The following accounts are extracted with permission from Greggs plc’s Annual Report and Accounts 2020. They represent pages 112–168 of the original document.

Please see corporate.greggs.co.uk/investors for the full original.

Consolidated income statement

for the 53 weeks ended 2 January 2021 (2019: 52 weeks ended 28 December 2019)

	Note	2020 £m	2019 £m
Revenue	1	811.3	1,167.9
Cost of sales		(300.4)	(418.1)
Cost of sales excluding exceptional items		(299.6)	(412.2)
Exceptional items	4	(0.8)	(5.9)
Gross profit		510.9	755.7
Distribution and selling costs		(465.8)	(572.8)
Administrative expenses		(52.1)	(62.2)
Operating (loss) / profit		(7.0)	114.8
Finance expense	6	(6.7)	(6.5)
(Loss) / profit before tax	3-6	(13.7)	108.3
Income tax	8	0.7	(21.3)
(Loss) / profit for the financial year attributable to equity holders of the Parent		(13.0)	87.0
Basic (loss) / earnings per share	9	(12.9p)	86.2p
Diluted (loss) / earnings per share	9	(12.9p)	85.0p

Consolidated statement of comprehensive income

for the 53 weeks ended 2 January 2021 (2019: 52 weeks ended 28 December 2019)

	Note	2020 £m	2019 £m
(Loss) / profit for the financial year		(13.0)	87.0
Other comprehensive income
Items that will not be recycled to profit and loss:
Remeasurements on defined benefit pension plans	21	(11.2)	3.0
Tax on remeasurements on defined benefit pension plans	8	2.1	(0.5)
Other comprehensive income for the financial year, net of income tax		(9.1)	2.5
Total comprehensive income for the financial year		(22.1)	89.5

Balance sheets

at 2 January 2021 (2019: 28 December 2019)

		Group		Parent Company
	Note	2020 £m	2019 Restated £m	2020 £m	2019 Restated £m
ASSETS
Non-current assets
Intangible assets	10	15.6	16.8	15.6	16.8
Property, plant and equipment	12	345.3	353.7	345.9	354.3
Right-of-use assets	11	270.1	272.7	270.1	272.7
Investments	13	-	-	5.0	5.0
		631.0	643.2	636.6	648.8
Current assets
Inventories	15	22.5	23.9	22.5	23.9
Trade and other receivables	16	39.4	27.1	39.4	27.1
Cash and cash equivalents	17	36.8	91.3	36.8	91.3
		98.7	142.3	98.7	142.3
Total assets		729.7	785.5	735.3	791.1
LIABILITIES
Current liabilities
Trade and other payables	18	(91.1)	(142.3)	(98.8)	(150.0)
Current tax liability	19	-	(11.8)	-	(11.8)
Lease liabilities	11	(48.6)	(48.8)	(48.6)	(48.8)
Provisions	22	(4.4)	(5.8)	(4.4)	(5.8)
		(144.1)	(208.7)	(151.8)	(216.4)
Non-current liabilities
Other payables	20	(3.7)	(4.2)	(3.7)	(4.2)
Defined benefit pension liability	21	(11.9)	(0.6)	(11.9)	(0.6)
Lease liabilities	11	(243.1)	(226.9)	(243.1)	(226.9)
Deferred tax liability	14	(2.3)	(2.4)	(1.8)	(2.0)
Long-term provisions	22	(3.0)	(1.6)	(3.0)	(1.6)
		(264.0)	(235.7)	(263.5)	(235.3)
Total liabilities		(408.1)	(444.4)	(415.3)	(451.7)
Net assets		321.6	341.1	320.0	339.4
EQUITY
Capital and reserves
Issued capital	23	2.0	2.0	2.0	2.0
Share premium account		15.7	13.5	15.7	13.5
Capital redemption reserve	23	0.4	0.4	0.4	0.4
Retained earnings		303.5	325.2	301.9	323.5
Total equity attributable to equity holders of the Parent		321.6	341.1	320.0	339.4

Of the Group loss for the year £12.9 million (2019: £87.0 million profit) is dealt with in the books of the Parent Company.

The accounts on pages 112 to 166 were approved by the Board of Directors on 16 March 2021 and were signed on its behalf by:

Roger Whiteside

Richard Hutton

Company Registered Number 502851

Statements of changes in equity

for the 53 weeks ended 2 January 2021 (2019: 52 weeks ended 28 December 2019)

Group
52 weeks ended 28 December 2019 (Restated)
		Attributable to equity holders of the Company
	Note	Issued capital £m	Share premium £m	Capital redemption reserve £m	Retained earnings £m	Total £m
Balance at 30 December 2018 (as previously reported)		2.0	13.5	0.4	313.2	329.1
Impact of change in accounting policy *		-	-	-	(5.7)	(5.7)
Restated balance at 30 December 2018		2.0	13.5	0.4	307.5	323.4
Total comprehensive income for the year
Profit for the financial year		-	-	-	87.0	87.0
Other comprehensive income		-	-	-	2.5	2.5
Total comprehensive income for the year		-	-	-	89.5	89.5
Transactions with owners, recorded directly in equity
Sale of own shares		-	-	-	4.9	4.9
Purchase of own shares		-	-	-	(11.8)	(11.8)
Share-based payment transactions	21	-	-	-	4.4	4.4
Dividends to equity holders		-	-	-	(72.1)	(72.1)
Tax items taken directly to reserves	8	-	-	-	2.8	2.8
Total transactions with owners		-	-	-	(71.8)	(71.8)
Restated balance at 28 December 2019		2.0	13.5	0.4	325.2	341.1
* Details of the change in accounting policy and consequent restatement are given in the Basis of preparation on page 121.

Group
53 weeks ended 2 January 2021
		Attributable to equity holders of the Company
	Note	Issued capital £m	Share premium £m	Capital redemption reserve £m	Retained earnings £m	Total £m
Balance at 29 December 2019 (restated)		2.0	13.5	0.4	325.2	341.1
Total comprehensive income for the year
Loss for the financial year		-	-	-	(13.0)	(13.0)
Other comprehensive income		-	-	-	(9.1)	(9.1)
Total comprehensive income for the year		-	-	-	(22.1)	(22.1)
Transactions with owners, recorded directly in equity
Issue of ordinary shares		-	2.2	-	-	2.2
Sale of own shares		-	-	-	1.5	1.5
Purchase of own shares		-	-	-	(0.5)	(0.5)
Share-based payment transactions	21	-	-	-	0.9	0.9
Dividends to equity holders		-	-	-	-	-
Tax items taken directly to reserves	8	-	-	-	(1.5)	(1.5)
Total transactions with owners		-	2.2	-	0.4	2.6
Balance at 2 January 2021		2.0	15.7	0.4	303.5	321.6

Parent Company
52 weeks ended 28 December 2019 (Restated)
		Attributable to equity holders of the Company
	Note	Issued capital £m	Share premium £m	Capital redemption reserve £m	Retained earnings £m	Total £m
Balance at 30 December 2018 (as previously reported)		2.0	13.5	0.4	311.5	327.4
Impact of change in accounting policy *		-	-	-	(5.7)	(5.7)
Restated balance at 30 December 2018		2.0	13.5	0.4	305.8	321.7
Total comprehensive income for the year
Profit for the financial year	7	-	-	-	87.0	87.0
Other comprehensive income		-	-	-	2.5	2.5
Total comprehensive income for the year		-	-	-	89.5	89.5
Transactions with owners, recorded directly in equity
Sale of own shares		-	-	-	4.9	4.9
Purchase of own shares		-	-	-	(11.8)	(11.8)
Share-based payment transactions	21	-	-	-	4.4	4.4
Dividends to equity holders		-	-	-	(72.1)	(72.1)
Tax items taken directly to reserves	8	-	-	-	2.8	2.8
Total transactions with owners		-	-	-	(71.8)	(71.8)
Restated balance at 28 December 2019		2.0	13.5	0.4	323.5	339.4
* Details of the change in accounting policy and consequent restatement are given in the Basis of preparation on page 121.

