countless conversations with him, and he will still be here for our October trading update. I'm also delighted to announce that Ben Waldron will join us as CFO designate from the end of October, and then, he will take over the role as CFO on the 1st of January 2027. And between the period of Ben joining us and Richard leaving, it will be a seamless and smooth transition, as they work together with the senior finance team to deliver that.

So back to the agenda, which will be in the usual format. So I'll talk about the results that we've announced today. I will then hand over to Richard to update on the financial performance in more detail, and I will then take you through the operational strategic review and give you a view as to the outlook. So let's start with a quick overview of the first half of 2026.

So we've delivered a strong financial performance in a market that remains tough. As you can see in the slide, total sales growth was 7.2% with company-managed like-for-like growth of 2.1%. Profit before tax was GBP 76 million. That is up 19.7% on 2025 when profits were significantly impacted by the heat wave in June last year, and they're also slightly ahead of 2024.

We have delivered a much more resilient performance in the first half of this year, including during the hotter weather in May and June with cost areas such as labor and waste very well controlled. Operating cash flow has grown by 18.3%, and we have maintained the interim dividend at 19p.

And in terms of our strategic plans, we've seen further good progress in the first half of the year. Our brand metrics remain strong, and we maintain our sector-leading value reputation, outperforming the market and continuing to grow our market share of visits. We continue to offer wider access to Greggs by growing in multiple channels, including grocery retail.

Our ongoing menu innovation ensures that we continue to adapt to the consumer trends in both new and our traditional categories with products such as the Chicken Roll. And we have a strong pipeline of opportunities to grow and improve our shortest shop estate with our smaller format trials, potentially providing further opportunities, as we continue to focus on being more convenient for our customers.

Our investment projects are progressing well. And as we've previously guided, we are now returning to a phase of strong free cash generation as capital intensity reduces.

So in summary, it's a strong financial performance in the first half of the year, and we continue to make progress against our strategic plan.

And I will now hand over to Richard to take you through our detailed financial performance.

Thanks, Roisin, and thank you for the introduction as well. As you say, I wasn't aware of. You might be surprised to know that I've kind of mainly enjoyed doing this actually. I think it's sort of -- it's helpful to your thinking to actually have to explain the Greggs story and to articulate it. And the questions that you ask us as well, challenge our thinking and just make us turn over stones and sort of make sure that we're looking at everything. So thank you for your part in that over, well, 20 years. I think this must be presentation #41 on that basis because I think the first one was literally 20 years ago at the interims.

And -- a number of you have been with us for quite a long time as well and have followed the journey for a fair bit of time, particularly on the advisory side. But I'm just looking around the room. I think, Darren, you may be the only face who was here that time 20 years ago. And you still look as young as you did then. So yes, thank you for that. And the thing -- the other thing I would say is just to reassure you, I'm just a front man. I mean, there's a very, very strong finance team back at Greggs. They do all the work. They pull all this together, and I just come out and tell the story. They're still there, and they will continue to produce high-quality information for you as we go forward.

And I look forward to introducing Ben. And I wouldn't be going if we didn't have the succession planned well. And so I'm pleased that we'll be able to introduce Ben to you in the last couple of months of this year as we run in parallel. And I'm sure he'll be a very strong successor.

So enough of this nonsense, back into the performance. So we're on Slide 6 of the pack, incoming and expenditure overview. And we've given you 2 years comps here because last year was an unusual year. We did have a very tough first half. We were affected by the heat wave, particularly at the end of the period in June. And I think it hurt us more than it probably should have done because it sort of caught us unawares. And I think one of the things the team have done this year is to -- they've got much better at managing heat, both in terms of ranging, staff availability, those sort of things. So the cost ratios bear up better in a heat wave now than they did back then.

You can't get away from the fact that people eat less in hot weather, but we have got some mitigation in terms of some of the things we've introduced like ice drinks as well. So it's a less profound impact this year. And so you've seen quite a good year-on-year increase for a number of reasons, which will step through. But I thought it was useful to put the H1 2024 comp in as well because you can see that we've actually made progress on that. And if you follow it through, Roisin has already given you the highlights in terms of the profit and sales progress, you can see that the profit margin at the operating level for the first half of this year is actually level with where it was 2 years ago. And you can see that we lost about 100 basis points this time last year. So that's good to see.

There's some change in the structure of the P&L in the interest line because we were carrying an awful lot of cash into this investment program that we've been going through 2 years ago. You can see the cash was there 2 years ago from the finance income line where we're earning some good money on deposit with that. That's obviously sort of left the business now. It's been deployed into CapEx at the new sites and through growth. And so you've got a much higher finance expense line, which is driven by things like the Derby lease, but also the growth in new shops over that time, bringing in new interest charges imputed on the leases, but also the regearing of leases.

So under lease accounting, when you regear and renew a lease after 10 years, you have to put in an imputed interest rate, which is equivalent to the current market rate, and that's much higher than it was 10 years ago. This isn't real money. This is accounting. But effectively, as you renew leases, you increase the interest charge that goes through the account. So yes, pardon me, longest of the days when you could just charge a cash rent through the books, but -- and you didn't have to explain these things, but that is the reality.

Nothing much to see in the tax line. We've got a 26% tax rate, which is consistent with guidance. And obviously, the diluted earnings per share are slightly up on where they were 2 years ago and 21% up on the year.

So let's get into the sales number a bit more. 7.2% sales growth. And on Slide 7, you can see the kind of the building blocks of that growth. So company-managed like-for-like at just over 2% is obviously important. It's the lifeblood of the business, but you can see that there are other elements to this. So the growth in the estate is actually twice as big in terms of sales progress as the like-for-like element.

And then, you've also got the contribution from business-to-business growth, which is a combination of our franchise business, which we are developing with additional sites, mainly in petrol forecourts and also growth like-for-like of that, but also the grocery segment, where we've extended the availability of our Bake-at-Home range from originally Iceland Foods now into Tesco as well. So that started in September last year, and we've had a good first half in terms of that range being extended into more shops, but also the Iceland business developing well as well. So those have both contributed to this sort of multichannel sort of volume picture for the first half.

And if we look at that versus the market, on Page 8, we try and give it some context. So the solid blue line is that overall sales growth in the business, including grocery, including new shops as well. And you can see that we're substantially ahead of the benchmark, which is the yellow line, and that's the all eating and drinking out of home as measured by card spending data from Barclaycard. So you can see, obviously, we've got a fair gulf there, but we've been taking more space. So you would expect us to run ahead of that line.

I think the interesting thing, though, is if you look at the dotted line, that's the company-managed like-for-like growth as well. And it broadly follows the market, but slightly ahead. And the reassurance I take from that is that we are managing to extend the reach of the Greggs brand, both in grocery and in estate growth without compromising the like-for-like performance of the existing estate. And that's a really important thing given the story for Greggs going forward is to do more of this and to penetrate more deeply, but going carefully so as to avoid damaging existing shop growth. So I think it gives us some reassurance on that, but also helps to contextualize that like-for-like number as well.

If we then look into the P&L, so on Slide 9, we've got the cost ratios within the P&L. Obviously, that overall sales progress leverages margin within the whole system because we do have a degree of fixed cost, both in terms of the rent of our existing shops and also the elements of supply chain that we have in-house with the vertical integration.

The gross margin has benefited from lower inflation in food and packaging costs, particularly. So that's been a help in terms of the year-on-year gross margin position. And the distribution and selling cost ratio, whilst wages continue to be inflationary, there's been a slight phasing change in that we've moved our pay awards to April from December. We mitigated this with a small increase in January, but then a bigger increase in April this year. So there's been some phasing benefits to the first half, again, which has come through in the distribution and selling ratio.

And nothing much to see in admin costs, but then we've got that financing impact that we've already discussed in terms of shop leases and the Derby site being capitalized, increasing the overall net finance expense.

Looking forward, I mean, there have been a few tailwinds in the first half in terms of -- we talked about the grocery, we talked about the phasing of some of that cost inflation, the other thing to highlight for the second half, though, is that the Derby operating costs will increase by about GBP 10 million in the second half. So this is why in our overall guidance, we've said we believe that the year itself will overall be broadly flat in terms of profit progress year-on-year, which might be a surprise given the progress we've made in H1, but just to flag those new costs coming in, in the second half of the year.

If we then dive into the cost base on Page 10, a quick reminder that the big 2 for us are people costs, which is the blue segment of this chart at 39% and then food & packaging, which is 1/3 of our cost base. The food & packaging inflation has been slightly better than we'd hoped, and we saw a little bit of inflation at the start of the year. We're now going through a period where we've got deflation in some of our food items. And the forecast is that we should head back into a small amount of inflation by the end of the year with a bit more going into 2027 as fuel costs and energy costs start to flow through the supply chain, and we come off some of our fixed positions.

We've got about half -- sorry, about 70% of the second half's requirements fixed on food & packaging. So we've got good cover there, but about 1/3 of it is still to fix. And we've got even better cover on energy, where we've got 90% of our overall energy and fuel requirements covered for the year. So we've got all our electricity and gas broadly bought for this year, and we're only exposed on vehicle fuel, where we're taking month-to-month diesel prices. The equivalent for next year is we're about 50% covered in that energy mix. So that's a decent place to be.

People costs inflating at around 4% across the year as a whole, and I flagged that lower inflation from wages and salaries in Q1. And then in shop occupancy costs, which is our rent, our rates, those sort of things. Rents are pretty stable, and we're now able to quantify the benefit of the reduction in business rates that we saw announced in the budget, having got the bills in now. It's worth about GBP 3.5 million a year on an annual basis to us from April.

So across the piece, we're now expecting that inflation for the year will be more like 2% compared with the 3% that we saw at the start of the year. And in the background, of course, we continue to try and make the structural savings that help to offset the new costs that come into the business. A decent first half with some rollover of benefit of the projects that we did last year. So we've saved about GBP 7 million in H1 against our full year target of GBP 11 million. So it feels like we've got good momentum in that, and the energy is still going into that program across the whole team.

If we turn then to CapEx on Page 11, this gives you the kind of a bit of history and a bit of the forward guidance on CapEx overall. What you can see is it's built of 3 main components. The orange color at the bottom is IT and other miscellaneous items, and we're in a period where we're spending more on IT because we're renewing our SAP infrastructure and moving to the new S/4HANA basis. That's going well. It's -- there are live modules going in every week, and we expect to be finished with that around about the middle of next year.

The green element reflects our retail capital expenditure. And we've -- we're having a relatively light year this year, which reflects the relatively small number of shop refurbishments that we've got in the system, about 50 or so this year. That will start to increase going forward, and you can see the number or the value of the retail CapEx increases, and that reflects a greater rate of shop refitting, and we should be north of 100 in those couple of years, which we need to do to get back on cycle.

We've been fortunate we've been able to take a bit of a break with some of the shop refurbs at the same time as going through the more intensive supply chain investment program. That's the blue element that you can see. And you can see it's a fundamental change this year, having got through the peak last year, where we spent GBP 287 million on CapEx. This year, we've been able to reduce the guidance from GBP 200 million to GBP 180 million. It partly reflects the guidance on shop numbers for this year. So the overall net growth in shop number is likely to be in the range of 100 to 110. We've previously guided to 120. So that takes a little bit of CapEx out on the retail side.

And the rest of it really is related to the supply chain projects, where as we get closer to the end, we've been able to release some of the contingency in those projects, and the team are delivering them under budget, and that's been something, I guess, we hoped, but couldn't really plan for until we got closer to the end of those big build projects. So GBP 20 million coming out of this year's CapEx.

And what you can see in the background of this slide is that the grayed out area is the cash inflow from operating activities, and that's after paying for leases as well. And that's been quite committed in the last 3 years. But going forward, if we assume that it carries on at a similar rate, then the free cash optionality increases materially in the business. So we do have a big gap emerging and will -- that will give us the opportunity to enhance returns as we look forward and apply our capital allocation policy looking forward from next year onwards.

If we just talk about the new shop performance on Page 12, this is something I'm really pleased about. We've taken a lot of learning in recent years from some of the experimentation and different formats and locations that we've been going into as we've expanded the estate post-pandemic. And it's improving progressively the actual selection process. And technology is helpful as well. It's easier to get your head around a huge estate like ours when you've got sort of more technology and tools at your disposal. So we've been refining the process.

