Greggs shares surge as baker serves up 30% dividend hike as profit jumps

Shares in Greggs surged more than 10% on Tuesday (1 March), after the bakery chain served up good news to its shareholders, as it lifted its dividend by 30% and forecast another 12 months of growth after posting a sharp increase in annual pre-tax profits.

In the 12 months to 2 January, the FTSE 250 group said its pre-tax profits excluding exceptional items rose 25.4% year-on-year to £73.1m ($102m, €94m) in 2015, while like-for-like sales climbed 4.2% and total sales increased 5.2% to £835.7m.

The company, which unveiled £100m of planned investment in manufacturing and distribution operations over the next five years that will see its number of outlets increase to more than 2,000 from the current 1,700, said it will pay a total dividend of 28.6p per share, 30% higher than in the corresponding period in the previous year.

Greggs, which added the investment plan will see 355 jobs cut, attributed the increase in sales to its wider range of menu choices, which have seen the baker move away from the traditional pies, pastries and sausage rolls to embrace salads and soups to appeal to health conscious customers.

The Balanced Choice range of healthy options accounted for 10% of total sales in 2015, the company said, adding it has also broadened its offering on the drinks front, after introducing flat white coffees to its menu.

"In 2015 we delivered another excellent performance in the second year of our strategy to transform Greggs from a traditional bakery business into a modern, attractive food-on-the-go retailer," said group chief executive Roger Whiteside.

"We have made significant progress across the business change programme, consequently our estate is stronger and our products, value and service are all improving the experience for customers."

Hannah Maundrell, editor in chief at money.co.uk, said the increase in sales and profit proved the company made the right choice by expanding its horizons, even if that meant moving away from its traditional products.

"Greggs results are reward for recognising consumers have changed their habits and are demanding healthy fast food options," she said.

"Greggs took a gamble by offering sugar free drinks, fruit, soup and salads but boy has it paid off. These items certainly aren't the brand's bread and butter but by diversifying their product range and positioning stores in convenient places like service stations the risk has clearly paid off."

Shares in Greggs have lost more than 20% so far in 2016 compared with a drop of just 4.7% for the FTSE 250, but they were up 10.4% as of 9.21am GMT on 1 March.