Parent Company
53 weeks ended 2 January 2021
		Attributable to equity holders of the Company
	Note	Issued capital £m	Share premium £m	Capital redemption reserve £m	Retained earnings £m	Total £m
Balance at 29 December 2019 (restated)		2.0	13.5	0.4	323.5	339.4
Total comprehensive income for the year
Loss for the financial year	7	-	-	-	(12.9)	(12.9)
Other comprehensive income		-	-	-	(9.1)	(9.1)
Total comprehensive income for the year		-	-	-	(22.0)	(22.0)
Transactions with owners, recorded directly in equity
Issue of ordinary shares		-	2.3	-	-	2.3
Sale of own shares		-	-	-	1.5	1.5
Purchase of own shares		-	-	-	(0.5)	(0.5)
Share-based payment transactions	21	-	-	-	0.9	0.9
Dividends to equity holders		-	-	-	-	-
Tax items taken directly to reserves	8	-	-	-	(1.5)	(1.5)
Total transactions with owners		-	2.3	-	0.4	2.7
Balance at 2 January 2021		2.0	15.8	0.4	301.9	320.1

Statements of cashflows
for the 53 weeks ended 2 January 2021 (2019: 52 weeks ended 28 December 2019)
		Group		Parent Company
	Note	2020 £m	2019 £m	2020 £m	2019 £m
Operating activities
Cash generated from operations (see page 119)		61.6	246.0	61.6	246.0
Income tax paid		(10.7)	(20.3)	(10.7)	(20.3)
Interest paid on lease liabilities		(6.5)	(6.6)	(6.5)	(6.6)
Interest paid on borrowings		(0.8)	–	(0.8)	–
Net cash inflow from operating activities		43.6	219.1	43.6	219.1
Investing activities
Acquisition of property, plant and equipment		(58.8)	(85.4)	(58.8)	(85.4)
Acquisition of intangible assets		(2.8)	(3.7)	(2.8)	(3.7)
Proceeds from sale of property, plant and equipment		1.8	1.4	1.8	1.4
Interest received	6	0.6	0.3	0.6	0.3
Net cash outflow from investing activities		(59.2)	(87.4)	(59.2)	(87.4)
Financing activities
Proceeds from issue of share capital		2.2	–	2.2	–
Sale of own shares		1.5	4.9	1.5	4.9
Purchase of own shares		(0.5)	(11.8)	(0.5)	(11.8)
Proceeds from loans and borrowings		100.0	–	100.0	–
Dividends paid		–	(72.1)	–	(72.1)
Repayment of loans and borrowings		(100.0)	–	(100.0)	–
Repayment of principal on lease liabilities		(42.1)	(49.6)	(42.1)	(49.6)
Net cash outflow from financing activities		(38.9)	(128.6)	(38.9)	(128.6)
Net (decrease)/increase in cash and cash equivalents		(54.5)	3.1	(54.5)	3.1
Cash and cash equivalents at the start of the year	17	91.3	88.2	91.3	88.2
Cash and cash equivalents at the end of the year	17	36.8	91.3	36.8	91.3

Cash flow statement – cash generated from operations
		2020 £m	2019 £m	2020 £m	2019 £m
(Loss)/profit for the financial year		(13.0)	87.0	(12.9)	87.0
Amortisation	10	4.0	3.8	4.0	3.8
Depreciation – property, plant and equipment	12	56.9	56.1	56.9	56.1
Depreciation – right-of-use assets	11	51.9	50.8	51.9	50.8
Impairment – property, plant and equipment	12	5.2	0.3	5.2	0.3
Impairment – right-of-use assets		8.8	0.5	8.8	0.5
Loss on sale of property, plant and equipment		0.5	1.2	0.5	1.2
Release of government grants		(0.5)	(0.5)	(0.5)	(0.5)
Share-based payment expenses	21	0.9	4.4	0.9	4.4
Finance expense	6	6.7	6.5	6.7	6.5
Income tax expense	8	(0.7)	21.3	(0.8)	21.3
Decrease / (increase) in inventories		1.4	(3.1)	1.4	(3.1)
(Increase) / decrease in receivables		(12.3)	4.5	(12.3)	4.5
(Decrease) / increase in payables		(48.2)	19.9	(48.2)	19.9
Decrease in provisions		–	(1.7)	–	(1.7)
Decrease in pension liability	21	–	(5.0)	–	(5.0)
Cash from operating activities		61.6	246.0	61.6	246.0

Notes to the consolidated accounts

Significant accounting policies

Greggs plc (“the Company”) is a company incorporated and domiciled in the UK. The Group accounts consolidate those of the Company and its subsidiaries (together referred to as “the Group”). The results of the associate are not consolidated on the grounds of materiality. The Parent Company accounts present information about the Company as a separate entity and not about its Group.

The accounts were authorised for issue by the Directors on 16 March 2021.

(a) Statement of compliance

Both the Parent Company accounts and the Group accounts have been prepared and approved by the Directors in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and, as regards the Group accounts, International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (‘IFRSs as adopted by the EU’). On publishing the Parent Company accounts here together with the Group accounts, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved accounts.

(b) Basis of preparation

The accounts are presented in pounds sterling, rounded to the nearest £0.1 million, and are prepared on the historical cost basis except the defined benefit pension asset/liability, which is recognised as the fair value of the plan assets less the present value of the defined benefit obligation.

The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Directors’ report and strategic report on pages 2 to 53. The financial position of the Group, its cash flows and liquidity position are described in the financial review on pages 41 to 44. In addition, Note 2 to the accounts includes: the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

The Group chose not to restate business combinations prior to the IFRS transition date (1 January 2004), as no significant acquisitions had taken place during the previous ten years. The Group’s policy up to and including 1997 was to eliminate goodwill arising upon acquisitions against reserves. Under IFRS 1 and IFRS 3, such goodwill remains eliminated against reserves.

The accounting policies set out below have been applied consistently throughout the Group and to all years presented in these consolidated accounts except if mentioned otherwise. From 29 December 2019 the following amendments were adopted by the Group:

• –Amendments to References to the Conceptual Framework in IFRS Standards;
• –Amendments to IAS 1 and IAS 8: Definition of Material; and
• –Amendment to IFRS 16 Covid-19-Related Rent Concessions.

Their adoption did not have a material effect on the accounts. The Group chose not to use the practical expedient available in the amendment to IFRS 16.

Restatement of comparatives

Due to a change in accounting policy there has been a prior-year restatement of deferred tax balances as a result of an agenda decision issued by the IFRS Interpretations Committee (‘IFRIC’) in May 2020 which clarified the accounting for deferred tax when the recovery of the carrying amount of an asset gives rise to multiple tax consequences. In these situations, the Company previously assessed the net position for recoverability but following the IFRIC agenda decision is now required to consider the tax consequences separately and as a result a deferred tax asset of £5.7 million relating to buildings which previously qualified for industrial buildings allowances that was first recognised in 2008 has been derecognised in the opening position for the comparative period due to not being considered recoverable. This deferred tax asset of £5.7 million remains unrecognised at 2 January 2021.

This restatement has resulted in the following balance sheet changes whereby deferred tax is adjusted by £5.7 million, resulting in derecognition of the previous deferred tax asset and recognition of a deferred tax liability, and retained earnings reduced by £5.7 million. There is no impact on profit and loss or earnings per share in either the current or the prior year.

	Group		Parent Company
	At 28 December 2019 £m	At 30 December 2018 £m	At 28 December 2019 £m	At 30 December 2018 £m
Deferred tax asset / (liability)
As originally stated – deferred tax asset	3.3	0.2	3.7	0.6
Adjustment	(5.7)	(5.7)	(5.7)	(5.7)
As restated – deferred tax liability	(2.4)	(5.5)	(2.0)	(5.1)
Retained earnings
As originally stated	330.9	313.2	329.2	311.5
Adjustment	(5.7)	(5.7)	(5.7)	(5.7)
As restated	325.2	307.5	323.5	305.8

The accounting policy for deferred tax has been updated to reflect that when the recovery of the carrying amount of an asset gives rise to multiple tax consequences which are not subject to the same income tax laws, separate temporary differences are identified, and the deferred tax on these is accounted for separately, including assessment of the recoverability of any deferred tax assets that arise.

Going concern

The Directors have considered the adoption of the going concern basis of preparation for these accounts in the context of the continued uncertainty regarding the ongoing impact of Covid-19 on the trading performance of the Group. At the end of the reporting period the Group had available liquidity comprised of cash and cash equivalents plus an undrawn revolving credit facility (RCF) (which is committed to December 2023) totalling £106.8 million. The RCF covenants relate to maximum borrowing levels and minimum liquidity for the 2021 financial year, thereafter they relate to maximum leverage and a minimum fixed charge cover. How these covenants are measured and the required ratios are set out in Note 2.

In 2020 it was necessary to protect the cash position of the Group whilst the additional credit facilities were put in place. Dividends and capital expenditure were temporarily stopped along with any non-essential expenditure. Government support for job retention was accessed and the Company benefitted from business rate relief.

The Directors have reviewed cash flow forecasts - which include severe but plausible downsides - prepared for a period of 12 months from the date of approval of these accounts as well as covenant compliance for that period.

The forecasts assume that:

• –the Covid-19 pandemic requires two months of further lockdown restrictions in November 2021 and February 2022, during which the Company continues to trade as it has done during the most recent periods of lockdown restrictions (i.e. its shops remain open albeit trading at reduced levels);
• –there is a gradual recovery in sales levels outside of the restricted periods, which the Group has modelled based on experience in the second half of 2020;
• –no further government support is utilised (including for periods where continued availability of support has already been announced);

In this scenario the Group is able to operate without needing to draw on its existing committed lending facility and without taking mitigating actions such as reducing capital expenditure and other discretionary spend.