It's had an impact on the number of shops we're taking. You see we've nudged that down slightly this year, but the quality of the openings and the performance of them is better, and that's important. And if you actually model out the impact of taking fewer shops at a higher sort of ROI versus trying to take more shops to leverage your capacity, it's better to go slightly slower with higher quality returns because you're still having to deploy all that shop capital. So that's been really helpful.

And we have been more than in line with our targets, which are to achieve a mature cash return on investment of 25% after 2 to 3 years. So the early opening progress on these shops has shown that they are very much in line with the maturity targets that we would expect, and in some cases, ahead of those. And that is really important to this ambition that we set out to restore return on capital employed to around the 20% level in the medium term.

It's also important, though, that this is incremental growth, and I referenced this when I looked at the like-for-like slide at the start. So some other points of reference that we have that give us the reassurance that we are not cannibalizing existing shops, the new catchments that we're going into with new shops, 62% of them don't have an existing shop within a mile. And a mile is quite a long way, particularly if you're on foot in a catchment. So they are pushing ourselves into areas where there currently isn't Greggs conveniently available.

We also monitor the sales transfer from existing shops when we open a new shop. We anticipate that this will be around 5%. And actually, it's coming in slightly below that. So again, some reassurance in terms of the cannibalization there. And the one I think is actually probably the most important is by using the app, and we talked about this last year, we can use the app to actually measure real customer behavior when customers who are using existing stores have access to a new store. We can see whether their frequency changes with the existing store repertoire. And the evidence again is that it doesn't. It just makes it more convenient for them to come to us more often, which talks to an unmet demand and reinforces, I think, the journey ahead.

Finally, the liquidity tax and dividend slide, I always feel this is just to give you a photo to liven it up, couldn't it really. But the important things on this really are the cash inflow. So strong cash inflow in the first half of GBP 111 million, up from GBP 94 million last year. And that means our cash position has improved year-on-year with GBP 16 million of net cash. We're slightly drawn on the RCF, but we were in a net debt position last year. So that's improved year-on-year. And we've just extended our revolving credit facility for another year. So that's good until June 2029 with GBP 100 million worth of committed funds.

Nothing exciting in the corporation tax rate, 26% is what we'd normally expect, and that's our guidance going forward, usually runs about 1% ahead of the headline rate. And then, as we've already flagged, the EPS up from 45p to 55p, and we've maintained the interim dividend, which we'd expect to do until we get back to our preferred level of earnings cover, which is 2x covered.

So that's me. With that, I'll hand you back to Roisin, and we can get into more of the operational and strategic development.

Thank you, Richard. So let me just spend a few minutes now updating you on the progress we're making on our journey to be a multichannel food-on-the-go brand.

Now, you will have seen this slide before, Slide 15. However, just worthy of a quick reminder of what's made Greggs successful over such a long period of time. So the real strength of the business that helps us to continue to win in the market, the breadth of our appeal in terms of having to permission to enter new categories, new channels and new locations, our outstanding value leadership for freshly prepared food and drink, our track record of innovation and constant evolution to meet changing consumer trends, demands and tastes and our vertical integration, which allows us to offer affordable quality to our customers by driving efficiency right throughout the supply chain.

And the market-leading combination of quality and value, ultimately, that's the formula that translates into brand strength. So staying focused on the relevance of our brand is extremely important. It's great to see that our brand strength continues to be market leading. And very importantly, as you can see on the chart on the right of the slide, we continue to be rated the #1 brand for value and have seen the gap to our competitors widening. But we do that without compromising on quality, and that's what really differentiates the brand.

We continue to grow market share of visits. And this year, we've increased that by 0.3 percentage points to 8.7% in a physical market, where the volumes have declined by just under 2% of visits in the year to June. And pressure on disposable income continues to be the biggest market headwind.

Our fresh and prepared food, hot options, customizations differentiates us, and it's our loyalty scheme and our value deals that work to really deepen the value offer that we offer to the customer.

And as I've said many times before, at the heart of Greggs is the food and drink menu, and we work hard to make sure that we stay focused on our purpose, follow the trends and taste and ensuring that we offer this at great prices. We innovate in traditional categories to broaden our appeal. So an example of that, I mentioned earlier, would be the Chicken Roll, but we also respond to the dietary trends, and we recently refreshed and extended our salad range. There are some pictures just sitting behind Richard. And that's to try and make sure that there's a broader range out there for the consumer, adding higher protein options and also making sure that we do more on labeling to make it easier for the customer to make the choice that they want.

New categories such as ice drinks put Greggs into growth markets where we can bring our value offering to more people. In the first half, this capability enabled us to bring Greggs' Iced Matcha to the market. And recently, we introduced a new blueberry flavor variant as well because you just need to keep that excitement for the customer to try something else and something new. And this focus continues at pace to ensure we can democratize and we can grow categories across our menu as tastes and trends change.

Now on estate, Richard has already shared with you the strength of our new shop openings, and we continue to focus on the quality of the opportunities available to us to ensure we deliver profitable shop growth as we extend and reshape our estate and stay relentlessly focused on making sure that we are delivering great returns.

As a result, as Richard said, we expect to open between 100 to 110 net new shops this year with an additional 10 trial installations of our new Greggs Express format. We believe the medium-term rate that we will open up will be at least 100 net new openings each year, and the Greggs Express format trials potentially could provide further opportunities. And our analysis of the market shows that we have a clear opportunity for at least 3,500 shops in the U.K. over the longer term with -- and that sort of is consistent with the supply chain capacity that we are building.

So I have just mentioned Greggs Express, but that's just one part of the enhanced flexibility that we've developed in terms of our format that is opening up additional opportunities in viable locations. Greggs bitesize, which I talked about before here, while it's still only in 4 locations, is showing very promising results and allowing us to bring most of our favorites to locations where the kitchen space is limited. So the most recent bitesize opening that we've just had for those of you based in London, is London Bridge, where we've now got a small bitesize location on one of the platforms.

We've got 3 convenience self-service Greggs Express trials up and running, and they are in petrol forecourt locations. And these units allow customers to select coffee, hot food and sweet treats within our partners' retail space, and we expect to have around 10 of those trial locations open by the end of this year.

And then, at the end of May, we did open our international travel hub shop with our new franchise partner, Lagardère, and that is in Tenerife South Airport. It is only one shop, but so far, sales to date are very encouraging and are hitting all the hurdles that we've set. And as Rich has also alluded to, our grocery Bake-at-Home range is performing strongly in both Iceland and Tesco, and that continues to add channel flexibility for our customers.

So I've previously updated you on the national distribution centers. So that's Derby and Kettering, and the fact that they will bring upstream picking at scale through greater automation with robotics reducing the labor intensity. These sites are the ones that create the logistics capacity to support 3,500 shops through our existing network of radio distribution centers.

Derby will be operational in the coming months and Kettering in the first half of 2027. And both sites have also got an element of white space that would allow us to develop future logistics and manufacturing capacity as we require it.

Richard mentioned a little bit about technology. So we are in the midst of the SAP S/4HANA migration. We are due to complete that in 2027. There are many benefits that come with that, such as a more sophisticated forecasting and replenishment system, which can help us drive availability while also reducing waste.

And then, AI, it's worth mentioning, is also being used across the business to both drive standards and deliver efficiencies, particularly in areas focused in colleague service and customer service, but we're also deploying Agentic AI in a few areas. Our software engineering team are now using that to both build and test new systems at pace, and we'll be doing more of that going forward.

And then, just to quickly mention, we continue to pride ourselves in doing the right thing at Greggs with significant focus and progress on our commitments under the Greggs pledge, which is our version of ESG. Having proudly delivered the majority of the commitments that we set out in 2021, we have now developed a further 7 commitments to ensure that we continue to drive stronger health of communities, safer planet and being a better business. And it's an area that really brings the teams together to focus on doing even more goods.

So I think you would agree some great progress and some exciting plans. We've delivered strong profitable growth in the first half of 2026 against a soft comparative period last year. The second half profit progress, as Richard has already mentioned, will reflect the headwinds for Derby coming on stream and the phasing of cost inflation in the year.

As you would expect, the team will continue to innovate in terms of the range, and we have some exciting product plans in the coming months. And then, our disciplined shop estate expansion is making Greggs more accessible for our customers as well as delivering strong returns on investment. And Rich has already mentioned, the Board's expectations for the full year are unchanged. So that's the main update.

But just before I finish, I think it's just worth spending a few minutes reflecting on how all of this positions Greggs for future growth. So you see the slide behind me. The strength of the brand and the breadth of appeal enables us to rapidly evolve, follow the trends and stay relevant. Where we see new trends are driving volume and have brand relevance for us. We follow fast at a value price point, democratizing and making new products accessible to more customers.

Ensuring that customers throughout the U.K. can access Greggs remains a compelling and material opportunity, there are still many locations where Greggs are underrepresented. Innovation is both driving new formats and new channels to generate revenue growth, and this continues to be an area that we've got a strong track record.

And our supply chain investment will be coming on stream over the next 12 months, providing highly efficient additional logistics capacity that will enable us to extend our reach to 3,500 shops in the U.K. Richard has already mentioned it, but we have now come to the peak of the investment cycle. So the free cash generation is once again strong and growing, and we're focused on returning ROCE to around 20%, as we execute on those plans.

So thank you for that.

What we will now do is we will take the questions in the room, and I will also pass some questions to Richard, who will be monitoring the iPad for those of you that are on the webcast. There are a couple of microphones in the room. So if you do raise your hand, we will get a microphone to you and take your questions at that point. Thank you.

Sreedhar, I'll start with you.

Sreedhar Mahamkali from UBS. First of all, Richard, many congratulations on your retirement. I'm sure you're very proud of your long and successful track record and many contributions to Greggs'. But I guess you're still on the hook for Q3. Many congrats.

But listen, I think 3 quick questions, please. Clearly, the weather patterns are swinging around the volume numbers and traffic numbers. Anything you can help us in terms of July trading, how it looked like, that will be very helpful just to understand how recent trends have changed? If not, it will be great to know anyway.

Secondly, you touched on -- both of you have touched on additional shareholder returns and the sort of capacity that's building. If you could talk a little bit about how we should think about cash on the balance sheet, what level you need to be holding on to? I remember some numbers back in the time. So it will be great to just get a refresher on that. And what metrics we should be watching to have a view on the magnitude of additional returns? Second one. And lastly, I think franchise, like-for-like, 1.3% versus 2.1% company managed. Is there anything we should be aware of on this fading? And how should we think about it?

Great. Thank you, Sreedhar. Let me take your sales question and your franchise question, and then I will hand over to Richard for shareholder returns. And so yes, the weather does have an impact on trading. As Richard alluded to earlier, once temperatures get to about 28, 30, physiologically, we all eat less. So therefore, you do see an impact. And it's interesting because you can even have very hot days where we see sales impacted and depressed and then it can bounce back in the next couple of days where the weather is cooler. July has seen a much better performance over the last few weeks, higher than the number that we just reported and slightly higher than our own forecast expectations.

So that says that actually, it bounces back when we sort of then have milder cooler weather and people are back out and about. What I do think is we've also done better this year is we've developed more resilience in terms of our range. So having a bigger salad range, having iced drinks, developing Matcha and bringing new flavors to the market is really important because it creates a reason even in hot weather for someone to come to Greggs. And we'll continue to experiment and do more and lean into that. In terms of franchise, yes, you are right. Normally, our franchise number runs slightly stronger than our company managed like-for-like.

And one of our franchise partners is currently going through a structural change across their business, and that has impacted on the operational performance across their petrol forecourts. It is only one of the partners. We're working on them to improve that operational performance. If we strip that partner out, franchise like-for-like still is slightly higher than the company managed. So the run rate is the same. We just have an issue with one partner that we're working through. But it's a structural change they're making and then they will come through that. And I will hand over to Richard on shareholder returns.

