Gregg’s PLC

I am very pleased to report to you on the external influences that affect your business
Gregg’s plc; Gregg’s is the leading bakery retailer in the UK. Expert bakers for the
last 70 years we have been serving freshly baked quality foods at a great value price,
to millions of customers each day. For the first three decades of its existence, Greggs
was a small, local business, never displaying any sign that it later would become the
largest chain of its kind in the United Kingdom.

The further information I present to you is an overview, of the origins of your business
Gregg’s;

Greggs was founded by John Gregg in 1939. It opened its first shop in Gosforth,
Newcastle in 1951. After John’s passing the company was taken over by his son, this
included the acquisitions of other bakeries such as Glasgow based Rutherglen in
1972, Leeds in 1974. In 1999 Greggs rebranded its 100 Braggs bakers shops as
Greggs of the Midlands and its Thurston chain as Greggs of Yorkshire, this allowed
Greggs to become more popular around England and better known, in conjunction to
the leading competitor Bakers Oven Bakery. In 2003 in an attempt to test the foreign
market, Greggs opened four stores in Belgium; principally in Antwerp and Leuven.
On 9 December 2008, Greggs announced that all of its 165 Bakers Oven branded
shops would be re-branded into the Greggs brand so that all the shops could benefit
from the Greggs national advertising campaign. This expansion into other areas was
fuelled largely by the acquisition of small established local Bakery chains. The most
significant of these being the Rutherglen Bakers of the Glasgow area in 1972,
Thurstons of Leeds in 1973, and Price's Bakery of Manchester and the North-West in
1974. Over the next 10 years Greggs continued to expand Southwards through the
Midlands and eventually to London and the South-East.

As well as selling British freshly baked savories such as sausage rolls and Cornish
pasties, local items are also available. The available products are frequently updated
and change according to the time of year. For example at Halloween various themed
products are available. In October 2007, Greggs pioneered a late night store in the
entertainment quarter of Birmingham. This branch is the first of its kind putting it in
direct competition with more traditional late-night eateries. A store in Sheffield and
Leeds both open late from Wednesdays to Saturdays..

In 1994 the Company acquired the Bakers Oven chain of bakers' shops from Allied
Bakeries. In 1999 Greggs rebranded its 100 Braggs bakers shops as Greggs of the
Midlands and its Leeds-based Thurston chain as Greggs of Yorkshire. In 1983,
Michael Darrington took over from Ian Gregg as Managing Director and by 1984, with
261 Gregg’s shops the business was floated on the Stock Exchange. The rest of the
decade saw expansion into the Midlands, Wales and North London. In 1987, Ian
Gregg launched the Gregg’s Trust which is now he Gregg’s foundation, a registered
charity to help support the communities in which Gregg’s operates. Sir Michael
Darrington's successor as Chief Executive, Kennedy McMeikan, took over in 2008.
The home of fresh baking continues to go from strength to strength. In fact to express
their strength, Gregg’s can now be found on the UK's high streets, local shopping
parades, and, increasingly, retail, industrial and business parks, airports, bus/rail
interchanges, universities and other locations where people live, work, travel and
spend their leisure time.

Company culture
All of your workers are passionate about baking and each product is carefully
prepared to give each customer quality freshness at a great value price. As your
business began as a family business, the business has retained good, honest family
values as the business has grown. The values are commitment to the way each other
are treated by one another, reflecting in their work life making sure they are looked
after in your business. Your aspiration to be a company that everyone is proud to
shop with has been a great outlook for both employees and customers. Customers,
your people, your shareholder, your suppliers all have a small or large part to play
when it comes to how your business runs, by looking after, you have created a new
great outlook.
Your latest statement refers to this, as the business is shown to be very passionate
and caring for its people;

“We will be enthusiastic and supportive in all that we do, open, honest and
appreciative, treating everyone with fairness, consideration and respect.”

Within this quotation it is evident that you care for your people that have an effect on
your business, and want to provide excellent service as well as goods. By setting
aims and targets for all of your people shows that your business has a real
consideration to treat everyone with equality and fairness, which effectively makes
Gregg’s a welcoming business to buy in to as well to buy from.