The Directors further considered a more severe scenario where the Group suffers from a brand-damaging food scare resulting in a significant sales reduction in addition to the downside assumptions described above. In this scenario the Group would take mitigating actions in respect of capital expenditure and other discretionary spend. This forecast scenario shows a possible requirement to draw on the RCF but no breaches of the covenants linked to it.

After reviewing these cash flow forecasts and considering the continued uncertainties and mitigating actions that can be taken, the Directors believe that it is appropriate to prepare the accounts on a going concern basis. After making enquiries, the Directors are confident that the Company and the Group will have sufficient funds to continue to meet their liabilities as they fall due for at least 12 months from the date of approval of the financial statements. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

Key estimates and judgements

The preparation of financial information in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of revision and future years if the revision affects both current and future years.

Impairment

Property, plant and equipment and right-of-use assets are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. For example, shop fittings and right-of-use assets may be impaired if sales in that shop fall. When a review for impairment is conducted the recoverable amount is estimated based on either value-in-use calculations or fair value less costs of disposal. Both value-in-use and fair value less costs of disposal calculations require management to estimate future cash flows generated by the assets and an appropriate discount rate. Consideration is also given to whether the impairment assessments made in prior years remain appropriate based on the latest expectations in respect of recoverable amount. Where it is concluded that the impairment has reduced, a reversal of the impairment is recorded.

The Covid-19 crisis has meant that all shops have had periods of no, or reduced, sales and the rate of recovery of sales is inherently uncertain. This is considered to be an impairment trigger and as a result all assets in company-managed shops have been tested for impairment.

As a result of the crisis and following the shutdown period a decision was made not to reopen 38 shops. All shop fittings and right-of-use assets in these shops have been fully impaired (with no significant degree of estimation required) at a cost of £5.3 million (of which £2.5 million relates to fixtures and fittings and £2.8 million relates to right-of-use assets). In addition, a provision of £2.5 million was made for onerous costs and dilapidations directly related to these closures which is expected to be utilised over the remaining term of these shop leases. The assumptions regarding the lease term in respect of these shops were reviewed and where required the lease liability was remeasured before assessing the shop for impairment.

For the remainder of the estate an impairment review was carried out using the following assumptions:

• –Shops have been categorised into different catchment areas (e.g. city centres, transport hubs) and assumptions made on the rate of like-for-like sales recovery for each catchment;
• –Like-for-like sales have been assumed to grow from December 2020 levels to a level six per cent lower than pre-Covid-19 levels (on average across the estate) by the end of 2021, then continuing to grow to pre-lockdown levels by December 2022, with a further one per cent growth per annum beyond that through to 2027. Where shops are used to fulfil online orders, the revenues from fulfilling these are included within the estimated cash flows for the shop;
• –The like-for-like sales recovery assumes temporary national lockdown restrictions (i.e. schools and non-essential retail closed) for the whole of Q1 2021, with further temporary lockdowns in November 2021 and February 2022. For those periods it is assumed that Greggs would trade at a sales level consistent with its recent experience of these conditions;
• –Earning before interest, tax, depreciation, amortisation and rent (‘EBITDAR’) is used as a proxy for net cash flow excluding rental payments.

The base figures are assumed to include any potential impacts of Brexit;

• –The discount rate is based on the Group’s weighted average cost of capital (‘WACC’) with an uplift for risk in the current environment and at 2 January 2021 was 6.7 per cent (28 December 2019: 5.4 per cent); and
• –Consideration of the appropriate period over which to forecast cash flows including with regard to the remaining lease term.

On the basis of these calculations an impairment provision of £8.7 million has been made in respect of 87 shops (of which £2.7 million relates to fixtures and fittings and £6.0 million relates to right-of-use assets).

Given the uncertainties of the current trading environment, the sensitivities of these assumptions on the impairment calculation have been tested:

• –A one per cent increase in the discount rate would result in an additional provision of £0.7 million, covering a further ten properties. A one percent decrease in the discount rate would result in a reduction in the provision of £0.6 million, with six fewer properties impaired;
• –A five per cent per annum increase in the sales recovery assumption would result in a reduction in the provision of £3.7 million with 26 fewer shops impaired. A five per cent decrease in the sales recovery assumption would result in an additional provision of £6.4 million with a further 41 properties impaired; and
• –A more severe national lockdown that required our shops to close entirely for the month of January 2022 would result in an additional impairment of £1.4 million covering a further ten shops.

Determining the rate used to discount lease payments

At the commencement date of property leases the lease liability is calculated by discounting the lease payments. The discount rate used should be the interest rate implicit in the lease. However, if that rate cannot be readily determined, which is generally the case for property leases, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. As the Group had no suitable external borrowings from which to determine that rate, judgement is required to determine the incremental borrowing rate to be used. At the start of each month a risk-free rate is obtained, linked to the length of the lease and an adjustment is then made to reflect credit risk. For the lease liabilities at 2 January 2021 a 0.1 per cent change in the discount rate used would have adjusted the total liabilities by £1.2 million.

Determining the lease term of property leases

At the commencement date of property leases the Group normally determines the lease term to be the full term of the lease, assuming that any option to break or extend the lease is unlikely to be exercised and it is not reasonably certain that the Group will continue in occupation for any period beyond the lease term. Leases are regularly reviewed and will be revalued if it becomes reasonably certain that a break clause or option to extend the lease is exercised.

Previously, the Group classified property leases as operating leases under IAS 17. The leases typically run for a period of 10 or 15 years. In England, the majority of its property leases are protected by the Landlord and Tenant Act 1954 (LTA) which affords protection to the lessee at the end of an existing lease term.

Judgement is required in respect of those property leases where the current lease term has expired but the Group remains in negotiation with the landlord for potential renewal. Where the Group believes renewal to be reasonably certain and the lease is protected by the LTA it will be treated as having been renewed at the date of termination of the previous lease term and on the same terms as the previous lease. Where renewal is not considered to be reasonably certain the leases are included with a lease term which reflects the anticipated notice period under relevant legislation. The lease will be revalued when it is renewed to take account of the new terms. As at 2 January 2021 the financial effect of applying this judgement was an increase in recognised lease liabilities of £31.9 million (2019: £41.3 million).

Treatment of items as exceptional

The accounts for both the current and the prior year include items which are material and unusual in nature and which are considered to be of such significance that they require separate disclosure on the face of the income statement. These items include the decision to invest in and reshape the Company’s supply chain, with a multi-year, known budget project, in order to support future growth. Judgement is required in ensuring that only items that relate directly to this activity are separately presented. Further details of items treated as exceptional are given in Note 4.

Post-retirement benefits

The determination of the defined benefit obligation of the Group’s defined benefit pension scheme depends on the selection of certain assumptions with significant estimation uncertainty including the discount rate, inflation rate, mortality rates and commutation. Differences arising from actual experience or future changes in assumptions will be reflected in future years. The key assumptions, sensitivities and carrying amounts for 2020 are given in Note 21.

(c) Basis of consolidation

The consolidated accounts include the results of Greggs plc and its subsidiary undertakings for the 53 weeks ended 2 January 2021. The comparative period is the 52 weeks ended 28 December 2019.

(i) Subsidiaries

Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The accounts of subsidiaries are included in the consolidated accounts from the date on which control commences until the date on which control ceases.

(ii) Associates

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 per cent of the voting power of another entity unless it can be clearly demonstrated that this is not the case. At the year end the Group has one associate which has not been consolidated on the grounds of materiality (see Note 13).

(iii) Transactions eliminated on consolidation

Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated accounts.

(d) Exceptional items

Exceptional items are defined as items of income and expenditure which are material and unusual in nature and which are considered to be of such significance that they require separate disclosure on the face of the income statement. Any future movements on items previously classified as exceptional will also be classified as exceptional.

(e) Foreign currency

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Nonmonetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign exchange differences arising on translation are recognised in the income statement.

(f) Intangible assets

The Group’s only intangible assets relate to software and the cost of its implementation which are measured at cost less accumulated amortisation and accumulated impairment losses. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in the income statement as incurred.

Amortisation is recognised in the income statement on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives are five to seven years.

Assets in the course of development are recategorised and amortisation commences when the assets are available for use.

(g) Leases

(i) Lease recognition

At inception of a contract the Group assesses whether a contract is or contains a lease. A contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.

For leases of properties in which the Group is a lessee, it has applied the practical expedient permitted by IFRS 16 and will account for each lease component and any associated non-lease components as a single lease component.