Yes. And what we should have said is at the very back of your pack is a reiteration of our capital allocation policy. And one of the things you'll see in there is we aim to have cash on the balance sheet at the end of the year of about 3% of turnover. So that would indicate sort of around GBP 70 million at the end of this year would be the target. When we get the cash back to that level, then we would consider anything over that to be surplus cash, and we should start to see that appearing in the next couple of years.

So we have -- our track record for the last, gosh, probably 15 years has been to use special dividends as the mechanic, but we've been open-minded to the idea that with the share price having been where it has been that we would certainly look at buybacks as another option. So that's a debate that I guess the Board will engage with over the months ahead and as we go into next year. But one way or the other, that cash would then be returned to shareholders.

Fintan Ryan here from Goodbody. And first to you, Richard, congratulations on your long tenure and best of luck in the retirement and I guess getting your golf handicap up or down, sorry. Two questions from me, please. Firstly, could you give us a sense in terms of the moving parts on the lower cost inflation guidance for this year? Where do you see the most deflation come in versus your initial expectations? And like how does this change your outlook for any incremental pricing, if any, for this year and next?

And secondly, just in terms of the initiatives you're doing around sort of deseasonalizing your menu, so more chilled salads, more chilled drinks. Does this change the CapEx requirements or refurb requirements required for the new stores and also for the retrofits. So like you said that number is coming down this year, but should we expect as the new menu ramps up like an actual significant step-up in the store refurb costs?

I will pass this to you, Richard.

Yes. Yes. So lower costs in terms of food inputs. I mean, you'll be aware this time last year, we're talking a lot about things like coffee prices, cocoa prices, those sort of things were quite inflationary, weren't they? And we've seen a much softer position on those markets this year. Pork is another one that's obviously important for Greggs, both for our breakfast market and some of our core products. And again, that's been a better market for us buying pork.

So yes, a number of things that have moved our way. And I guess at the start of the year, you can't be sure of that and particularly as we came through Q1 with all that was going on in the world there, we're slightly more fearful. But we did carry good cover, and I think the procurement team have done a great job sort of buying into markets at the right times. So I don't think we'll need any incremental pricing in the autumn, which was something that we held the option open on. But I think what we have in place already will be sufficient. So that's a good place to be not having to go back to the market for more pricing.

And then in terms of CapEx to respond to menu changes, I think ice drinks are the main thing, and we've been doing this for the last couple of years going around the estate, trying to put ice machines into as many shops as we possibly can. And we've got them in, I think, about 3/4 of the estate now. There are some that are more difficult and will need to come when we refurbish the shop. It's not possible to retrofit the machine to the existing estate except at great expense.

And so those will kind of -- the distribution of ice machines will increase. But it's not a huge cost. I mean it's a relatively simple execution, that. And that was an important part of the development of that product was that it should be a simple execution. It should be simple for the shops and relatively low cost. So ours is an over ice drink offer rather than blended and all that sort of thing. So yes, I think it's not material to the CapEx program is the way I would describe it.

Kate Calvert from Investec. Two questions for me. But first of all, a personal thanks, Richard, for your help over the years, and I hope you do get a black Greggs card as part of your retirement present. In terms of questions, first one is just on the bitesize Greggs, which seems to be working well. Can you just give a little bit more detail in terms of how much smaller the range is?

And is there a sort of ratio in terms of the profit or turnover of 3 bitesize Greggs equals 1 full range store is there some sort of ratio we should think about? And in terms of the Greggs Express, how do you think the agreement is going to work? Who's going to pay for the cabinets -- and do you take a franchise fee? How do you think that's going to work?

Sure. Thanks, Kate. Let me talk bite size, and I'll let Richard talk convenience retail. So I guess the way to think about bite size is if an average Greggs shop is around 1,200 to 1,400 square foot, we can fit a bite size opportunity in about 800 square foot. So it takes significantly smaller space, and that's pretty much because we don't need the same amount of kitchen production space that we need in a full-size shop. So the key changes to the range would be sandwiches. So in our bitesize shops, you will not get the full range of -- or you not get the range of sandwiches that you would get in a normal size shop.

You will get all of the freshly baked products. So you'll get the pizzas, all of the savouries. You will also get a range of salads, you will get the breakfast product and you will get the drinks range, both hot drinks and ice drinks. So therefore, that makes it a much more compelling opportunity. The reason that we put it into London Bridge, that's now our third shop in London Bridge. We've got the large shop in the concourse. We've got a shop just outside London Bridge now, and this one has been able to sit on a platform that you would otherwise not be able to access.

They are doing exceptionally well. From a sales perspective, they take very slightly less than an average full-sized shop. not significantly, but very slightly. And the returns currently are very good. What I would caveat it with is we've only got 4. So therefore, when you've only got 4, you're a bit reliant on having a couple of winners and then a couple that you're still sort of trying to work on. But just now, it's a very compelling opportunity. We've got a pipeline for the end of this year that we'll have several more that we will put down.

I think once we get to around 10, you'll then be able to really understand what the returns are and actually what that delivers for us. But just now, very pleasing indeed. And if you think about the whitespace review across the U.K., this just allows us to infill in areas that previously we didn't think we could put a site, Greggs. So actually, this bitesized opportunity allows us to go to those areas where space is much more compromised. I'll let you talk about convenience retail.

Yes. So that's Greggs Express, which is our way of inserting self-service Greggs into a petrol forecourt or potentially other convenience locations over time. The -- all I can really do is explain the basis of the trial that we've got underway. So if you imagine at the moment, in our trial shops, we've got typically 2 coffee machines, sort of self-serve coffee machines, a cabinet selling sweet treats like doughnuts and another cabinet selling hot savouries that you can select and take to the counter. They're within a franchisee's environment. So it starts on the premise that effectively, it's a small version of Greggs on the franchise agreement.

The one variation at the moment is that at this stage, we are procuring and funding the coffee machines. So the coffee machines on a slightly different basis and that we own the coffee machines, we deploy them and then rather than being on the franchise basis, they're on the share of revenue. So we take a proportion of the revenue in return for having our machine in the shop. And we're just experimenting it. It's sort of like an open experimentation between us and the franchise partner to make sure it works and evolve something that's good for both parties, and that will be the objective.

Thank you. Darren, we'll come to you next.We'll come to you next.

And just to Richard, sorry for being a pain in the backside for 20 years. So I'll have one last go. I wonder if you could give us a sort of a profit bridge for the second half to get to your guidance because you've got sort of GBP 4 million of savings to come for a part of your program. There's a couple of million of rate benefit. I think you talked about a GBP 10 million headwind from Derby. If you just pull that together...

I mean you picked out a lot of the component parts. There'll be a little bit of tailwind from annualization of some of the grocery growth that we've seen as well. And so there's a few things going on there. And then I guess the other thing working the other way is just what happens in the like-for-like environment because underlying the like-for-like performance, although it's been cash positive, it's been volume negative still, and it's been broadly aligned with what we've seen in the market, which has been a minus 2%.

So what you're doing with all those other factors is offsetting a like-for-like sort of underlying volume position and driving more volume through the network as a whole. So those are probably the biggest moving parts, I would say, along with some effective margin gains from the slight disparity between cost inflation and price inflation as well.

I'm then thinking you'd acquire a GBP 10 million negative delta in the second half to get to where consensus is?

Yes, that's broadly it. Yes. Yes. So there's a -- we may be wrong, of course. If things go well, we could be ahead of that. So -- but I guess there is some doubt as to ingredient costs for the back end of the year. And you just don't know what's going to happen in the world. But sitting here today, I think we're pleased with where we've got to. But as ever, there's a little bit of caution in the outlook.

Gary Martin here from Davy. First of all, Richard, I'll queue up behind the people that's wishing you a happy retirement. Thanks for all the help along the way. I wish you the best. Just a couple of questions from my side. I'll start with the cost outlook, first of all, as a bit of a tricky one. I might need a bit of a crystal ball, but costs into FY '27 and rollover risk, how do you think about that would be my first question. And then Roisin, just one on the like-for-like piece. I'd like to gauge how important is the value component? Like how much promotion is currently going through the system in terms of meal deals and how important is that to overall growth?

Sure. Let me take the value question first, and then I'll hand over to Richard on the cost outlook, Gary. And yes, I mean, I think -- being relentlessly focused on our value proposition is absolutely critical to us. I think that's important in terms of making sure that the consumer sees individual price points that are very strong and the price points that they know us for, but also making sure that we are by far the best offering out there in terms of your meal deal proposition. So holding our breakfast meal deal at GBP 3.25 is critically important to make sure that we continue to take share in the breakfast market.

Our big deal or lunch deal or 3-part deal at GBP 5.25, where you can get both freshly prepared, you can get hot food, you can get customized food, again, differentiates us out there in the market. Whenever we talk about value, we talk about the quality and price equation. So it's got to be about compelling price for the customer, but you've got to make sure that the quality is there as well. And that's why the chart that we showed earlier, where you can see where the Greggs sit on that quality and price equation is so focused and so important for us.

I think in terms of the cost outlook, what's helpful is known that we have managed the cost well for this year and inflation has come down, protecting the price point for the customer then through to the end of the year, I think, is exceptionally important as well in driving that value. On cost outlook for next year?

Yes. I mean our procurement team's view is that essentially, there's a sort of like a stored-up pressure coming from energy costs within supply chains, which flows through into things like fertilizers and then into agricultural crops and then into feed costs into proteins. And it does take a while to flow through the system. So their expectation is that they start to see some of that inflation coming in around the end of the year and coming into next year more so, we can't be sure, of course.

But that's -- as you said, it is crystal ball gaziing to a Greggs. But I think there's a logic to that kind of progression. But I think in that context, I would say we've dealt with a lot of inflation, haven't we, over the last 3, 4 years, I mean, some extraordinary inflation. And it's affected the whole market. It's unhelpful to consumers. But what we've shown over time is that as retailers, we've all acted fairly rationally and been able to pass that through, albeit we've put some pressure on the market overall, and I think that's what we're seeing now. So we'd like it to be less.

But relative to our competition, we still have that deep value. And therefore, I think we should feel confident that we can deal with inflation if it rears up. It doesn't feel like though it's anything like the sort of experience that we've had over the last few years. Sorry, was there a follow-up?

A quick follow-up. Just out of curiosity then, let's just assume that potentially inflation steps up into next year. Is there an elasticity risk as you pass those prices through? I mean is that the reason why you didn't choose to increase prices in the autumn this year? Is that due to the fear of elasticity across the portfolio? Or how do you think about that? Do you have any good data points?

Well, we do to some degree, but it's more about taking the long-term value position and not wanting to compromise that and not wanting to be opportunistic just and risking eroding that because it's what's made Greggs great over the years is being able to come in to these categories and offer a comparable product at a discounted price. So we tend to take a long view on these things. And I think we'll have a decent year without needing to do that, frankly.

So that then effectively, you keep that capacity for the future when you might actually need it, and that's the view we would take. Can I very quickly take a couple of online questions because I don't want to neglect the online questioners. So just very quickly, Salman, you asked about how we would distribute cash. I think I've addressed that. You also asked about what happened in the latter half -- latter part of the first half to bring down the overall like-for-like on company-managed shops to 2.1% from the previous level. The answer is hot weather, and I hope Roisin sort of addressed that really.

There's a very clear impact of hot weather, and we can see that since the hot weather sort of like receded, it's been much better in the last few weeks. But today will be a difficult day. It's going to be very hot out there. So -- but there we go. We're getting used to that. And then Ben at Panmure, who's asked a bit about what's driving B2B profits and margins more at the moment. Is it the franchise element or the grocery side? Traditionally, it's been the franchise element of that, that's been growing because grocery has been relatively mature.

Grocery is taking a step up, and that's, as I say, starting to annualize through the second half of this year. So there's been a greater contribution to growth in B2B from grocery. But I think you should continue to expect that in the longer term, it's extending the franchise relationships that will grow the B2B segment of our business.

Great. Thanks, Richard. We'll take a question here if we've got a mic. Thank you.

It's Tim Ramskill from Bank of America. I guess I'll take a different slant on the congratulations to Richard, and congratulate on the fact that the share price went down when the news broke, which I think is a great endorsement of you so well done you and I e-mailed each other about that on the day indeed. So I guess 3 questions for me. Just, Richard, maybe can you just remind us on the overall Derby Kettering kind of cost phasing. You've talked specifically about H2. Obviously, that will roll into next year, but then just how sort of Kettering kicks in and when you think that will be.