As Gregg’s began as a family business, it is shown that this still has a large impact
on how each employee is treated. By giving each employee a handbook which they
can work through a period of three months with appraisals, employees can feel that
they are important within the business and that they want to be part of it, not that it is
just ‘another job’. This also gives employees an incentive to work harder to receive
more recognition. Employees are taught to learn their way through their business, to
pick up facts or figures so that they can express their hard work and what they have
learnt whilst working for Gregg’s. By means of wanting your people to feel rewarded,
valued and engaged in the business. Gregg’s also wants all members of the ‘Gregg’s
family’ to share the success when our business is doing well, that is why every
individual working at Gregg’s is eligible for profit share, paid twice a year. As Gregg’s
is a family orientated business employees learn this whilst working for Gregg’s a long
time and know that they are always cared for, even if they no longer work for them.
This keeps up Gregg’s excellent reputation. As employees can also receive bonuses
as well as every other employer whether it be a weekend part-time team member, or
an assistant manager, effectively showing that no matter what department you work
for, each employee is treated equally no matter what wage they are on. Therefore
this gives a great impression on to your employees, making them feel that they want
to come to work, to make a difference as they know they are cared for. As I will be
showing you later on, Gregg’s uses the relevant employment laws to demonstrate
that they care for their employees.

With over 19,000 people working at Gregg’s, the health and wellbeing of our people
is of paramount importance to you, understandably. Besides having robust Health &
Safety controls in place, they are designed to protect your people at work.

Gregg’s also offers SAYE ( save as you earn) scheme, an annual employee opinion
survey where you encourage your people to tell the business what it’s really like for
them working for Gregg’s and how they think it can be improved in their opinion. By
also offering a wide range of family friendly policies which recognise family rights and
help your people achieve a sensible work-life balance, employees can feel that they
are involved with not only working for the business but that they have something else
in life that is helping them, making sure that they are looked after and can have a
healthy working life. Promoting equal opportunities and encouraging diverse make
sure that you do not discriminate on the grounds of age, gender, ethnic origin,
religion or disability when employing. Having a drive to train and develop your
employees ensures that they are successful their roles and can progress within the
company, working efficiently creating success for your business. Offering a wide
range of training and skills courses, you should be very proud that a high number of
new appointments are internal promotions.

Size of the business:

As you will see one of Gregg’s biggest, most important aim is the growth of the
business. By creating more shops Gregg’s reputation will become even stronger with
more customers, and more profits to be made.

Proudly, the company has grown steadily over the years and now has in excess of
1,400 outlets, with many town and city centers have multiple numbers of stores. In
2009, Greggs announced plans for another 600 stores. It has a divisional structure
with central bakeries around the country supplying the shops in their surrounding
areas. Gregg’s plc employees nearly 19,000 people and have ambitious plans for the
future. Gregg’s have a reachable target to add 600 new shops in the coming years,
creating up to 6,000 new jobs in the UK. There are also 90 in store bakeries each
with their own dedicated skilled bakers. Greggs serves over 5 million customers each
week in your retail outlets across the country, that’s over 60 million a year. There are
ten regional bakeries that deliver to the Gregg’s stores daily, with Gregg’s fleet of 375
vehicles

This is diagram of all the Gregg’s stores in the UK, there is an estimated figure of
over 1,400 shops across the United Kingdom, and still growing, the initial plan is to
open 600 more shops in the next few years.Down to the right side of the diagram of
the map you can see where Gregg’s bakeries are situated such as business parks,
city centers, regional shopping centers, airports, industrial and enterprise parks, retail
parks, high streets, local shopping centers and roadsides.
As Gregg’s entered the 21st century, the Greggs units were driving its growth, both in
physical and financial terms. The catering market, in which the company's Bakers
Oven units operated, was proving to be less vibrant than the takeaway sector.
Accordingly, focusing on improving the performance of its existing Bakers Oven
stores rather than expanding the chain meant that Gregg’s could become the leading
bakery. In 2001, Greggs' capital expenditure amounted to £27.4 million, which was
used in large part to open additional stores and refurbish existing units. Which proved
successful as the shops were more inviting and clean for customers, such as cafe sit
downs? During the year, the company opened 67 new shops and closed 28 shops,
giving it 905 Gregg’s units and 239 Bakers Oven shops. The year-end totals, when
compared with the figures for 2000, reflected the company's reliance on the Greggs
format to drive its growth. In 2001, the company increased the number of stores
operating under the Greggs banner by 47, while the 239 Bakers Oven units in
operation at the end of the year represented a loss of eight stores. However this was
not a big problem for the business because making these decisions meant in the long
run Gregg’s would be successful with cleaner shops that were more reliable.