(ii) Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less accumulated depreciation and impairment losses and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, adjusted for any lease payments made at or before the commencement date, less any lease incentives received. Right-of-use assets are depreciated over the shorter of the asset’s useful life or the lease term on a straight-line basis. Right-of-use assets are subject to, and reviewed regularly for, impairment. Depreciation on right-of-use assets is included in selling and distribution costs in the consolidated income statement.

(iii) Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of the lease payments to be made over the lease term. Lease payments include fixed payments less any lease incentives receivable and variable lease payments that depend on an index or rate. Any variable lease payments that do not depend on an index or rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. Generally the Group uses its incremental borrowing rate as the discount rate. When there are no external borrowings, judgement would be required to determine an approximation, calculated based on UK Government Gilt rates of an appropriate duration and adjusted by an indicative credit premium.

After the commencement date, the lease liability is increased to reflect the accretion of interest and reduced for lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term or a change in the fixed lease payments. Interest charges are included in finance costs in the consolidated income statement.

(iv) Short-term leases and leases of low-value assets

The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery and equipment that have a lease term of less than 12 months and leases of low-value assets. Lease payments relating to short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

(v) Variable lease payments

Some property leases contain variable payment terms that are linked to sales generated from a shop. For individual shops, up to 100 per cent of lease payments are on the basis of variable payment terms. These payments are recognised in the income statement in the period in which the condition that triggers them occurs.

(h) Property, plant and equipment

(i) Owned assets

Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation (see below) and impairment losses (see accounting policy (l)). The cost of self-constructed assets includes the cost of materials and direct labour.

(ii) Subsequent costs

The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying value of the replaced component is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in the income statement as incurred.

(iii) Depreciation

Depreciation is provided so as to write off the cost (less residual value) of each item of property, plant and equipment during its expected useful life using the straight-line method over the following periods:

Freehold and long leasehold buildings	20 to 40 years
Short leasehold properties	10 years or length of lease if shorter
Plant, machinery, equipment, vehicles, fixtures and fittings	3 to 10 years

Freehold land is not depreciated.

Depreciation methods, useful lives and residual values (if not insignificant) are reassessed annually.

(iv) Assets in the course of construction

These assets are recategorised and depreciation commences when the assets are available for use.

(i) Investments

Non-current investments comprise investments in subsidiaries and associates which are carried at cost less impairment.

Current investments comprise fixed-term, fixed-rate bank deposits where the term is greater than three months.

(j) Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories includes expenditure incurred in acquiring the inventories and direct production labour costs.

(k) Cash and cash equivalents

Cash and cash equivalents comprises cash at bank, in hand, debit and credit card receivables and call deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

(l) Impairment

The carrying amounts of the Group and Company’s assets, other than inventories and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Impairment reviews are carried out on an individual shop basis.

An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised in prior years are assessed at each reporting date and reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised.

(m) Non-current assets held for sale

Non-current assets that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets are remeasured in accordance with the Group and Company’s accounting policies. Thereafter generally the assets are measured at the lower of their carrying amount and fair value less cost to sell. Once classified as held for sale assets are no longer depreciated or amortised.

(n) Share capital and reserves

(i) Repurchase of share capital

When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity. Repurchased shares that are held in the employee share ownership plan are classified as treasury shares and are presented as a deduction from total equity.

(ii) Dividends

Dividends are recognised as a liability when the Company has an obligation to pay and the dividend is no longer at the Company’s discretion.

(iii) Distributable reserves

All Parent Company retained earnings are distributable and are the only such reserves.

(o) Employee share ownership plan

The Group and Parent Company accounts include the assets and related liabilities of the Greggs Employee Benefit Trust (EBT). In both the Group and Parent Company accounts the treasury shares held by the EBT are stated at cost and deducted from total equity.

(p) Employee benefits

(i) Short-term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be measured reliably.

(ii) Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement when they are due.

(iii) Defined benefit plans

The Company’s net obligation in respect of defined benefit pension plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets (at bid price) is deducted. The Company determines the net interest on the net defined benefit asset/liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit asset/liability.

The discount rate is the yield at the reporting date on bonds that have a credit rating of at least AA, that have maturity dates approximating to the terms of the Company’s obligations and that are denominated in the currency in which the benefits are expected to be paid.

Remeasurements arising from defined benefit plans comprise actuarial gains and losses and the return on plan assets (excluding interest). The Company recognises them immediately in other comprehensive income and all other expenses related to defined benefit plans in employee benefit expenses in the income statement.

When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service by employees, or the gain or loss on curtailment, is recognised immediately in profit or loss when the plan amendment or curtailment occurs.

The calculation of the defined benefit obligation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognised asset is limited to the present value of benefits available in the form of any future refunds from the plan or reductions in future contributions and takes into account the adverse effect of any minimum funding requirements.

(iv) Share-based payment transactions

The share option programme allows Group employees to acquire shares of the Company. The fair value of share options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date, using an appropriate model, taking into account the terms and conditions upon which the share options were granted, and is spread over the period during which the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting.

(v) Termination benefits

Termination benefits are expensed at the earlier of the date at which the Group can no longer withdraw the offer of these benefits and the date at which the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date they are discounted.

(q) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

(i) Restructuring

A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.

(ii) Onerous contracts

Provisions for onerous contracts are recognised when the Group believes that the unavoidable costs of meeting the contract obligations exceed the economic benefits expected to be received under the contract. At this point and before a provision is established the Group recognises any impairment loss on the associated assets.

(iii) Dilapidations

The Group provides for property dilapidations, where appropriate, based on the future expected repair costs required to restore the Group’s leased buildings to their fair condition at the end of their respective lease terms, where it is considered a reliable estimate can be made.

(r) Revenue

(i) Retail sales

Revenue from the sale of goods is recognised as income on receipt of cash or card payment. Revenue is measured net of discounts, promotions and value added taxation. Revenue from delivery services is included in retail sales and recognised on delivery.

(ii) Franchise sales

Franchise sales are recognised when goods are delivered to franchisees. Additional franchise royalty fee income, generally calculated as a percentage of gross sales income, is recognised in line with the franchisees’ product sales in accordance with the relevant agreement. Pre-opening capital fit-out costs are recharged to the franchisee and represent a key performance obligation of the overall franchise sales agreement. These recharges are recognised as income on completion of the related fit-out. Sales are invoiced to customers in credit terms of less than three months.

(iii) Wholesale sales

Wholesale sales are recognised when goods are delivered to customers. Separate disclosure of wholesale sales is not made where the information disclosed would be commercially sensitive, e.g. if there is a single wholesale customer. Sales are invoiced to customers in credit terms of less than three months.

(iv) Loyalty programme/gift cards

Amounts received for gift cards or as part of the loyalty programme are deferred. They are recognised as revenue when the Group has fulfilled its obligation to supply products under the terms of the programme or when it is no longer probable that these amounts will be redeemed. Where customers are entitled to a free product after a set number of purchases under the loyalty programme, a proportion of the consideration received is deferred so that the revenue is recognised evenly across all of the linked transactions.

The nature, timing and uncertainty of revenues arising from the above transaction types do not differ significantly from each other.

(s) Government grants

Government grants are recognised in the balance sheet initially as deferred income when there is a reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognised net of the related expenses in the income statement on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognised in the income statement over the useful life of the asset.

(t) Finance income and expense

Interest income or expense is recognised using the effective interest method.

(u) Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable profit for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. The amount of current tax payable is the best estimate of the tax amount expected to be paid that reflects uncertainty related to income taxes, if any. Taxable profit differs from profit as reported in the income statement because some items of income or expense are taxable or deductible in different years or may never be taxable or deductible.

Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used in the calculation of taxable profit. It is accounted for using the balance sheet liability method. The amount of deferred tax recognised is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates that are expected to apply when the temporary differences reverse, based on rates enacted or substantively enacted at the balance sheet date. When the recovery of the carrying amount of an asset gives rise to multiple tax consequences which are not subject to the same income tax laws, separate temporary differences are identified, and the deferred tax on these is accounted for separately, including assessment of the recoverability of any deferred tax assets that arise.

Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related deferred tax benefit will be realised.

(v) Research and development

The Company continuously strives to improve its products and processes through technical and other innovation. Such expenditure is typically expensed to the income statement when the related intellectual property is not capable of being formalised or capitalised within intangible assets.

(w) IFRSs available for early adoption not yet applied

The following amendments to standards which will be relevant to the Group were available for early adoption but have not been applied in these accounts:

• –Amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16: Interest Rate Benchmark Reform - Phase 2 (effective date 1 January 2021).

Their adoption is not expected to have a material effect on the accounts.

1 Segmental analysis

The Board is considered to be the ‘chief operating decision-maker’ of the Group in the context of the IFRS 8 definition. In addition to its company-managed retail activities, the Group generates revenues from its business to business (‘B2B’) channel which includes franchise and wholesale activities. With the reduction in the level of company-managed retail activities during 2020 both channels are now categorised as reportable segments for the purposes of IFRS 8.