You've given more explicit guidance, I would say, today on medium-term openings. I know it's been a long-standing debate, but you're pretty clear now on the kind of at least 100. That's perhaps a little bit less than some people have got. So is that a reflection of your comments around recent openings doing really well and the point you make about quality over quantity.

But then also within that, just interested in sort of how much opportunity you still see with franchisees to be a contributor to that store opening? And then the last question, given, again, it seems to be progressing well, where do you see kind of grocery opportunity more medium term? Is there anything to stop you extending the product range into, if you like, the full suite of grocers out there?

I'll pass Derby and Kettering to Richard, and then I'll pick up on your medium-term opportunities and your grocery opportunity.

Yes. So next year is a bit of a pinch point for the Derby Kettering cost in that we've got annualization of Derby at the same time as we start to introduce Kettering. So I think we've been clear in sort of our guidance that we wouldn't expect a huge amount of progress next year as we absorb those new costs. But obviously, that does depend on overall like-for-like volume performance as well. So we gave some guidance a little while ago that said broadly sort of 40 basis points for each site over a couple of years. The phasing matters, but broadly, we would expect to be absorbing most of that cost next year.

And then from '28, we should be moving to a point where we start to leverage that as we grow the estate and grow volumes through the network, we should start to sort of see some recovery then. So if you look at both margins, return on capital for the business as a whole, we should see some, I think, broad stability over the next couple of years, followed by a steady increase as we get back towards a more normal level. So I think there's no real change in the overall pattern of it. The timing is slightly different, but I think it's pretty much in line with what we've guided.

So if I touch on grocery opportunity, I think the thing to say on grocery opportunity currently is there is still more to be done with our existing partners. So although we've been a partner with Iceland for many years now, we've just recently extended our range to Iceland. So we just introduced 2 new pizza products into Iceland, the Margarita pizza and the Pepperoni Pizza have both now gone into Iceland.

That is doing exceptionally well. We believe with innovation, there'll be more to do with them. With Tesco, actually, there's still significantly more to be done currently. So we've just recently launched the Vegan Sausage Roll into the largest Gregg Tesco shops. And we have just gone into their smaller format shops, 2 of the most popular lines. Where we are just now is almost let's maximize those 2 relationships and let's see what else we can be doing with those partnerships and the reach that they've got into their customer base, but we keep a watching brief on and where else could that go in the future.

But for now, it's about let's maximize the 2 great relationships we've got and let's see how we can extend that range. In terms of medium-term opportunities, yes, we've said at least 100 net new openings going forward. And back to Richard's previous point, that is about -- it's always been about quality of opportunity and not simply chasing a number. Could there be upside in certain years? Yes, there could. Are we doing more with partners? Yes, we are. And there's probably some other opportunities that we're trying to work on just now that over the next 5 years could mean that there's some upside to those numbers.

However, the sort of mantra that the team has got to be, we take the opportunities that are going to deliver the ROI and the 25% is absolutely critical, which is why we are so confident in the sort of what we've delivered this year and the pipeline going forward. In terms of franchise opportunity, franchise is currently 22% of the total estate. We've always said that we would feel very comfortable moving that towards 1/4 of the total estate. So with our 15 current franchise partners, we are constantly looking at other opportunities and working with them to try and find the right balance and catchment around what's a franchise opportunity versus what's our company-managed opportunities.

But if I look at -- if I sit with the Property Director and I look at the pipeline going forward, it is a very healthy pipeline, which is why we've got the confidence to say actually in the whitespace review, we believe there is a space for at least 3,500 shops across the U.K. And so we're confident in that number, but it will always be about the quality of the funds. Question just at the back there.

Ross Broadfoot from RBC. Just one on like-for-like growth at the company-managed sites in a couple of parts. Which segments of the estate are driving the like-for-like growth? Is there anything you would pick out about different locations? And then secondly, could you give any color on how much of that like-for-like is being driven by the maturation of newer sites? Obviously, just trying to get a bit of steer on how the mature estate is performing.

Yes, yes. At the rate we're growing, Ross, typically, the sort of tailwind for maturity from new shops is about 20 basis points in the like-for-like number. So it's not huge. I mean, so if we stopped growing today, I would expect it to drop by about that sort of rate. And in terms of different performance across the estate, the only thing it's -- I think the mature high street estate is slightly slower than the newer locations that we're moving into where typically you would be accessing them by car. It's not a huge difference, though, but there is a slight bias towards those, which is why we're keen on getting more of those over time.

The interesting thing is how they perform in the heat wave, though, is very different. So I mean, it's kind of logical, but those walk-in locations are much more affected by the heat wave and particularly later in the day, the breakfast period tends to be quite robust as that temperature builds later in the day. If you're out in the heat, you're much more affected. If you're in an air conditioned shopping center or office area or indeed a drive-thru where you're in your own car, actually, demand holds up much, much better. So it's purely -- it's about the customer and what kind of condition environment they're in as they're shopping makes quite a profound difference. Now you can't change that shape of the estate overnight, obviously, but it's been quite interesting just to see.

We'll probably take 2 more questions in the room, and then we'll check if you get anything online Russell. Give it to Conroy as well because he's had his hand up a lot.

Conroy Gaynor of Bloomberg Intelligence. So Richard, as you reminded me, you do still have a few months left in the role. So in case I don't get to say this at Q3, I just want to say congratulations. Thank you for everything and wish you all the very best. So question #1 on going back to the heat waves. While it's still a challenge, it seems like you're doing a better job of managing things on the revenue side and the cost side.

How does that actually work in practice? Like how do you maintain that degree of flexibility from like a labor scheduling point of view or menu point of view because that still must be a challenge in itself, right? And then the second one, just to pick up on AI. Has there been any areas of real positive surprise or maybe even negative surprise on an ROI perspective that perhaps is less obvious to us from the outside looking in?

Sure. Let me probably take those. But yes, I mean, it's a fine art in terms of managing costs when you've got the heat wave coming. I think what we have done this year, though, is we have been using data analytics much better to predict when we've got these heat waves coming. So to your point about managing labor, you're sort of always trying to manage that 3 weeks out. And I would say that the retail operational team has done a fantastic job at trying to spot 3 weeks out those trends, keep labor at a level that we think is right for the savings that we're going to take.

And then you can increase it because you can almost offer overtime shifts and allow people to come in should you start to see an uptick or should the weather not be as hot. So I think there's been lots of learning from last year, and the team have done a brilliant job this year. I think the other thing is we're doing lots of experimentation on menu. So we took some learning last year around what do you want to eat when it's hot. And actually, some of our freshly baked options, you don't want to eat. So what we've actually done in certain locations, particularly down south certain key weeks, we've reduced that range.

We've actually just said from a production baked plan that we send to the shops every evening before, less of these products. And again, that's trying to sort of take some learning around actually, you still have availability, but you're reducing your waste, you're reducing your wage costs. So therefore, the whole cost scenario becomes much stronger, which is why the profit drop-through has been much stronger this year, even though we've had the hit on sales. I think there's more learnings to be taken. So just now part of the reason that we're doing some small experimentation is what else can we learn this year because the hot weather patterns are just now a feature of the U.K.

Therefore, we just need to build resilience in. We've also got in about 250 shops, we've got very slim self-selectors that have got ice lolly, ice cream type products. Again, it means if you come in for your ice drinks, there is another product that you might want to buy. So really trying to focus on that resilience is absolutely critical that being agile, both in the range that we've got out because if you think about it, our colleagues every morning choose how many sandwiches we're putting out. We send down a production plan to them, then they make those sandwiches. We can reduce that should we think we need to. You've also then got products with life. You get your salads, you've got your fruit pots, you get yogurt, they've got with life.

So again, they help sort of bolster the range and then you can pull down the bake plan as well. So there's a number of levers that we are getting better at managing, which is part of the performance this year. In terms of AI, I wouldn't probably talk about it in terms of ROI terms. I think it's more about the pace that you can do things. So we've had a few presentations that have come along to us that sort of executive team in the business that are actually showcasing to us, particularly areas like our software engineers and areas like maintenance in our shops where actually we are able to do things much quicker because we're using AI.

So 80% of what the software engineers are doing now is actually done by the Agentic AI first before then they intervene. Now they've got to have the scale with AI, what you've got to do is you've got to have the skill to design the right prompts, ask the right questions and then set the AI up right to sort of manage that for you. But we're finding that once that Agentic AI is set up, actually, it is delivering a faster pace and better productivity.

In our customer service areas and our colleague service areas, we're finding that the throughput of queries that the team can deal with, so the SLAs are just getting quicker and quicker, which should lead to efficiencies then in terms of the number of queries you get or the number of people you need in those teams. So it's probably many faster benefits, but it's all about driving efficiency and pace. Russell, we will come to you as the last question in the room, and then we'll just check if there anything online.

Well, I guess the honor of the last question comes to me, but unfortunately, the last question that I had was just asked. So I'll move on to my weaker question. But before that, I just want to say thank you for Richard for your help, and I hope to see a good improvement in your cycling times going forward. So not really much has been asked on Tenerife, and I appreciate it's very small, but could you just talk about the seasonality of that business and how that -- what you do might change through the year because I assume it's busier in the summer and a bit quieter through the winter.

Interestingly, I think the learning for those of us maybe aren't regular visitors to Tenerife, we're actually in low season just now in Tenerife. So we've opened in low season. And actually, in Tenerife, I guess it's the -- can you move into high season as you come out of the summer months of September, October, actually becomes a high season. So I guess the good piece is opening in low season and still delivering the sales numbers actually allows the team over there to become operationally proficient in the great way of operating.

So there's lots of work just now going on in terms of that operating model. When we opened, actually, we didn't open at breakfast time. We actually opened after breakfast time. We've now pulled the hours back to get the team to do breakfast. That's providing a very compelling opportunity. And then what we're also doing, I mean, Lagardère there are a very strong travel operator. What they are doing is they're now working with Tenerife South Airport around the flight schedules coming up because I think the key piece in an airport like that is making sure you are very well signed posted as you come through.

So actually, you can see there's a growth there, but making sure you start to match your production and availability and resource with the flight schedule. So there's still some more work to be done. But we actually see the uptake in sales probably coming beyond September when actually we see the flight schedule really ramping up. So we're in low season just now about to high season.

Just one thing if I could add, I mean, a really interesting thing that's starting to emerge, and we've seen this in shopping centers as well in the U.K. is that some of your demand isn't just coming from travelers, it's coming from people who work at the airport. And as your reputation for what you provide and what the value proposition cuts through and the word gets around in the airport, people are starting to use you and there's a base trade that's building, which is the employees of the airport as well. And that's really interesting, I think, because many of them will perhaps not be familiar with Gregg. So that's a great experiment.

Anything online that we've not got to?

I think we are good. Thank you.

Excellent. So well, I think just a final thank you to Mr. Richard Hutton for his interim results and all the support that he has given me. And thank you for your time today.

Good morning, and welcome to those of you in the room. Nice to see a lot of familiar faces, and welcome to those of you who are watching online.

So the agenda today will be in the usual format I will provide an overview of the results we announced today, along with some key highlights, and then I'll hand over to Richard to take us through the financial performance in more detail, and I'll then take you through our strategic progress. And finish with the outlook for the year before I take your questions.

So we continue to make progress despite challenging market conditions, as you can see from the numbers on the slide. As you can see, total sales growth of full year '25 is just under 7%, and that includes 2.4% on a like-for-like growth for company-managed shops and not on the slide but it's also 4.3% for our franchise shops. Underlying operating profit and underlying TDC are both in line with expectations. With operating cash inflow, 4% -- 4.5% higher than 2024, and we are proposing an ordinary dividend of GBP 69 in line with the year before.

Operating cash generation remains robust and will build further in the coming years, with CapEx also stepping back from its peak in 2025. This provides significant capacity for additional returns to shareholders which Richard will provide more detail on in a few minutes.