For you 2001 was an important year, with Netherton and Darrington in charge due to
Ian Gregg’s retirement, Greggs pressed ahead with its expansion. During the first
half of 2002, the company opened 24 new stores and began to convert 50 Birketts
shops in Cumbria, Lancashire, and southern Scotland to Greggs stores. The
company also was exploring opportunities to expand into mainland Europe by mid-
2002, with Belgium selected as the first target market.

"We're hoping to have one store open this year and a couple early next year,"
Darrington explained in an August 3, 2002 interview with the Express. "We will start
driving it about 12 months after that." This quote also shows how determined the
business is, wanting to open stores as steadily as they can. This is also a good
strategy as shops that were opened were always and still are busy, due to the work
efficiency.

Greggs entered mainland Europe in early 2003, when the company opened two
stores, one in Antwerp and another in Leuven. After experiencing slow sales at first,
the two Belgian stores began to perform well by mid-2003, due to a few changes
such as more employees, advertising and work energy force. When the company
announced that it intended to open two more Belgian stores within the next six
months. In July 2003, a store opened when an outlet debuted at a gas station near
Edinburgh, Scotland. Greggs' property director, in an August 2003 interview with UK
Retail Briefing, disclosed other non-traditional settings for company stores, listing
"office area, industrial estates, transport hubs, and roadside," as among possible
sites for future expansion. This shows that you have a really diverse approach to the
locations of the stores and the growth of them around the UK.

Growth financially:

The company store count increased from 261 to more than 1,200, a period that saw
annual revenues swell from £37 million to more than £450 million and annual profits
increase from £1.7 million to £40.5 million. The company stock, valued at 135 pence
per share when Darrington joined the company, was trading at £31.40 at the end of
2003. The growth was impressive, but if your company was going to reach its goal of
£1 billion in revenues by 2010, a more remarkable rate of growth needed to be
recorded in the years ahead. The foray into mainland Europe and the development of
stores in non-traditional locations offered two new avenues of growth. In the future,
much would depend on the company's success with these two experimental
programs, as Gregg’s endeavoured to become a more diversified retailer and assert
its national dominance in new directions.

Your company Gregg’s has a reported 8% rise in a full year’s profits to £48.8m
despite the stressful recession and restructuring which involved cutting 11 of your
bakeries divisions to 7, moving out of its Belgian business and rebranding two thirds
of its Bakers Oven shops as Greggs. This is a great success for your business that
you should be very proud of, with the recession your company has been able to stay
at the top form, despite other businesses downfalls around you.

Now that you are pressing on with plans to open 50-60 new shops this year and
another 70 or so in 2011. In total it has identified 600 sites which would benefit from
the presence of its eccles cakes and mayonaise free sandwiches, adding to its
current 1,419 shops. This is an outstanding overview of the growth that you will
potentially be making come true.

By creating a new marketing campaign that trumpets the business as "the home of
fresh baking" in what it says is a return to its roots. Recent news that it was allegedly
going upmarket has also spiced up the prospects. You have been succesful by
openening three "concept stores" for southerners and plans to extend that to another
24 shops in London this year. By extending the shops within the UK region, Greggs
can successful grow their business, to increase profits and make it one of the leading
businesses in the UK.

Although you have admitted the outlook for consumer spending is uncertain - not
rocket science given the election and the economic situation - it plans for like for like
sales growth to be marginally positive. Another quote given is that Gregg’s will be
"well placed to achieve a year of further progress in 2010," and it also intends to
return £15m to shareholders. The market seems to like the news, with the company's
shares climbing 21p to 458p, by creating big targets like this and succesful reaching
them the public and shareholders can take on these words of wisdom and strongly
believe them.

Analyst Clive Black at Shore Capital said:

“Greggs reported full year profitability ahead of our expectations at £47.9m on a 52-
week adjusted basis (our estimate, £46.3m) and £48.8m for 53-weeks. The group
beat our expectation on the margin front with a 7.4% return on sales against our
estimate of 7.1%; so Greggs has delivered 30 basis points of margin appreciation
year on year.”