Company-managed retail activities - the Group sells a consistent range of fresh bakery goods, sandwiches and drinks in its own shops or via delivery channels. Sales are made to the general public on a cash basis. All results arise in the UK.

B2B channel - the Group sells products to franchise and wholesale partners for sale in their own outlets as well as charging a licence fee to franchise partners. These sales and fees are invoiced to the partners on a credit basis. All results arise in the UK.

In the current year the Board has regularly reviewed the revenues of each segment separately. A review of trading profit for each segment was not possible as there was no basis on which meaningfully to allocate costs during the period when the company-managed shops were closed. The Board receives information on overheads, assets and liabilities on an aggregated basis consistent with the Group accounts.

	2020 Retail company-managed shops £m	2020 B2B £m	2020 Total £m	2019 Retail company-managed shops £m	2019 B2B £m	2019 Total £m
Revenue	715.3	96.0	811.3	1,073.8	94.1	1,167.9
Trading profit*			66.4			205.2
Overheads including profit share			(73.4)			(90.4)
Operating (loss)/profit			(7.0)			114.8
Finance expense			(6.7)			(6.5)
(Loss)/profit before tax			(13.7)			108.3
* Trading profit is defined as gross profit less supply chain costs and retail costs (including property costs) and before central overheads.

2 Financial risk management

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations.

Retail sales represent a large proportion of the Group’s sales and present no credit risk as they are made for cash or card payments. The Group does offer credit terms on sales to its wholesale and franchise customers. In such cases the Group operates effective credit control procedures in order to minimise exposure to overdue debts.

Counterparty risk is also considered low. All of the Group’s surplus cash is held with highly-rated banks, in line with Group policy.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

The Group operates with net current liabilities and is therefore reliant on the continued strong performance of the retail portfolio to meet its short-term liabilities. Short and medium-term cash forecasting is used to manage liquidity risk. These forecasts are used to ensure the Group has sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions.

During the year the Group accessed liquidity under the Covid Corporate Financing Facility (‘CCFF’) at a favourable rate of interest. The borrowings were repaid in December 2020 and the related costs have been charged to finance costs.

The Group also arranged a £100 million syndicated revolving credit facility which matures in December 2023 with options to extend for up to two years. This facility was undrawn at 2 January 2021. For the first up to twelve months of the facility the covenants in place comprise: monthly net borrowings do not exceed £70 million; and liquidity is maintained above a minimum of £30 million. Thereafter the covenants comprise: leverage (calculated as the ratio of net borrowings to EBITDA) does not exceed 3:1; and fixed charge cover (calculated as the ratio of EBITDA to net rent and interest payable) cannot be below 1.75:1.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments.

Market risk is not significant and therefore sensitivity analysis would not be meaningful.

Currency risk

The Group has no regular material transactions in foreign currency although there are occasional purchases, mainly of capital items, denominated in foreign currency. Whilst certain costs such as electricity and wheat can be influenced by movements in the US dollar, actual contracts are priced in sterling. In respect of those key costs which are volatile, such as electricity and flour, the price may be fixed for a period of time in line with Group policy. All such contracts are for the Group’s own expected usage.

Interest rate risk

Interest rate risk is the risk that movement in the interbank offered rates increase causing finance costs to increase. The Group’s interest rate risk arises from its revolving credit facility. Whilst the facility remains undrawn increases in the interest rate will not impact on finance costs.

Equity price risk

The Group has no significant equity investments other than its subsidiaries and associate. As disclosed in Note 21 the Group’s defined benefit pension scheme has investments in equity-related funds.

Capital management

The Group’s capital management objectives are:

• –To ensure the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and
• –To provide an adequate return to shareholders by pricing products and delivering services commensurate with the level of risk.

To meet these objectives the Group reviews the budgets and forecasts on a regular basis to ensure there is sufficient capital to meet the needs of the Group through to profitability and positive cashflow.

The capital structure of the Group consists of shareholders’ equity as set out in the consolidated statement of changes in equity. All working capital requirements are financed from existing cash resources and borrowings.

The Board reserves the option to purchase its own shares in the market dependent on market prices and surplus cash levels. The trustees of the Greggs Employee Benefit Trust also purchase shares for future satisfaction of employee share options.

Financial instruments

Group and Parent Company

All of the Group’s surplus cash is invested as cash placed on deposit or fixed-term deposits.

The Group’s treasury policy has as its principal objective the achievement of the maximum rate of return on cash balances whilst maintaining an acceptable level of risk. Other than mentioned below there are no financial instruments, derivatives or commodity contracts used.

Financial assets and liabilities

A financial asset is measured at amortised cost if it meets both of the following conditions:

• –it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
• –its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

The Group’s main financial assets comprise cash and cash equivalents and fixed-term deposits. Other financial assets include trade receivables arising from the Group’s activities. These financial assets all meet the conditions to be recognised at amortised cost.

Other than trade and other payables, the Group had no financial liabilities within the scope of IFRS 9 as at 2 January 2021 (2019: £nil).

Fair values

The fair value of the Group’s financial assets and liabilities is not materially different from their carrying values. Financial assets and liabilities comprise principally of trade receivables and trade payables and the only interest-bearing balances are the bank deposits and borrowings which attract interest at variable rates.

Interest rate, credit and foreign currency risk

The Group has not entered into any hedging transactions during the year and considers interest rate, credit and foreign currency risks not to be significant.

3 Profit before tax

Loss / profit before tax is stated after charging / (crediting):

	2020 £m	2019 £m
Amortisation of intangible assets	4.0	3.8
Depreciation of owned property, plant and equipment	56.9	56.1
Depreciation of right-of-use assets	51.9	50.6
Impairment of owned property, plant and equipment	5.2	0.3
Impairment of right-of-use assets	8.8	0.5
Loss on disposal of fixed assets	0.4	1.2
Release of government grants	(0.5)	(0.5)
Research and development expenditure	-	0.3

Auditor’s remuneration for the audit of these accounts amounted to £193,000 (2019: £165,000) and for other assurance services £15,000 (2019: £15,000). Amounts paid to the Company’s auditor in respect of services to the Company, other than the audit of the Company’s accounts, have not been disclosed as the information is required instead to be presented on a consolidated basis.

In addition, the Group received £87 million under the Coronavirus Job Retention Scheme (‘CJRS’) to support employment. This has been credited to the income statement to offset the related employment costs. A further income statement saving of £18.8 million was made following the suspension of business rates from April 2020.

4 Exceptional items

	2020 £m	2019 £m
Cost of sales
Supply chain restructuring
- redundancy	0.1	0.7
- depreciation and asset write-off	–	0.1
- transfer of operations	0.7	5.0
- property-related	–	0.1
Total exceptional items	0.8	5.9

Supply chain restructuring

This charge arises from the decisions, announced in 2016 and 2017, to invest in and reshape the Company’s supply chain in order to support future growth. In 2020 and 2019 the costs related to accelerated depreciation and the expenses incurred as a result of further consolidation of manufacturing into dedicated centres of excellence, including additional running costs. This programme of investment is due to be completed in 2021.

5 Personnel expenses

The average number of persons employed by the Group (including Directors) during the year was as follows:

	2020 Number	2019 Number
Management	681	702
Administration	361	368
Production	3,026	2,994
Shop	20,276	19,641
	24,344	23,705

The aggregate costs of these persons were as follows:

	Note	2020 £m	2019 £m
Wages and salaries		363.5	357.8
Compulsory social security contributions		26.2	25.5
Pension costs - defined contribution plans	21	24.9	22.6
Equity-settled transactions (including employer’s NI costs)	21	0.2	6.5
		414.8	412.4

In addition to wages and salaries, the total amount accrued under the Group’s employee profit sharing scheme is contained within the main cost categories as follows:

	2020 £m	2019 £m
Cost of sales	-	3.3
Distribution and selling costs	-	7.9
Administrative expenses	-	1.6
	-	12.8

For the purposes of IAS 24 ‘Related Party Disclosures’, key management personnel comprises the Directors and the members of the Operating Board and their remuneration was as follows:

	2020 £m	2019 £m
Salaries and fees	2.7	2.9
Taxable benefits	0.1	0.1
Annual bonus (including profit share)	-	2.3
Post-retirement benefits	0.3	0.4
Equity-settled transactions	0.2	3.0
	3.3	8.7

The following amounts are disclosed in accordance with Schedule 5 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008.

	2020 £m	2019 £m
Aggregate Directors’ remuneration	2.4	2.1
Aggregate amount of gains on exercise of share options	-	1.0
	2.4	3.1

The number of Directors in the defined contribution pension scheme and in the defined benefit pension scheme during the year was one (2019: one).