So we are outperforming the market. So just to spend a couple of minutes on our performance versus the market. I'm pleased to see that the recent data from Circana to the end of December 2025 shows that we have increased our market share of visits by 0.5 percentage points to 8.6% at a time when the overall market visits have declined by just over 3%.

Pressure on income does continue to be the main driver, and convenience for the consumer remains the priority with location, access and channel flexibility critical. There is some evidence of guide through trends but that is a relatively a small factor. The breadth of appeal we have alongside our value credentials and the continued innovation in the business focused on menu value and convenience alongside the strength of our vertical integration ensures our resilience when market conditions are challenging, but it also remains our formula for our long-term success.

So I will now welcome Richard to talk about the financial performance in detail.

Great. Thank you, Roisin, and good morning, everybody. I'll start with Slide 6, which just gives you the high-level overview of the profit in the business over the last year. So you can see sales up almost 7%. We did have a reduction of 4% in operating profit and 9.4% at the PBT level. And as we highlighted back in January, we've pulled out a small exceptional item which relates to an understatement of VAT, which we self-identified but goes back a number of years. So in reporting these results, we pulled out the element that relates to prior years so as not to distort the 2025 number.

So that gives you an underlying PBT and then the full PBT for the year of 167 million. The income tax charge, we'll show you later, slightly higher than normal, which I'll explain, which gives an impact on diluted earnings per share, which were down 10.7%. And we'll get into some of the ratios behind that in just a moment. But first, on Slide 7, we'll dive into the segmental analysis of sales. So we segment ourselves into those from company-managed shops, and those that are through the business-to-business channel, which is primarily relationships with our franchise partners that get us into locations we couldn't otherwise reach. It also includes grocery channel development in the B2B channel, which obviously has moved on slightly in the last year as we launched with Tesco, a small rate in Tesco back in September.

But most of the progress here relates to the addition of shops and like-for-like growth through the B2B channel. So undying each of those, as Roisin has already said, we've got 2.4% like-for-like through the company-managed shop channel and another 4.3% like-for-like growth through franchise system sales. You can see the overall rate of growth in the B2B channel is slightly higher, that partly reflects that like-for-like position. But also the proportion of shops we're opening through franchise relationships is about 1/3 of our net openings. So as a proportion of the base, it's a faster rate of growth in that channel. And if we look on Slide 8 at the relative performance of Greggs, I mean, machine has already flagged to you that we've taken a significant amount of share in the last year.

This tracks one of the benchmarks that we've pulled out to give us a feel for how Greggs has performed versus the overall food to go segment. And the yellow line on this chart is the Barclay card data that they publish for the eating and drinking out-of-home segment. So that's all retailers who are identified as being -- serving the eating or drinking out of home. And you can see that Greggs' like-for-like performance, the dashed blue line tracks that quite closely. So our like-for-like performance has been broadly in line with the market, but we've significantly outperformed the market the growth in our new stores and the addition of extra channels such as grocery.

So total sales growth significantly ahead of the market on that measure. Turning to Slide 9, the ratio analysis of the P&L here reflects some of the volume pressure and also the investments in the year, which will benefit us in future years. So if we work our way down, you can see at the gross margin level, a relatively stable position. We saw a more balanced position between cost and price inflation last year and a smaller amount of dilution from the increased participation rate in our app, as people take advantage of the discounts available for shopping more frequently with us.

In distribution and selling costs, that's where you see the sort of more of the operational gearing in the business. So there's a couple of things there. The volume impact last year has a gearing effect in terms of the fixed costs such as rent on the shop but also the recovery of wage cost inflation. There's a slight under-recovery there because wages were one of the most inflationary elements last year, which I'll come on and show you in a minute. So some dilution there on the ratio. And then we see the opposite effect in admin expenses, where we've controlled the overhead in the business well, and that gets leveraged more heavily as we grow the estate and spread it more thinly.

So overall, underlying operating profit down by 1% in margin terms. And then you see an increase in the net finance expense. The primary driver of that is that in 2024, we were holding a lot of cash on deposit, which we've subsequently been deploying into the investment program. We obviously haven't enjoyed the interest coming in on those cash deposits in the current year. And then at the very bottom there, you can see return on capital employed, which is one of the key things that we focus on as a business. The ROCE 2025 was 16%. That reflects the investment in capital employed as we've deployed cash into the program of capital expenditure that we will update you on in just a second. But obviously, the top line performance as well.

Now, we've talked in the past about that we believe 20% is a good long-term estimate for what we believe Greggs should be able to deliver. We still believe in that, and I'll describe to you in just a few moments our thoughts on how we progressively get back to that going forward. Turning to Page 10. You've got the usual analysis here of the Greggs cost base, which emphasizes just that people costs and food and packaging are the two biggest areas. The good news here is that we expect a much less inflationary year ahead in 2026. We saw 5.6% cost inflation in 2025. We expect that to be closer to 3% in the year ahead, which is a real change from the last few years when obviously, inflation has been a real headwind.

Food & Packaging will be part of that. We expect that to be a very low single-digit figure for the year ahead. And we've got about 4 months of our food and packaging needs covered. Energy is obviously quite a volatile market at the moment. We're pleased to say we've actually got all of our electricity covered for this year, and that is the vast majority of our energy mix. We've got more than half of it for next year as well. So we're in as good a place as we could probably hope to be, given the COVID environment. The main thing we were exposed on is diesel costs, which is about an 8th of our overall energy mix. So it's relevant, but not a big factor.

People costs are the biggest part of the cost base and were very inflationary last year with a combination of bigger increases in the National Living Wage and obviously, the national insurance pass-through as well. So we saw just over 8% wage inflation or wage cost inflation last year. We expect that figure to be close to 4% this year balance of the pay award, which we've made and also some annualization of that national insurance increase. And there's a phasing impact here as well because we've negotiated to move our annual pay award. The majority of it will buy it in April now. It's previously been aligned with the calendar year in January. That helps us to align more with the national living wage increase going forward. But it means that we'll have relatively low wage inflation through Q1 of this year. So there is a kind of a balanced factor in terms of when cost inflation comes in this year.

We think that will help the first half results. And we do expect to see relatively strong profit progress in the first half. We've guided that for the year as a whole, we expect that to be a relatively flat year because we've got the cost of the new Darby side coming in the second half. So there's a bit of trading off there between H1 and H2. And then the final piece on shop occupancy costs, rents are relatively stable as a cost ratio, and there is some benefit from the changes to business rates. So you'll be aware that in the budget, there was a change made to benefit more shops. We believe that, that will benefit, Greggs, on an annual basis for about GBP 4 million from April.

So GBP 3 million to the current financial year. Sticking with costs on Slide 11. We obviously work each year to try and reduce our costs and to offset the cost pressures through our cost reduction initiatives. And we have a good track record in this, and 2025 was the best year ever in that respect. So we took about GBP 13 million out of the business through our cost initiatives in 2025. I thought it was worth just giving you a bit of color on the sort of things that we've been doing. The retail area is obviously where most of our cost is. And in that sense, using sophisticated workforce planning tools is a key element to make sure we deploy ours optimally in our shops to make sure we get the right balance of service and cost. So we've been putting a new planning pain, which has been very effective. We've been using technology to automate non-value-adding tasks and increase the speed of service. And some good examples of that are new tiller.

And I hope some of you if you've been to Greggs recently will have noticed that the actual experience of paying at the tier is actually faster, and I've certainly experienced that with our new till wear and our new payment terminals. Temperature monitoring is a huge task in our shops to make sure that we keep everything food safe, and it's a very manual process currently. So we've got some interesting experiments going on with automated monitoring, which we think will really help the business going forward. In supply, the game there is really taking advantage of the fact that we own our own supply chain to do end-to-end reviews, which make sure we optimize the route through our supply chain, all the way from our suppliers through to shops through our distribution and manufacturing operations.

And by making sure we get the right packaging and ingredients in the right sizes, they flow through really efficiently. We get a real cost advantage. So we're constantly looking at how we optimize that. We've been in housing some of our manufacturing, where we've had additional capacity come on stream that's allowed us to do that. And looking forward, there'll be more opportunity for automation as the new sites in our distribution chain come online. And the offices have a role to play as well. So in our support teams, technology is starting to help us with automation on desktops new systems for customer and shop support, which are making the whole process more productive. It's meaning our teams can cope with the growth in the business without adding more resource.

And increasingly, AI tools will support that even further going forward. Let's talk about CapEx now on Slide 12. So you can see the peak year for CapEx in Greggs, GBP 287 million that we invested in the business last year. And if you look year-on-year, you'll see that the retail side of that in terms of new shops, shop fitting and equipment was relatively stable. We had a comparable amount of activity in terms of opening shops and refurbishing them. But the big difference was in the supply chain, where we invested GBP 147 million across our operations, including the new sites to create capacity for the future. There's also a step-up in IT where we're putting in the upgraded SAP system, the S/4 HANA version, which is going well, and we got the first elements of those -- that installed in the summer.

If I turn to the forward look on Page 13, I think this is the instrument piece. So if you look beyond this year, we've got a substantial decrease in the amount of capital expenditure from this year onwards. So CapEx reduces to around GBP 200 million in the current year and then it reduces further, and we've given a range of GBP 150 million to GBP 170 million from '27 onwards. And in looking again at the CapEx program through this phase, we obviously kind of came in under the guidance last year. We've looked hard at the out years as well. We've taken about GBP 20 million, GBP 25 million out of the capital intensity looking forward here.

And the interesting thing in the backdrop to this slide is if you look at the gray sort of shadow behind, that's the operating cash generation of the business. And you can see how essentially last year, we were utilizing all of that in terms of the CapEx investment program. But as we go forward, a huge gap emerges, which is effectively the free cash position that will give us discretion. Obviously, that has to fund the ordinary distributions in the business, but we start to see some quite substantial headroom as we go through next year and onwards, particularly. So scope for further returns as Roisin indicated at the start of this Page 14 talks about our shop estate expansion.

And a quick reminder, first of the sort of metrics we use to manage and our expansion against strong return rates. So we look for a target return rate cash return on the investment that we put into both our shop and the supply chain that supports it. And we typically achieve that after 2 or 3 years and the shops go on to achieve a mature performance in excess of 30% on an ROI basis. And generally, the growth locations that we're moving into are outperforming the traditional estate. And we talked to you in the summer a lot about incremental growth and why we were not concerned about cannibalization. And just to reiterate some of the key points that we talked about then.

In new catchments where we're landing shops, 53% of our shops last year were in areas where there is no existing Greggs within a mile. So we are pushing into areas where people just don't have access to rigs. And even in those areas where there was a shop within a mile, the recorded level of sales transfer from the existing state was less than 5%. And we factored that into the shop appraisal to make sure that when we make the decision, we know it's still going to make an incrementally good return for the business. And that was proven again in 2025 with the look back test on cannibalization. And the other great measure we have is by using the app data.

So we can see from the app data that the frequency of visit for Greggs customers increases when you give them access to more shops in new convenient locations. And we ran some data that we showed you in the summer. We've rerun that again at the end of the year. And again, it confirms the incrementality of the visits and the increase in frequency that we see when we become more convenient. I mentioned ROCE earlier, and Slide 15 talks a bit about the levers that we'll be pulling to restore ROCE over the years ahead. Obviously, that estate growth is absolutely key because growing the estate to utilize the capacity that we're creating is 1 of the most important elements of that. So it's great to see that we're still getting those strong returns and that white space exists. We'll be accessing that both through our own estate growth. and through the partnerships with franchise partners that give us access to areas we couldn't otherwise get to.

We'll be disciplined on capital allocation. And you can see we've trimmed the CapEx a little bit. We'll hold that as tight as possible going forward. while still making sure that we maintain and invest in the business. But we're in a position where we've deployed an awful lot into the supply chain, and we've got that capacity there to use. So it will reduce the amount that we need to invest in the years ahead. And as I've described to you, we continue to explore further cost saving and productivity opportunities. The team are enthused by the success and want to drive that even harder as we go forward. And then finally, obviously, there's an element which is driven by the market and performance in that.

