Greggs plc (GRG) Earnings Call Transcript

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?