6 Finance expense

	Note	2020 £m	2019 £m
Interest income on cash balances		0.4	0.5
Interest expense on borrowings		(0.8)	-
Foreign exchange gain / (loss)		0.2	(0.2)
Interest on lease liabilities		(6.5)	(6.6)
Net interest related to defined benefit pension obligation	21	-	(0.2)
		(6.7)	(6.5)

7 Profit attributable to Greggs plc

Of the Group loss for the year, £12.9 million (2019: £87.0 million profit) is dealt with in the accounts of the Parent Company. The Company has taken advantage of the exemption permitted by s408 of the Companies Act 2006 from presenting its own income statement.

8 Income tax expense

Recognised in the income statement

	2020 £m	2019 £m
Current tax
Current year	(0.6)	22.2
Adjustment for prior years	(0.6)	(0.1)
	(1.2)	22.1
Deferred tax
Origination and reversal of temporary differences	0.4	(0.2)
Adjustment for prior years	0.1	(0.6)
	0.5	(0.8)
Total income tax expense in income statement	(0.7)	21.3

Reconciliation of effective tax rate

The table below explains the differences between the expected tax expense calculated at the UK statutory rate of 19 per cent (2019: 19 per cent) and the actual tax expense for each year.

	2020	2020 £m	2019	2019 £m
(Loss)/profit before tax		(13.7)		108.3
Income tax using the domestic corporation tax rate	19.00%	(2.6)	19.00%	20.6
Items not (taxable) / deductible for tax purposes	(2.35%)	0.3	(0.18%)	(0.2)
Non-tax-deductible depreciation	(9.39%)	1.3	1.48%	1.6
Impairment of non-tax-deductible assets	(0.99%)	0.1	-	-
Impact of increase in deferred tax rate	(4.92%)	0.7	-	-
Adjustment for prior years	3.49%	(0.5)	(0.63%)	(0.7)
Total income tax expense in income statement	5.23%	(0.7)	19.67%	21.3

Legislation to maintain the rate of corporation tax at 19 per cent was substantively enacted on 17 March 2020, cancelling the previously enacted reduction to 17 per cent. Any timing differences are therefore expected to reverse at 19 per cent.

Tax recognised in other comprehensive income or directly in equity

	2020 Current tax £m	2020 Deferred tax £m	2020 Total £m	2019 Total £m
Debit / (credit):
Relating to equity-settled transactions	-	1.5	1.5	(2.8)
Relating to defined benefit pension plans - remeasurement gains	-	(2.1)	(2.1)	0.5
	-	(0.6)	(0.6)	(2.3)

The deferred tax movements in both the current and prior years relating to equity-settled transactions are in respect of share-based payments and arise as a result of fluctuations in share price in the year and the stage of maturity of existing schemes together with the revaluation impact of the deferred tax previously recognised directly in equity.

9 Earnings per share

Basic (loss)/earnings per share

Basic earnings per share for the 53 weeks ended 2 January 2021 is calculated by dividing (loss)/profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the 53 weeks ended 2 January 2021 as calculated below.

Diluted (loss)/earnings per share

There are no potential ordinary shares in the current year that are considered to be dilutive. The number of potential ordinary shares that could be dilutive in future years is 915,989.

(Loss)/profit attributable to ordinary shareholders

	2020 £m	2019 £m
(Loss)/profit for the financial year attributable to equity holders of the Parent	(13.0)	87.0
Basic (loss)/earnings per share	(12.9p)	86.2p
Diluted (loss)/earnings per share	(12.9p)	85.0p

Weighted average number of ordinary shares

	2020 Number	2019 Number
Issued ordinary shares at start of year	101,155,901	101,155,901
Effect of own shares held	(302,104)	(342,748)
Effect of shares issued	113,334	-
Weighted average number of ordinary shares during the year	100,967,131	100,813,153
Effect of share options in issue	-	1,505,456
Weighted average number of ordinary shares (diluted) during the year	100,967,131	102,318,609

10 Intangible assets

Group and Parent Company

	Software £m	Assets under development £m	Total £m
Cost
Balance at 30 December 2018	23.8	2.9	26.7
Additions	2.5	1.2	3.7
Transfers	2.6	(2.6)	-
Balance at 28 December 2019	28.9	1.5	30.4
Balance at 29 December 2019	28.9	1.5	30.4
Additions	2.7	0.1	2.8
Transfers	1.5	(1.5)	-
Balance at 2 January 2021	33.1	0.1	33.2
Amortisation
Balance at 30 December 2018	9.8	-	9.8
Amortisation charge for the year	3.8	-	3.8
Balance at 28 December 2019	13.6	-	13.6
Balance at 29 December 2019	13.6	-	13.6
Amortisation charge for the year	4.0	-	4.0
Balance at 2 January 2021	17.6	-	17.6
Carrying amounts
At 29 December 2018	14.0	2.9	16.9
At 28 December 2019	15.3	1.5	16.8
At 29 December 2019	15.3	1.5	16.8
At 2 January 2021	15.5	0.1	15.6

Assets under development relate to software projects arising from the investment in new systems platforms.

11 Leases

Amounts recognised in the balance sheets

The balance sheets show the following amounts relating to leases:

Group and Parent Company

	2020 £m	2019 £m
Right-of-use assets
Land and buildings	267.8	269.4
Plant and equipment	2.3	3.3
	270.1	272.7

	2020 £m	2019 £m
Lease liabilities
Current	48.6	48.8
Non-current	243.1	226.9
	291.7	275.7

The remaining maturities of the lease liabilities, which are gross and undiscounted, are as follows:

	2020 £m	2019 £m
Less than one year	54.4	51.0
One to two years	49.3	48.5
Two to three years	43.6	42.5
Three to four years	39.2	35.8
Four to five years	34.2	31.9
More than five years	94.9	94.6
Total undiscounted lease liability	315.5	304.3

Additions to right-of-use assets during the 53 weeks ended 2 January 2021 as a result of entering in to new leases (either as a result of acquiring new shops or completing lease renewals for existing shops) were £26.2 million (2019: £45.5 million).

A further net increase of £31.9 million to right-of-use assets has been recognised during the 53 weeks ended 2 January 2021 as a result of lease modifications and assumptions relating to lease term once a lease has expired (2019: £12.6 million).

Amounts recognised in the income statement

	2020 £m	2019 £m
Depreciation charge on right-of-use assets
Land and buildings	50.2	48.9
Plant and equipment	1.7	1.9
	51.9	50.8
Interest expense (included in finance cost)	6.5	6.6
Expense included for short-term leases (included in cost of sales and administrative expenses)	0.2	0.2
Expense related to lease of low-value assets that are not shown above as short-term leases (included in administrative expenses)	0.2	0.2
Expense related to variable lease payments not included in lease liabilities (included in selling and distribution)	0.6	2.2

The total cash outflow for leases in 2020 was £48.6 million (2019: £56.2 million).

The components of the movement in the total lease liability were as follows:

	2020 £m
Opening total liability	275.7
Additions in respect of new leases	26.2
Lease modifications	31.9
Interest on lease liabilities	6.5
Rental payments	(48.6)
Closing total liability	291.7

12 Property, plant and equipment

Group

	Land and buildings £m	Plant and equipment £m	Fixtures and fittings £m	Assets under construction £m	Total £m
Cost
Balance at 30 December 2018	153.1	154.9	321.1	2.0	631.1
Additions	12.2	28.1	36.0	6.0	82.3
Disposals	(0.6)	(14.9)	(19.3)	-	(34.8)
Transfers	1.6	0.5	-	(2.1)	-
Balance at 28 December 2019	166.3	168.6	337.8	5.9	678.6
Balance at 29 December 2019	166.3	168.6	337.8	5.9	678.6
Additions	3.3	10.1	19.6	22.9	55.9
Disposals	(0.7)	(8.1)	(8.7)	-	(17.5)
Transfers	-	1.9	-	(1.9)	-
Balance at 2 January 2021	168.9	172.5	348.7	26.9	717.0
Depreciation
Balance at 30 December 2018	44.1	89.9	166.7	-	300.7
Depreciation charge for the year	4.6	13.3	38.2	-	56.1
Impairment charge for the year	-	0.5	0.4	-	0.9
Impairment release for the year	-	-	(0.6)	-	(0.6)
Disposals	(0.5)	(14.4)	(17.3)	-	(32.2)
Balance at 28 December 2019	48.2	89.3	187.4	-	324.9
Balance at 29 December 2019	48.2	89.3	187.4	-	324.9
Depreciation charge for the year	4.9	14.3	37.6	-	56.8
Impairment charge for the year	-	-	5.9	-	5.9
Impairment release for the year	-	-	(0.7)	-	(0.7)
Disposals	(0.3)	(7.4)	(7.5)	-	(15.2)
Balance at 2 January 2021	52.8	96.2	222.7	-	371.7
Carrying amounts
At 30 December 2018	109.0	65.0	154.4	2.0	330.4
At 28 December 2019	118.1	79.3	150.4	5.9	353.7
At 29 December 2019	118.1	79.3	150.4	5.9	353.7
At 2 January 2021	116.1	76.3	126.0	26.9	345.3

Assets under construction relate to the building of an automated cold storage facility and the value of the assets will be recovered through the normal course of trade.