But also we have additional income streams that we've been pushing and accessing. You've heard about the Tesco development that we put in place in the autumn of last year. That will be a more material factor in the year ahead, and we've expanded the reach of that into more stores. Roisin will talk to you a little bit about some of the stuff that we've been experimenting with in terms of convenience retailing, where we've been looking at some concepts, which will help us to access smaller locations that can't support a great store with both automated and manual sort of vending solutions. And there are other things in the background that we're not quite ready to talk about that we've been working on, which we believe will also leverage the Greggs brands to drive additional income in the years ahead. So more on that to come. So packaged together, we still are targeting and pushing ourselves to get that return back to where [indiscernible].

Just finishing off Then with balance sheet, tax and dividends. The cash is in a decent position despite the big investment phase we've been through. mean the cash inflow of GBP 273 million is a real strength of the business at the operating level. The net cash position at the end of the year was GBP 46 million. That was supported by GBP 25 million drawn from the revolving credit facility. So we actually had about GBP 70 million in cash. And we've got liquidity of GBP 146 million with the remaining undrawn element of our RCF. So plenty of Alba room should it be required. And a quick reminder of our capital allocation priorities. Number one, invest to maintain the business well, keeping that strong balance sheet, and we target about a 3% of revenue cash position, just to deal with the seasonality through the year.

An attractive ordinary dividend that's 2x covered by earnings, and you'll see that we've maintained that again this year and then selectively invest where we see attractive returns for growth. And then finally, of course, to return any surplus cash to shareholders. And that could be special dividends. It could be buybacks when we get to that point. We're open-minded about that, and we'll make that decision based on what's the best route for that cash at the time. And finally, just the figures to finish up on tax and earnings. The corporation tax rate, I flagged earlier was slightly high. It's about 1% higher than we would normally expect. And that relates to the allowability of deductions relating to share options. The fact that the great share price was lower, I mean the deduction you get for tax itself on share option exercises was itself lower. So that's a temporary thing.

And looking at our forward guidance, we still believe that being about 1% ahead of the headline rate is the right way to model the tax rate for Greggs going forward. So overall, the underlying EPS was 122.8 and we've declared a final ordinary dividend of 50p, which gives you 69 for the full year, and that's maintained at the same level. As in 2024, And as I just indicated, we look for an earnings cover of 2x. And as we get back to that level, the dividend will grow again. So as a quick run through, I'll hand you over to Roisin to take you through the plan.

Great. Thanks, Richard. So I'll just spend a few minutes, and I will talk about the operational and strategic review for the business. So on the slide behind me, you have just got the Greggs formula for long-term success. So I just want to reflect on the things that have made and continue to make break successful. And these are particularly important when the market is tough because they differentiate us from other brands and they're integral to the strength of the business. So the first factor on the slide is the breadth and choice that we offer to our customers, enabling them to shop with us frequently. And this isn't just about product range. It's also about the flexibility we have to operate in so many different locations and channels and be convenient and accessible to customers when they are on the go.

Next is our value leadership. And we pride ourselves in this, and we have got a long-term track record of being #1 for value for resale deferred food and drink, and that hasn't changed. It continues to be a key focus area, and we remain #1 Innovation and rapid evolution is, of course, key because food taste and drink taste change over time. We work hard to ensure we stay relevant and constantly innovate to drive profitable sales growth. And we've got a strong track record of this for many years, innovating to meet changing needs diet trends with great value options, demonstrating has now been #1 in the out-home market for breakfast and #2 for coffee.

Our focus on spotting trends and then following them fast with great value price points continues. And finally, our vertical integration drives quality and efficiency that is a genuine competitive advantage versus the market. So let me talk through those areas in some more detail. So we are the fastest-growing brand in Fit. So in terms of market context, this slide in front of you is from Circana data, so it demonstrates the strength of the Greggs brand across all of the key day parts and missions and employees to report we're #1 in Breakfast. We're #2 in Lunch. We are #3 in Snacking, and we are now #4 in dinner and in delivery.

So you can see how strong rigs continues to be in the traditional areas of Lunch, Breakfast and Snacking, but I'm particularly pleased I can show you as moving up the rankings later in the day and on delivery areas that, as you know, we've been focusing on. As I said earlier, our market share has grown from 8.1% to 8.6% in the fastest growth of any brand in Foor [indiscernible].

And at the [indiscernible] you can see in terms of the segments that we represent in terms of the demographics. When you compare the market share of visits with great set of visits we are pretty much in line with the market. Having broad appeal across all demographic sets is another great strength of the brand. And on to value, value leadership remains critical for us. We remain market leader with the gap to our food to go competitors widening. You can see that in the chart that plot the YouGov data over the past 4 years, and Greggs is the yellow line at the top.

A fresh prepared food and drink, the hot options we provide and the customization we offer ensures we are differentiated from other value operators such as the supermarkets. We also know that our loyalty scheme and the value deals that we offer continue to deepen the value for customers when they shop at the rigs. And on Slide 22, we're just looking at the site. And we have shown you this chart before, but it just demonstrates how the business has been evolving over the last decade to reshape and move into the new catchment areas with different customer missions, ensuring we are well positioned to be more convenient for customers on the go. Now if you went back 10 years, then the traditional element of the state which is the blue the blue segment and mainly on high streets.

That was accounted for around 80% of our total shop estate. And as you can see, it is now 50%. And the traditional estate segment, a relocation strategy has been key to our continued success, and we've relocated around 15% of those shops since 2019. making sure that now they are in the best locations. We do treat those relocations as new shops. So they don't appear in terms of the growth in our like-for-like numbers. And in the underrepresented catchment, the new shops that we're opening expand our reach and continue to deliver strong returns. Our target for this year is around 126 net new shops, which is the same as last year. And just to bring to life the underrepresented catchments. So these are areas such as roadside retail parks, supermarkets, travel locations.

Given that you see greater balance and accessing new locations and strong returns, we demonstrated last year, and Richard has talked about it earlier in terms of our summer presentation. These new shops do so without affecting sales in the estate is incremental growth. The chart on the slide demonstrates a significant expansion opportunity we continue to have. So the blue bars on the slide show our current penetration. And as you can see, with the exception of industrial locations, no other location has yet reached 25% penetration.

Our successful expansion strategy continues to target these areas where we currently have that low penetration most typically remote from our current shops. So again, Richard talked about last year, over half of our shops are opened with no great shop within a mile. The planned openings for this year have a similar profile. And we're saying in terms of the numbers on the right of the chart, the white space work that we've done in terms of viable locations reflects the opportunity for our full-size grade shops. But we continue to be at in terms of our formats. So the format flexibility we have and expanding further will unlock opportunities that are smallest to fill service operations are simply not able to access. The trial of our first 3 bite-size shops, it's early days but promising. And we have some further trials planned very shortly, which will unlock other opportunities with strong returns.

And as Richard said, the innovation doesn't stop there. So we continue to come up with more innovative ways to make sure that we can provide the convenience for our customers to unlock additional customer missions. So we are looking at some unattended retail solutions unattended retail solutions is the new word for vending. So we have a number of trials that are in the pipeline currently that we will talk about as we embark on those trials. The format evolution is complemented by increasing the channels and day parts that customers can access Greggs through, as you will see on the slide Richard mentioned it, but we updated last year that we increased our range in Iceland, and we also expanded into Tesco. We started when we talked to you last year with 800 larger Tesco stores we had just expanded into a further 1,900 Tesco Express stores.

Pleasing to see that delivery continues to grow. So it's now at 6.8% of our mix. And we know that these are incremental sales and they deliver a higher basket size. We are now working on some improved technology that will mean we can support this channel better and grow it further. And loyalty, I think I said numerous time before, continues to surpass our expectations. So now over 26% of our transactions are scanned through the app, and that allow us to increase our CRM engagement with customers. We've been doing something called Greggs Quest. We rolled that out to all of our customers in November. And really, that's challenges that encourage the customers like rewards and visits and [indiscernible] come back to us more frequently.

Evening, very pleased and see it still remains our fastest-growing daypart, so it's now at 9.4% of our sales with easing deliveries still being a significant growth opportunity. We continue to be really pleased with the steady growth that we're seeing in the evening day part. We're still growing ahead of the average like-for-like rate, and it's very similar to the long-term growth pattern that we established at breakfast. And at the heart of rigs is our range. So our menu sits at the heart of rigs, and we win by delivering on our purpose, making great facing fresh prepared fit and ring accessible to everyone.

This translates to democratization of food on the go. Rapid evolution of value-focused menu actions is key to meeting consumers change in taste and requirements. As I've shown you earlier, Greggs is a brand with broad appeal. We are representative of all demographics and we don't over-index significantly in any one segment. Dietary trends have always been a key factor in the evolution of our menu and the breadth of choice that we offer. And we've worked hard over many years to ensure that we have choices available for everyone throughout the day. Our performance continues to be driven predominantly by the broader macroeconomic pressures on consumer spending. But we do monitor developments around weight loss medication closely.

Consumers on best medication still seek convenient food on the go and we're already catering to a number of those dietary trends. So the demand for fiber, higher protein and smaller portions, which forms part of a much wider health trend. We have introduced last year a number of products such as our Ginger and Turmeric shots, our protein shakes, our egg pots, and we've seen strong growth in those high protein items that we offer. But we continue to evolve the menu. We continue to make sure we keep it fresh, we keep it relevant and we excite customers with new products and new flavors. Some examples would be the Conduit Chicken pizza and the Red Pay Per feta and Spinach break. And as you would expect, we have a pipeline of new ideas and innovation to ensure that we continue to evolve the range and provide the new exciting products that our customers want.

So not sure if any of you in the room are much fans, but we have just introduced to the menu a couple of weeks ago, our Ice Matcha Latte at very affordable price point of GBP 3, so if you haven't tried it, you should rush out a rig and get one. The rest choice that we offer and our ability to enter new categories at value prices enables and ensures that we stay relevant excite our customers with new choices, focus on market trends and support the expansion into the new channels and the parts that we offer. And then on to our supply chain, which I have spoken about many times, but to support our growth plans. You know that we have invested in further supply chain capacity, primarily the 2 new state-of-art national distribution centers creating overall logistics capacity of up to 2,500 shops. Both sites are on schedule and on budget with Darby on track to open later this year and catering in 2027. This approach to capacity expansion benefits from productivity improvements from automation, enabled by the scale of our operation at those sites.

By picking upstream, the new sites increase the throughput and capacity of the existing radio distribution centers, which will still continue to serve our shops. I want to thank very much time on technology because Richard has covered a number of these areas, but we do continue to invest in technology to enhance our growth while ensuring the robustness of our process and driving greater efficiency. As Richard just said, we have successfully migrated our finance and procurement processes to the new SAP S/4HANA system from August last year, and we've gotten further migration in some key areas this year.

Richard has also talked earlier about the past, we're automating in our shops to support service and efficiency, which is really important and the CRM capability for our support teams that has AI functionality. So our support teams can now use that to serve both colleagues and customers better and faster. And last part on the slide, our data capability continues to improve, which supports all -- as of the business and helps us make better decisions. But we continue to pride ourselves in doing the right thing with significant progress on our commitments to the regaled which is our approach to ESG.

our original commitments that we set out took us through to the end of 2025. So we spent a lot of time last year, engaging with a broad range of stakeholders to shape the future priorities for 2026 and beyond. Really proud to say we made a significant progress across all the areas of our Greggs pledge. On the slide behind it, you've got a number of highlights great progress on reducing our carbon footprint, reducing unsold food waste through our Greggs outlet and making progress in ensuring that our packaging is easily recyclable for customers. We're retaining the 3 core pillars of our [indiscernible], the stronger [ houser ] communities, safer planet and a better business, still see at the heart, and we're now launching our next 5-year pledge commitments.

So finally, looking forward now into 2026, we have a strong pipeline of opportunities to open new Greggs shops attachments that will deliver strong returns. Great progress has been made in building the supply chain infrastructure for this next phase of growth. In a challenging market, we continue to deliver both like-for-like and total sales growth and make great progress against our strategic plan. Our like-for-like growth for the first 9 weeks has been 1.6% and total sales have grown by 6.3% with strong cost control supporting profit progression. Our expectations for 2020 are unchanged, and we remain confident in the growth opportunities available to Greggs and our ability to progress them. So on that point, I will just pause and then Richard and I will be happy to take your questions.