Evolution Securities' James Wheatcroft said today's statement was full of positive
surprises: handsomely beaten consensus estimates, £15m special dividend, dividend
up 11%, net cash well ahead of expectation. Expect shares to move sharply higher.
The strong, self-funded future growth story has only just started. We argue the
shares will re-rate higher to reflect the enhanced growth prospects, currently too low
at 13.6 times estimated PE for 2010, with a 3.8% dividend yield. We reiterate our buy
recommendation. Not everyone agreed, however, with Ben Hunt at Oriel Securities
issuing a sell recommendation:

Greggs has reported profits a little above expectations and there will be a small
upgrade today, current trading appears to be in line but ultimately the current multiple
seems punchy given the low to medium profit growth outlook. By settling for pretax
profit of around £48.5m next year putting the stock on 13 times, you are taking a big
risk. However, competition in this niche is becoming intense and a multiple similar to
the likes of Tesco, Sainsbury and Morrisons is inappropriate.

These are the following financial highlights for Gregg’s in 2009 taken from the Annual
reports:

Financial highlights

2009 2008 2008

£m £m £m
Turnover 658.2 628.2 628.2
Like–for–like sales growth 0.8% 4.4% 4.4%
Operating profit 48.4 44.3 48.6
Pre–tax profit 48.8 45.2 49.5
Pence Pence Pence
Earnings per share 34.1 30.7 33.6
Dividend per ordinary share 16.6 14.9 14.9

Greggs climbed back after a disappointing performance in 2006 with its three-
year plan helping it offset the impact of rising raw material and energy costs.
Its financial results for 2007 showed an increase of 6.4 per cent for total group sales,
up to £586m (€787m) from £551m (€721m) the previous year. Like-for-like sales rose
by 5.3 per cent, including volume growth of 0.9 per cent. Operating profit before
accounting for property gains and restructuring costs increased 13 per cent to
£47.7m (€62.4m).

"Like every other business in our sector, we are continuing to face substantial
pressure from rises in the cost of energy and in our key ingredients, including flour,
vegetable oils, and protein," said Derek Netherton, chairman.

Rising costs

Price increases have been felt across the food and beverage industry as a result of
rising energy costs and spiralling raw material costs, due to crop competition for
biofuels and emerging markets as well as poor weather conditions damaging
supplies. Companies across the board have been announcing their strategies for
maintaining margins in this challenging climate. Greggs admits it has faced
substantial pressure from price increases for its key ingredients, including flour,
vegetable oils and protein, as well as for energy costs. However my admitting this
and changing for the better, as a business you have shown how dedicated you are to
all of your people, and how you feel about the safety of the planet we live on.

Here are the assets:

Total assets 279,445 250,424 285,025 256,207

LIABILITIES
Current liabilities
Trade and other payables 17 (71,738) (62,761) (79,545) (70,568)
Current tax liabilities 18 (8,857) (8,337) (8,857) (8,337)
Provisions 21 (857) (2,843) (857) (2,843)
(81,452) (73,941) (89,259) (81,748)
Non–current liabilities
Defined benefit pension liability 20 (12,332) (5,733) (12,332) (5,733)
Other payables 19 (8,830) (8,221) (8,830) (8,221)
Deferred tax liability 13 (9,298) (12,154) (8,559) (11,415)
Long term provisions 21 (3,296) (2,428) (3,296) (2,428)
(33,756) (28,536) (33,017) (27,797)
Total liabilities (115,208) (102,477) (122,276) (109,545)
Net assets 164,237 147,947 162,749 146,662

The group and company recognise the actuarial gains and losses in the full year in
which they occur it allows the business to meet the targets and know if they have
been successful or not. A provision is normally recognised if, as a result of a past
even the group has a present legal or constructive obligation that can be estimated
reliably, and it is probably that an outflow of economic benefits are required to settle
the obligation. The company operated a comprehensive financial control system.
Divisional financial controllers have responsibility for implementation of the
company’s financial management policies of the Company’s financial management
policies within each operating division. Each Financial Controller works closely with
their divisional General Managers to monitor performance against plan. This is then
consolidated and reviewed further at Company level. In addition, assets and liabilities
are scrutinised at several levels on a regular basis and remedial action is taken
where required. A comprehensive annual planning process is carried out, which
determines expected levels of performance for all aspects of the business. Each
divisional financial controller can also report directly to the group finance director on
matter of financial control. In 2009 you reported a new accounting system that was
introduces with some responsibility for financial management being passed to a
shared service centre. You stated that financial control will be centralised further in
2010, this was a better way to go financially for you as it allows you to have more
shareholders and be able to grow the business financial by making it bigger and
earning more profits.