Assets are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable and provision is made where necessary. The method and assumptions used in these calculations, together with the associated sensitivities, are set out in the basis of preparation - key estimates and judgements on page 123 and 124.

During 2018, the Company exchanged contracts for the disposal of the vacant Twickenham site. The disposal is conditional on a number of factors, including the applications for and successful grant of planning permission. As at the end of 2020 the timing of the resolution of these factors remains uncertain and therefore this asset continues to be classified as non-current. At this stage the total proceeds arising from supply chain site disposals are still expected to be in line with those anticipated in the investment plan.

Parent Company

	Land and buildings £m	Plant and equipment £m	Fixtures and fittings £m	Assets under construction £m	Total £m
Cost
Balance at 30 December 2018	153.6	155.4	321.6	2.0	632.6
Additions	12.2	28.1	36.0	6.0	82.3
Disposals	(0.6)	(14.9)	(19.3)	-	(34.8)
Transfers	1.6	0.5	-	(2.1)	-
Balance at 28 December 2019	166.8	169.1	338.3	5.9	680.1
Balance at 29 December 2019	166.8	169.1	338.3	5.9	680.1
Additions	3.3	10.1	19.6	22.9	55.9
Disposals	(0.7)	(8.1)	(8.7)	-	(17.5)
Transfers	-	1.9	-	(1.9)	-
Balance at 2 January 2021	169.4	173.0	349.2	26.9	718.5
Depreciation
Balance at 30 December 2018	44.4	90.1	167.1	-	301.6
Depreciation charge for the year	4.6	13.3	38.2	-	56.1
Impairment charge for the year	-	0.5	0.4	-	0.9
Impairment release for the year	-	-	(0.6)	-	(0.6)
Disposals	(0.5)	(14.4)	(17.3)	-	(32.2)
Balance at 28 December 2019	48.5	89.5	187.8	-	325.8
Balance at 29 December 2019	48.5	89.5	187.8	-	325.8
Depreciation charge for the year	4.9	14.3	37.6	-	56.8
Impairment charge for the year	-	-	5.9	-	5.9
Impairment release for the year	-	-	(0.7)	-	(0.7)
Disposals	(0.3)	(7.4)	(7.5)	-	(15.2)
Balance at 2 January 2021	53.1	96.4	223.1	-	372.6
Carrying amounts
At 30 December 2018	109.2	65.3	154.5	2.0	331.0
At 28 December 2019	118.3	79.6	150.5	5.9	354.3
At 29 December 2019	118.3	79.6	150.5	5.9	354.3
At 2 January 2021	116.3	76.6	126.1	26.9	345.9

Land and buildings

The carrying amount of land and buildings comprises:

	Group		Parent Company
	2020 £m	2019 £m	2020 £m	2019 £m
Freehold property	115.1	116.9	115.3	117.1
Short leasehold property	1.0	1.2	1.0	1.2
	116.1	118.1	116.3	118.3

13 Investments

Non–current investments

Parent Company

	Shares in subsidiary undertakings £m
Cost	5.8
Balance at 30 December 2018, 29 December 2019 and 2 January 2021
Impairment
Balance at 30 December 2018, 29 December 2019 and 2 January 2021	0.8
Carrying amount
Balance at 30 December 2018, 28 December 2019, 29 December 2019 and 2 January 2021	5.0

The undertakings in which the Company’s interest at the year end is more than 20 per cent are as follows:

	Principal activity	Address of registered office	Proportion of voting rights and shares held
Charles Bragg (Bakers) Limited	Non-trading	1	100%
Greggs (Leasing) Limited	Dormant	1	100%
Thurston Parfitt Limited	Non-trading	1	100%
Greggs Properties Limited	Property holding	1	100%
Olivers (U.K.) Limited	Dormant	2	100%
Olivers (U.K.) Development Limited*	Non-trading	2	100%
Birketts Holdings Limited	Dormant	1	100%
J.R. Birkett and Sons Limited*	Non-trading	1	100%
Greggs Trustees Limited	Trustees	1	100%
Solstice Zone A Management Company Limited	Non-trading	3	28%
* held indirectly

1 Greggs House	2 Clydesmill Bakery	3 The Abbey
Quorum Business Park	75 Westburn Drive	Preston Road
Newcastle upon Tyne	Clydesmill Estate	Yeovil
NE12 8BU	Cambuslang	Somerset
	Glasgow	BA20 2EN
	G72 7NA

Solstice Zone A Management Company Limited was not consolidated on the grounds of materiality.

The Company’s subsidiary undertakings listed above were all entitled to exemption, under subsections (1) and (2) of s480 of Companies Act 2006 relating to dormant companies, from the requirement to have their accounts audited.

14 Deferred tax assets and liabilities

Group

Deferred tax assets and liabilities are attributable to the following:

	Assets		Liabilities		Net
	2020 £m	2019 £m	2020 £m	2019 Restated* £m	2020 £m	2019 Restated* £m
Property, plant and equipment	–	–	(8.3)	(8.5)	(8.3)	(8.5)
Employee benefits	5.5	5.4	–	–	5.5	5.4
Short-term temporary differences	0.5	0.7	–	–	0.5	0.7
Tax assets / (liabilities)	6.0	6.1	(8.3)	(8.5)	(2.3)	(2.4)
* Due to a change in accounting policy, there has been a prior year restatement of deferred tax balances. Further details of this change and its impact are given in the Basis of preparation on page 121. As a result of this change in accounting policy the Group has a deferred tax asset of £5.7 million that is unrecognised at 2 January 2021 (28 December 2019: £5.7 million).

The movements in temporary differences during the 52 weeks ended 28 December 2019 were as follows:

	Balance at 30 December 2018 Restated £m	Recognised in income £m	Recognised in equity £m	Balance at 28 December 2019 Restated £m
Property, plant and equipment	(8.9)	0.4	–	(8.5)
Employee benefits	3.2	(0.1)	2.3	5.4
Short-term temporary differences	0.2	0.5	–	0.7
	(5.5)	0.8	2.3	(2.4)

The movements in temporary differences during the 53 weeks ended 2 January 2021 were as follows:

	Balance at 29 December 2019 Restated £m	Recognised in income £m	Recognised in equity £m	Balance at 2 January 2021 £m
Property, plant and equipment	(8.5)	0.2	–	(8.3)
Employee benefits	5.4	(0.5)	0.6	5.5
Short-term temporary differences	0.7	(0.2)	–	0.5
	(2.4)	(0.5)	0.6	(2.3)

Parent Company

Deferred tax assets and liabilities are attributable to the following:

	Assets		Liabilities		Net
	2020 £m	2019 £m	2020 £m	2019 Restated £m	2020 £m	2019 Restated £m
Property, plant and equipment	–	–	(7.8)	(8.1)	(7.8)	(8.1)
Employee benefits	5.5	5.4	–	–	5.5	5.4
Short-term temporary differences	0.5	0.7	–	–	0.5	0.7
Tax assets / (liabilities)	6.0	6.1	(7.8)	(8.1)	(1.8)	(2.0)

The movements in temporary differences during the 52 weeks ended 28 December 2019 were as follows:

	Balance at 30 December 2018 Restated £m	Recognised in income £m	Recognised in equity £m	Balance at 28 December 2019 Restated £m
Property, plant and equipment	(8.5)	0.4	–	(8.1)
Employee benefits	3.2	(0.1)	2.3	5.4
Short-term temporary differences	0.2	0.5	–	0.7
	(5.1)	0.8	2.3	(2.0)

The movements in temporary differences during the 53 weeks ended 2 January 2021 were as follows:

	Balance at 29 December 2019 Restated £m	Recognised in income £m	Recognised in equity £m	Balance at 2 January 2021 £m
Property, plant and equipment	(8.1)	0.3	–	(7.8)
Employee benefits	5.4	(0.5)	0.6	5.5
Short-term temporary differences	0.7	(0.2)	–	0.5
	(2.0)	(0.4)	0.6	(1.8)

15 Inventories

	Group and Parent Company
	2020 £m	2019 £m
Raw materials and consumables	13.3	19.4
Work in progress	9.2	4.5
	22.5	23.9

The write-down of inventories that was recognised as an expense in the period was £34.9 million (2019: £33.9 million).