We have got a couple of roving mics in the room. And I think Richard is also going to monitor questions from those of you that are online. So thank you, and I will take your questions. I'll start from over here.

Jonathan Pritchard from Peel & Hunt. Two from me for me. Firstly, I think I try to remember whether a call or a meeting. But you talked about clarity on deals and marketing those deals better. Could you just tell me how you progressed on that and whether there's a sort of slight difference between franchise and owned stores in those deals and the communication. And then secondly, on current trading, just a bit on shape really. I was surprised I didn't see the word weather and rain in the statement because clearly, that is something you hate way. Is there any change there since you still running, has it got a bit better? Just any additional comments, please?

Thanks, Jonathan. I'll let Richard take at [indiscernible] traded and I'll go back to marketing.

Yes. So I think the weather has been bad on bad really, hasn't it? Clearly, as you'll notice, particularly in the South England, it was an incredibly wet January and -- but we had storms last year, and we had snow last year. So I think we've had sort of bad weather in both elements. I think the key thing to call out in the trading so far is that there is less price inflation in the number. So the underlying volume position is very consistent with what we saw in Q4 running into the first couple of months of this year, but with less pricing. And we hope that, that puts consumers in a better place as we go forward.

In terms of the deals that are out there and marketing I just looked to by way actually with some of the sort of marketing collateral. What we did last year very successfully as we continue to lean into breakfast when I talk about market share moving from 8.1% to 8.6%. We've taken market share across every single day part. So that is really pleasing. What we did know is that we had a 2-part lunch deal, and we could see that in the marketplace. A common sort of feature of deals with a 3-part meal deal. So we then went big on our big deal, which was the 3 part real deal. We obviously do that through a lot of out-of-home marketing. So that's probably the biggest and sort of the way we try to reach the consumer. So here on the high street, you see a bushel somewhere with this point of sale, we will try to have the Greggs message there.

The other significant piece of marketing collateral we have is the digital screens in our windows. So again, they are up and down across the U.K., and we will work them hard to make sure that we punch above our way in terms of getting those big deals out there. The new piece for orders last year was in our app, so for our app customers we introduced a sort of cap part of sort of app sort of communication messaging as part of the app. And so now if you're an app customer, you will see the messaging coming up around what is the new products that we're launching. Our most recent one was the match, which we know we brought to the market at a value sort of leading time. But what we've not lost focus on is the 2-part break [indiscernible] as well because, again, that is a key part of offering value to the customers.

So the marketing team trying to do very successfully is lean in to the new deals, but they have an always-on strategy to make sure that what we are known for and what is value, we also get that message out there. In terms of your question around franchise, the deals are the same. So I guess we reach customers, it doesn't matter to customer if it's a franchise show for a company managed to. They are shopping at drags and therefore, we want to make sure that we get the same message. The one difference that you have on a franchise shop is price point because obviously, they set their own price points, and we've got some ceilings around that. But again, the team will work for that franchise partner to make sure that the digital screens are used to reach customers with that value offering. And even in a franchise location, we will still be the best value operator by far in that location.

It's Richard Taylor from Barclays. I've got three questions, please. Firstly is on your 20% ROCE target. Even with fixed capital employed, that would imply profits quite long way ahead of where people are expecting any out years now. I know you're not saying in 2028, but how should we think about the lift there? Is that utilization of supply chain? What other things should we think about?

Secondly, how should we think about your pricing this year with a 3% like-for-like cost inflation? I know you moved at the start of the year, you done now, would you expect to move again. And finally, you've historically held a cash buffer, which you still have. But when we look forward, your slide on CapEx, Richard, what do you think about your plans for cash in FY '27 and FY '28 is a buffer that you still would like to hold in those out years as well?

That sounds like my tear sheet, doesn't it? It also allows me to address couple of points that have come in online actually, which are also about that cash position. So Jose, if you ask about capital allocation, I think you probably asked the question before I presented on capital allocation. So hopefully, you're happy on that.

Salman, you asked about debt on the balance sheet, which I think links to Richard's points. So we had about $25 million of debt on the balance sheet. We've actually repaid that since, but we'll probably draw some more down from the RCF when we paid the dividend in April, May time. So we'll be using the RCF through the next year. I suspect we probably won't need to use it next year onwards.

And Simon was asking me what's our forward plan in terms of is it structural debt or is it not it's not I think, again, the capital allocation policy hopefully explained that, that we're looking for about 3% of sales as our sort of our cash buffer to manage working capital. The RCF is our reserve to enable us to weather any storms and we put in place after the pandemic came. I think it's a super important thing to have in place in case there was something like that again. Pricing, we're in a great place with pricing because we did make the increases, most of what we need to do for this year, we anticipate is already in place through the moves that we made in January.

So we'll see how cost inflation pans out through the middle of the year, but I'm kind of cautiously hopeful we don't have to do much more, but there may need to be some small tweaks, but generally, we're in a decent place already in terms of recovery of cost. And then the broker journey, I think you should see as a longer-term ambition. We obviously had a sort of perhaps a nearer-term plan for that before the experience of last year. It set us back a bit having negative volumes last year. We'd have to work a little bit harder on both revenue streams and on cost to get us back to that target. So certainly not thinking about it in terms of 2028.

And so I think probably the point at which we reach it is probably beyond the scope of sort of most of your forecast at the moment. But we strongly believe that effectively, it's a tweak to the plan before with a bit more sort of revenue and a bit more sort of action on cost. And we can see the opportunities.

Tim Barrett from Deutsche. Two questions, please. also. Firstly, what you say on first half versus second half profit growth is nice and clear. implicit within that, are you assuming a pickup in like-for-likes in the second quarter or the next 12 months in terms of just trying to square the circle really how you get profit growth in the first half of that number. And then a quick one on CapEx. Can you say what's implicit within your new 2027 and 2028 guidance on net new stores, please?

Yes. Yes. So on that final piece, in terms of net new stores, we're implying that we'll run at broadly the current rate in terms of about 120 net new stores. We're going to hold refits fairly tight this year. So we'll probably only see 50 or 60 refits so about half the number that we did last year, and that's part of the response to the capital intensity at the moment and also a reflection of just the longevity that we've seen in the current refit, which is standing up well. So we'll hold that fairly tight but expand at a net rate of about $120 million.

I'm going to link into another online question there where Joseph's asking what would the approximate maintenance CapEx be going forward? Typically, we've guided that to be about 5% of turnover. It's probably slightly less than that at the moment because of the investment in supply chain, which will hold us in good stead in the years ahead. So it's probably going to be slightly less than that at a maintenance level, and then you layer on that expansion CapEx. The like-for-like question, I think was about what do we need to strike the right balance in terms of progress in the first half.

Yes, we're probably -- I mean we would be opening, say, 1.6% in the first couple of months were slightly behind where we would have liked to have been. The good news is that the profit conversion has probably been stronger than we had anticipated, and that's a reflection of both some of the cost margin dynamics that I described. but also the fact that we gripped operational costs quite hard in the middle of last year as a response to trading conditions. And we're still carrying that strong position, and it hasn't annualized. So I think with the focus we've got on that in the business in the first half, we should continue to see the benefit, and it gives us a very strong drop-through in terms of the growth that we are seeing.

Thank you. Vince Ryan here from Goodbody. Two questions from me, please. Firstly, in terms of the supply chain investments, could you outline what you're factoring in that incremental cost from Darby in the second half of the year? And as we sort of roll into 2027, how much incremental cost should come on the P&L from -- as Katherine comes live. Just if you could also give us a sense in terms of the phasing of the date when sort of everything is in place versus how long will last you take to get the full operational capacity in terms of distribution centers.

And then secondly, in terms of the retail rollout, I appreciate you've got a lot more TESCO stores coming on stream this year for the frozen product. Any thoughts in terms of how incremental that could be to revenues and profits for 2016? And any options to bring those products into like Sainsbury's or as the other retailers?

I'll let Richard take your question, and I'll take the second part.

So yes, the Darby cost will be broadly what we guided previously, which we said of about a 40 basis point headwind this year. So if you sort of extrapolate that at current turnover levels, you'll see it's high single digits in terms of millions of pounds net impact on this year. That will then roll over and impact the year ahead as well, at which point we'll start to induce some of the catering costs. But we're then starting to see some of the leverage coming through in terms of the utilization of those sites. So that gives you kind of a bit of a clue as to what we expect profit progress in the first half to be because we have said we're holding the kind of the broad guidance that we believe it will be a flat outlook for profit this year with that decent underlying progress in the first half then held back by increase in costs as those come through.

Catering looks like it will be around the middle of next year in terms of its timing. So again, that cost annualizes out in the middle of 2 million. So I guess we get to the end of 28 having kind of taken the two big step-ups in costs through that period. And then we're into that leveraging sort of period going forward where addition of new shops comes at very little incremental CapEx. We're just investing in the retail side of it. And obviously, some of that will be franchise partners, which won't involve capital either. So we start to work it much harder from then on.

In terms of your question on where we go in the sort of grocery channel. The one thing I would say is we've had the partnership with [indiscernible] Foods and we know that we have not yet maxed out that partnership. So as we've seen, as we've gone to Tesco, actually, we're doing some other new products with Icon. So that tells you, actually, there's more to go with that original partner. I then think we've been very pleased with the progress in Tesco as have been.

And so what we're now doing is we are in discussions with [indiscernible] around how do we maximize the current partnership that we've bought. And if you think about it, with our partnership with Tesco, it's not just the grocery chain that we've got that partnership. We also have rigs within Tesco currently, and we have a pipeline other opportunities. So I think just now, it's about maximizing those 2 current partners in seeing that we are obviously in discussions with others. But our focus for this year will certainly be about maximizing the partnerships that we've got in place, which keeps it simple for us and means we can take the learning around what else we could do in the future. I would just come right behind just thought I will come over to this side of the room. So we'll go over the last the rumor after your sales.

Gary Martin here from Davy. Just a couple of questions from me. Just starting off on the cost conversion piece and just dovetailing off of some of the commentary from self-regard. It seems though from Slide 11, it looks as though there's a fairly elaborate plan in place in terms of cost optimization. Would you be able to maybe run us through how much of that is kind of low-hanging fruit? Or how much of the kind of hard yards are ahead just in terms of how you plan to optimize in the future from a cost base perspective. That's my first question. And then just a second 1 just on the market share piece. So I'd just be curious just to get to grips with the base all eating and drinking out of home index that you're using to measure market share growth off of -- does that include some of the retail meal deals, for example?

Should I call it low hanging. That's a good question. I don't want to sound easy. I mean the people have to work hard on this. I mean it does involve -- if it was too easy, to be honest, it wouldn't count as part of this sort of objective because it's about structurally changing the way we do things to make it more efficient and to tackle legacy costs that we don't need anymore. And that's important because there are always new costs coming into business as well. tend not to talk as much about that, but when we bridge profit year-to-year, there's always something new that you have to do either from a compliance point of view or to make sure that you are secure and embracing the latest technology. So looking at legacy costs and taking this approach that we do is super important.

I think there are things that we can see, and there are always new ideas. Sometimes they're inspired by things that people achieve and one group sort of like achieve breakthrough and others then think, oh, okay, we could do that and sort of learn. So sharing within the business, comparing notes with other businesses that we have good relationships with to see what they're doing, also helping that. So it's quite a big program. And whilst it might not be dramatic in any 1 year, just by working every year it is and sort of keeping that sort of pressure on celebrating gains, however small it sort of just encourages people to keep looking and turning over stones that have been turned over before and because the world changes. And if you look back 5 years, you can see it's a very different place, isn't it? And the things that you thought were important then may not be as important today.

So yes, it's -- it's hard to I wouldn't call it low-hanging though, otherwise, it would just be what took you so long. You have to work at these games.

On market [indiscernible] data that we use is Stated Behavior. So that's asking the consumer were do they eat out of home and it to to-go. So it will include any of the behavior in the likes of the food to go of a test scores, et cetera, is included in the Circana Data. So and it's asking customers on a regular basis, we have the purchased recently, which is the best sort of metric on market share that we've got. So we will have all the businesses in there and it was to go part of the supermarket for [indiscernible] as well.