Capital expenditure:

Your total expenditure in 2009 was £30.3 million, £3 million belove your original
budget as you deferred some investment, mainly in your bakeries, until you had
completed your supply chain review. In the current year you budgeted capital
expenditure of £45-50 million as you doubled your rate of new shop openings and
refits, and began the first phase of investment in your bakeries to support the plan for
shop growth.

Cash flow and balance sheet

The group remains strongly cash generative as you ended the year with next cash
and cash equivalents of £34.6 million. This puts you in an excellent position to fund
increasing investment as you enter the expansion phase of your strategy, and to take
the advantage of other opportunities which may arise to add value for your
shareholders. In addition to this, when your plans indicate that you are holding
surplus, you will be looking to return this to shareholder, so that the company can
earn more profits. Having examined your current circumstances, it is foreseeable that
a cash return up to £15 million is appropriate and you will be at progress with this at a
sensible pace using your share buyback authority that you have done in the past.

Preparing for accelerated growth

During the year you implemented considerable changes, which have made the business simpler
and more efficient to run, you are already seeing benefits from the changed you have made to your
operating structure and the harmonisation of your product range.
Market sector
Type of market/Industrial sector, market share, key competitors.

Company Perspectives:
We intend to be Europe's finest bakery-related retailer, achieving our ambitious growth targets
by attaining world-class standards in everything we do. Our purpose is the growth and
development of a thriving business for the benefit and enjoyment of employees, customers and
shareholders alike. Our Values--Greggs is a customer-focused business, seeking to provide
excellent products and services that deliver enjoyment and value-for-money. We are committed
to people development, within a considerate culture that combines autonomy and
accountability, and maintains a strong focus on profitability. In all our activities, we aim to
achieve excellence through continuous improvement.
Gregg’s offers its customers a wide range of fresh, delicious, quality bakery foods.
Every single sand which sold is handmade in your shops throughout the day. In your
bakeries we hand finish millions of products each week. You have a strong drive to be
different because products are made and bakes mostly from scratch.

Nature of business
Their range of products and services.
Greggs offer a vast range of different products but part of their success lies in the fact that there is
a different range of products sold from each of their seven regional divisions to reflect on the
demands from the local community. This clever marketing ploy enables them to not only capitalise
on local favourites but also gives the feel of a local Bakery for the local community, for example
"Stotties" are sold in all of the branches in the North-East, "Scotch Pies" in all Scottish branches
etc, these traditionally local products remain hugely popular with their customers.

The full range of products include Savouries, Sandwiches, Bread, Cakes, Drinks and Snacks.

Savouries - This is definitely the main reason why I find myself joining the queues at my local
branch on a Saturday afternoon. All of the Savoury items are baked fresh on the premises
throughout the day and are usually served piping hot when you buy them. The savoury range
includes my personal favourites, the Chicken Bake which currently costs 72p or if I am feeling a
little bit more wealthy the Steak Bake at 88p, although the traditional Sausage Roll remains the
most popular item within this range, these are currently 3 for £1.10 which I feel represents
excellent value as these are a very impressive size.

Sandwiches - I have bought their sandwiches occasionally but in my opinion these tend to not represent as
good a value of the savoury range. All sandwiches are made daily on the premises each day from Bread
baked in their ovens and fresh fillings. Most Sandwiches are packaged in plastic containers and stored in the
refrigerators but it is also possible to have a Sandwich made up to your own personal taste providing you are
happy to wait. The latest addition to the Sandwich range is their Lifestyle Choice which contains healthier
ingredients than their standard range.

Bread - This is baked fresh on the premises each day and the smell of this wafting down the
precinct is a fantastic advert. I have never actually bought any Bread from Greggs but the range
includes Rolls and Baguettes and well as traditional loaves.

Cakes - These can usually be found placed prominently beneath the counter near to the checkout. The range
includes Tarts and Doughnuts, as well as Scones but my favourite are the Egg Custards which are often still
warm to the touch.

Drinks & Snacks - This is a rather limited range but serves its purpose in boosting the price of the
average shopping basket by a couple of quid or so. Products in my local Greggs include Cans and
Bottles of Pop and Mineral Water, Crisps and Chocolate Bars.
Locations
Head office, domestic/foreign operations.

Greggs core product and market is based around traditional comfort foods, for
example selling 2 million chicken bakes per week. In a 2008 investigation of all UK
High Street fast food retailers by Channel 4, Greggs was found to be the retailer with
the highest levels of fat in its product range.