Just to pass on the mic. I'm going to take an online question, if I may. One from Darren Shirley at Shore Capital. It's traditional at these events that Darren asked me to split out the price inflation and volume aspects of like-for-like and that I refused.

But I'm going to shock him today by actually doing it. So Darren says, what's the inflation contribution to the 1.6% like-for-like so far this year. Just under 4% is the answer, Darren. And we had just under 5% last year, so that's the 1% sort of reduction in inflation. So you can see that slightly over 2% was the volume impact year-to-date.

So we're coming to [indiscernible] then we will come over to the other side.

Ross Broadfoot from RBC. Two on the new shops, please. You said 53% of 2025 shops in areas with no existing shop within a mile. Why is a mile a good benchmark? I'm sure that will differ across the estate. There any color you can give in terms of sort of behavior that you're seeing? And then second, you talked about sales transfer of 5%. What's the profit impact? And how quickly would you expect those shops to recover?

It's an [indiscernible] decision if [indiscernible] to me. It could have been kilometer. It could have been a mile, it could have been in 5 miles. But if you think about sort of when you're actually going out for your lunch, would you walk a whole mile? You probably wouldn't would you because you've come across something in that. It's a long way. So as a broad measure, and I know there are some other studies that have used that as a broad metric, but it is quite a big -- that's quite a big sort of catchment distance. So we've used that. We actually sort of typically look at sensitivities within more like half a mile in our appraisals to identify shocks where we believe there is a risk of cannibalization.

But the reality is it depends on the journey customers on as well. It's not really -- I think around here. People are wondering around on foot. That's one thing. If you're on a busy trunk road then actually a mile might just be a minute of your journey. And therefore, the more relevant thing is actually, are there other options that are accessible for the same road or is it taking a transaction from where you're actually going to go at your destination, which we don't always know. So it's complex and none of this is perfect, but really we present this stuff to try and give you some assurance that we do look at it carefully. We do try our very best to avoid the risk of cannibalization. We do this when we're working with partners as well.

We have to agree where shops open so that we don't transfer calls between locations, and that will be absolutely true of the new developments that we get into as well, whether that's convenience retailing or other things.

Just on that part, just to Rich's point, I guess we're trying to give confidence around providing data points, and actually, that's why we've come up the 1 mill. Internally, we actually look at catchments and we look at the customer mission. So if you thought about London, in particular, and you think about liver pillet station, actually, you've got a great and liver station. You've got by three others within local proximity if you are at the mission of Europe, you do not come out of the station to seek out a rig. So we need to be accessible when you're there, but similarly, if you're out about in food, you wouldn't come into a station to seek out a rig, so we need to be excited. I think the point around convenience and accessibility are still #1 in the physical market, and that's why we've got the confidence in the amount of white space and the underrepresented attachments ahead of us. On the other question -- the part of the question, I think, was the profit impact on the sales transfer of the 5%, which was the other part of your question.

Yes, without pulling out the appraisal. Typically, we would look at it and say, okay, on the sales transfer, it will be like a 50% drop-through. So that will be the kind of the rate of profit cannibalization that we would then factor into the shop that was losing sales from the new shop.

One just on the Greggs apps. I have a number in the past of incrementality and frequency been about presumably that starts to diminish now? And is it still in your eyes accretive given that the tenant product is for free?

Yes. That's interesting. We were looking at this just recently because we've now that we've got sort of data scientists in the business, we've been able to sort of apply a more technical analysis to this. And my team was starting to form the view, my finance team that this was becoming more mature now. And essentially, you should expect to see quite as much incrementality because it's becoming file of the core offer at Greggs' really for a regular customer. Interesting, the data scientists went at the app data and looked at it and came up with an even stronger number than the finance team were.

So that said, I mean, it's a tough market with low like-for-likes generally at the moment, isn't it? So we do still believe that it underpins frequency of visit, but it's become, I think, more of an essential as part of your mix really is to have something, which rewards the customers who are loyal to you. But -- so if it was driving the incrementality of the data scientists are saying, then we'd be sort of like shooting off the charts wouldn't we. And the fact that we're not, I suppose, shows just how important it is in terms of securing the loyalty of your existing customer base. Whether it attracts new customers, that's always the heart of it rather than holding on to the customers you have, but I think it's a super important part of our armory.

Another piece just to add on the as last year, we had just under another GBP 2 million downloads in terms of customers downloading the app for the first time. I think the team has done a great job when we started to launch ICE strength, and we saw that really resonating with the sort of 18 to 34 million consumer demographic, then we offered ice drink as a free bid you got for downloading the app. We saw a real spike, and that's -- I think it's constantly making sure that you try and get those customers that currently aren't on the app onto it. then we can communicate with them. We can send them quest, we can drive [indiscernible] purchase is still a really important part in the armory.

All right. Great. And then second question, there's quite a lot of quite big moves across the different business divisions. The B2B has seen quite a big step-up in trading profit margin this year. The retail business seems to have seen quite a big step down in the second half, which then is obviously offset by the cost savings that you mentioned earlier. How much of this is -- I'm not regular count, but there's been a change in the value and lease calculations and the CGUs you mentioned. Is there anything to do about going on there that's creating these large swings? Or if you can maybe just aggregate what's exactly going on there?

No. I mean just like-for-like, the big factor there. Obviously, we had a bit of a reset in the middle of last year when we had the very hot weather. I think we'd expected stronger like-for-likes last year than actually came through. And increasingly, we became aware that this was very much a market-wide factor. So as you've seen, if Greggs has basically got through last year on a 2.5% like-for-like and taken 0.5 percentage point of market share. Gosh, it must be very tough in other places. So I think it's really just a factor of that, Ben. I mean, the overall impact has been consistent across the business. We have been able to start driving some additional sales through channels such as grocery. But broadly, I couldn't pull out anything that's skewing things from half to half, particularly.

I'll ask you to pass the mike up front. Thank you. And then we probably just probably got time for two more questions. We'll take one left side, and we'll get you Andy.

Conroy Gaynor from Bloomberg Intelligence. So the first one, just looking at your ever-evolving portfolio of new products. Are there any incremental margin mix benefits that we could be thinking about this year and beyond as you roll those out?

And the second one, like many companies, as you're going further down this AI data science journey, are there any genuine competitive advantages that you can pick out that you think Greggs would benefit from? For example, is it your scale or ability to leverage the brand? Is it the fact you have a rich history of trading data piece of stats. But how can you leverage that into a competitive advantage.

So let me take the competitive advantage on and then I'll talk about margin mix. I think AI and technologies are really interesting one I don't think that is a silver bullet. I think you're absolutely right around there will be opportunity for us to leverage our scale. But if we look at some of the work that we're doing with the support teams just now at excise, it's using a technology that's got EI functionality to be actually move to Agentic AI, where actually you are trying to automate a lot of processes. So the sort of mundane and routine of which a business our scale has got a lot. So you would assume actually that will give us a competitive advantage.

I think for us, AI is around, actually, there are going to be many different strands to this that will actually deliver the advantage from a supply chain perspective, automation, especially with Durbin catering, that will be significant for us. And that is why that vertical integration does give us a competitive advantage especially when we have got on automation in those sites. And then I think from a shop perspective, if you think about our labor cost, it's significant because we have a small book, shortfall. So therefore, you need people to serve. But we are, to recur point earlier, we are looking at lots of the ways that our teams have to do task in those short when they do task, it takes no way from serving the customer. So you can't serve the [indiscernible] quickly.

If we can automate a lot of those tasks actually in our shops, we believe we can get more volume throughput in terms of those customers and serving those cures. And then I think from a data perspective, our app [indiscernible] Richard's early point about our data scientists that we've now got on board a wrap is where we do need to mine that data and try and understand the behavior is because we serve 8 million customers each week, but there's a lot of data there that we should be able to do in terms of 1/4 of those transactions are through the app. So I think there will be -- it will be many facets, but it will not be a silver bullet. But there's lots of areas that we have to get after. Margin mix?

Yes. I think over time, what happens with margin mix is that things which are some things become commoditized, and therefore, the -- you can't command the same strong margin on a bag of crisp because everybody sells one. And the way we kind of protect and drive margins is actually by the value adding in the shops. So the things that you bake in store, the things that you make in the back of the store the things the drinks and things that you produce tend to be the higher margin items because you can't -- you haven't gotten the same -- you can't compete with that in a commoditized way. You have to put the effort in I think the match thing is the latest example of that.

Despite our keen price point, it's a very high margin item still. And it's sort of I suppose, injecting interest into the ice rinks category more generally, which again is high margin as hot drinks have been. So I think that's the way the business evolves over time as it pushes it into new areas, which tend to have attractive margins. accepting that there's behind the scenes, some of the older items become more commoditized. And it just evolves over time, and it's always been that way. So directionally, it's interesting, I think drinks, if you was a show, the mix of food and drink in Greggs over time, drinks are a much more significant part of the mix. And a lot of the innovation is still coming in those areas.

We'll come to Andy [indiscernible] check is anything online after that. And then I'll [indiscernible] it to close because I've then got a press call going. But Richard will be around indeed, for a few minutes after we put in who we didn't get to Andy.

Just might be my memory failing, which is quite likely. But just looking back at the market share 1 on Slide 8, your like-for-like versus the market. I'm sure when we looked at that to sort of looked at this a year ago or 6 months ago, you were fairly -- your dotted line is consistently outperforming or as it looks like the sort of last 6 months or so, it's a bit pretty much in line with? Is that a narrative that you recognize? Or am I slightly misremembering

It may be we were using the takeaway in sort of fast food line time. I can't quite recall, Andy. There's two measures which are relevant. One is the takeaway sector and this is a much broader one. Typically, we've outperformed the takeaway sector more strongly than the overall measure, but we felt, look, the overall sort of eating and drinking out of home is probably the fairest measure of the totality of the market. and a more stable line because the takeaway fast food sector tends to be quite promotionally driven. And you see quite big spikes, which don't really teach you much in terms of your comparative performance. So I'd have to check back, but I suspect that's the answer.

Okay. Second one then, sort of thinking about your recovery in ROCE, which is effectively, I suppose not going to have a massive change in the capital base, effectively, recovering in EBIT margin. Can you do that if you continue to have negative like-for-like volumes?

Well, it makes it harder, doesn't it. We -- in our core plan, we assume that the market continues to stay tough for a while yet. We don't assume that it's going to kind of fix itself in a few months. So we've taken a multiyear view. But we also assume that the market will stabilize in time. And this sort of like economic pressure that people have been under will get easier. And I think the first signs of that are this easing of inflation and I genuinely hope that this is the start of an improving cycle in terms of people being under less pressure. In fact, the government have been confident enough to reduce the rate of increase of the living wage, I think, is indicative of that and hopefully gets us to a place where we are in a less inflationary times.

Just on the, I guess, a similar point. So we've now sort of had negative volumes for, I guess, 18 months, maybe a bit more than broadly 18 months. So we've annualized through negative volumes, negative volumes on negative volumes. So is your view that now that effectively the consumer sort of step down but continued deteriorating? Is that how you're viewing it?

A little for now because we can't see a reason not to carry on with that assumption. And it's prudent to plan on that basis because then you don't overplan your cost base. So we try and plan on a cautious, prudent basis with some sort of cautious optimism that we've maybe been a bit too prudent. Particularly, I think in the coming year, it'll be very interesting to see what happens in June and July when we had very, very hot weather last year. I mean having now it may happen again, of course. And that's the basis we plan on, but hopefully, that might give us a little bit of upside.

And what I would see is we're doing a lot to try and disrupt that and make sure we find reasons for the consumer to comment is. So actually March is a really good example of that. We'd already leaned in to strength match as another demographic, so then we're leaning into that better value price, and there'll be more on the menu that we'll do this year. So I guess how do you continue to bring that excitement, use your app, get the consumer message out there and you can start to try and book that trend. So there's loads in our armory that will deliver this year. So on that note, I'm probably going to bring us to a close, and thank you for your time today. What I would say is I do need to run stuff at a press call to go to, but I am sure Richard and Dave will be around if there's any other questions. But thank you, and thanks to those online.