16 Trade and other receivables

	Group and Parent Company
	2020 £m	2019 £m
Trade receivables	22.0	15.8
Other receivables	11.4	6.0
Prepayments	6.0	5.3
	39.4	27.1

At 2 January 2021 the allowance for bad debts was immaterial. Expected credit losses (‘ECLs’) on financial assets are not material.

The ageing of trade receivables that were not impaired at the balance sheet date was:

	Group and Parent Company
	2020 £m	2019 £m
Not past due date	17.3	14.5
Past due 1-30 days	3.9	1.1
Past due 31-90 days	0.7	0.2
Past due over 90 days	0.1	–
	22.0	15.8

The Group believes that all amounts that are past due by more than 30 days that have an immaterial allowance for ECLs are still collectable in full based on historic payment behaviour and extensive analysis of customer credit risk. Based on the Group’s monitoring of customer credit risk, the Group believes that no significant allowance for ECLs is necessary in respect of trade receivables not past due.

17 Cash and cash equivalents

	Group and Parent Company
	2020 £m	2019 £m
Cash and cash equivalents	36.8	91.3

18 Trade and other payables

	Group		Parent Company
	2020 £m	2019 £m	2020 £m	2019 £m
Trade payables	48.8	66.7	48.8	66.7
Amounts owed to subsidiary undertakings	–	–	7.7	7.7
Other taxes and social security	6.8	8.9	6.8	8.9
Other payables	17.4	31.9	17.4	31.9
Accruals	15.1	32.0	15.1	32.0
Advance payments from customers	2.5	2.3	2.5	2.3
Deferred government grants	0.5	0.5	0.5	0.5
	91.1	142.3	98.8	150.0

In 2019 accruals and other payables included accruals of £27.0 million for performance-related remuneration. There are no similar accruals in 2020.

19 Current tax liability

The current tax liability of £0.0 million in the Group and the Parent Company (2019: Group and Parent Company £11.8 million) represents the estimated amount of income taxes payable in respect of current and prior years.

20 Non-current liabilities – other payables

	Group and Parent Company
	2020 £m	2019 £m
Deferred government grants	3.7	4.2

The Group has been awarded five government grants relating to the extension of existing facilities and construction of new facilities. The grants, which have all been recognised as deferred income, are being amortised over the weighted average of the useful lives of the assets they have been used to acquire.

21 Employee benefits

Defined benefit pension plan

Scheme background

The Company sponsors a funded final salary defined benefit pension plan (the ‘scheme’) for qualifying employees. The scheme was closed to future accrual in 2008 and all remaining employees who are still members of the scheme are now members of the Company’s defined contribution scheme.

The scheme is administered by a separate Board of Trustees which is legally separate from the Company. The Trustees are composed of representatives of both the employer and employees. The Trustees are required by law to act in the interest of all relevant beneficiaries and are responsible for the investment policy with regard to the assets plus the day-to-day administration of the benefits.

UK legislation requires that pension schemes are funded prudently. The last funding valuation of the Scheme was carried out by a qualified actuary as at 6 April 2017 and showed a surplus. The Company is currently not required to pay contributions into the scheme.

Profile of the scheme

The defined benefit pension obligation includes benefits for former employees and current pensioners. Broadly, two-thirds of the liabilities are attributable to deferred members and one-third to current pensioners.

The scheme duration is an indicator of the weighted average time until benefit payments are made. For the scheme as a whole, the duration is approximately 18 years.

Investment strategy

The Company and Trustees have agreed a long-term strategy for reducing investment risk as and when appropriate. This includes a policy to hold sufficient cash and bond assets to cover the anticipated benefit payments for at least the next five years so as to improve the cashflow matching of the scheme’s assets and liabilities.

	Group and Parent Company
	2020 £m	2019 £m
Defined benefit obligation	(143.4)	(127.6)
Fair value of plan assets	131.5	127.0
Net defined benefit pension liability	(11.9)	(0.6)

Liability for defined benefit pension obligations

Changes in the present value of the defined benefit pension obligation are as follows:

	Group and Parent Company
	2020 £m	2019 £m
Opening defined benefit pension obligation	127.6	113.5
Past service costs	0.1	–
Interest cost	2.5	3.1
Remeasurement (gains) / losses:
– changes in mortality assumptions	1.1	(0.9)
– changes in financial assumptions	19.2	15.5
– experience	(3.4)	–
Benefits paid	(3.7)	(3.6)
Closing defined benefit pension obligation	143.4	127.6

Changes in the fair value of plan assets are as follows:

	Group and Parent Company
	2020 £m	2019 £m
Opening fair value of plan assets	127.0	105.1
Net interest on plan assets	2.5	2.9
Remeasurement gains	5.7	17.6
Company special contribution	–	5.0
Benefits paid	(3.7)	(3.6)
Closing fair value of plan assets	131.5	127.0

The costs charged in the income statement are as follows:

	Group
	2020 £m	2019 £m
Interest expense on net defined benefit pension liability	–	0.2

The amounts recognised in other comprehensive income are as follows:

	Group
	2020 £m	2019 £m
Remeasurement (losses) / gains on defined benefit pension plans	(11.2)	3.0

Cumulative remeasurement gains and losses reported in the consolidated statement of comprehensive income since 28 December 2003, the transition date to adopted IFRSs, for the Group and the Parent Company are net losses of £31.3 million (2019: net losses of £20.1 million).

The fair value of the plan assets is as follows:

	Group and Parent Company
	2020 £m	2019 £m
Equities – UK	21.5	46.5
– overseas	50.1	36.7
Bonds – corporate	19.6	12.7
– government	31.8	23.7
Absolute return funds	–	1.1
Cash and cash equivalents/other	8.5	6.3
	131.5	127.0

Principal actuarial assumptions (expressed as weighted averages):

	Group and Parent Company
	2020	2019
Discount rate	1.25%	1.95%
Future salary increases	n/a	n/a
Future pension increases	1.8% – 2.3%	1.7% – 2.45%
Rate of price inflation (RPI)	2.85%	2.95%
Rate of price inflation (CPI)	2.25%	2.05%

In November 2020 the Government announced that RPI is to be aligned with CPIH (CPI with owner occupiers’ costs) from 2030. As a result the RPI assumption has been updated along with the assumed future gap between RPI and CPI.

Mortality assumption

Mortality in retirement is assumed to be in line with the S2PXA tables using CMI_2019 projections and a long-term rate of 1.25 per cent per annum. Under these assumptions, pensioners aged 65 now are expected to live for a further 22.2 years (2019: 22.1 years) if they are male and 24.2 years (2019: 23.7 years) if they are female. Members currently aged 45 are expected to live for a further 23.6 years (2019: 23.5 years) from age 65 if they are male and for a further 25.7 years (2019: 25.2 years) from age 65 if they are female.

The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:

	Change in assumption	Impact on scheme liabilities
Discount rate	0.1% increase	£2.6 million decrease
Discount rate	0.5% increase	£12.9 million decrease
Inflation	0.1% decrease	£1.6 million decrease
Inflation	0.5% decrease	£8.2 million decrease
Mortality rates	1 year increase	£5.3 million increase

If the commutation assumption were to be removed from the valuation the impact would be an increase in the scheme liabilities of £8.0 million.

The other demographic assumptions have been set having regard to latest trends in the scheme.

A triennial valuation of the scheme took place in April 2017. The outcome of that valuation was considered by the Trustees and the Company and no requirement for future contributions was identified. The 2020 triennial valuation is ongoing.

During 2019 the Company made a special contribution of £5.0 million in support of the strategy adopted by the Trustees to achieve a buy-out of liabilities within 10 years.

Defined contribution plan

The Company also operates defined contribution schemes for other eligible employees. The assets of the schemes are held separately from those of the Group. The pension cost represents contributions payable by the Group and amounted to £24.9 million (2019: £22.6 million) in the year.

Share-based payments – Group and Parent Company

The Group has established a Savings-Related Share Option Scheme, an Executive Share Option Scheme and a Performance Share Plan.

The terms and conditions of the grants for these schemes are as follows, whereby all options are settled by physical delivery of shares:

	Date of grant	Employees entitled	Exercise price	Number of shares granted	Vesting conditions	Contractual life
Performance Share Plan 3	March 2012	Senior executives	£nil	248,922	Three years’ service, EPS annual compound growth of 3-8% over RPI over those three years and TSR position relative to an appropriate comparator group	10 years
Executive Share Option Scheme 16	March 2013	Senior employees	480p	693,000	Three years’ service and EPS growth of 3-7% over RPI on average over those three years	10 years
Performance Share Plan 4	March 2013	Senior executives	£nil	305,592	Three years’ service, EPS annual compound growth of 3-8% over RPI over those three years and TSR position relative to an appropriate comparator group	10 years
Performance Share Plan 5	March 2014	Senior executives	£nil	224,599	Three years’ service, EPS annual compound growth of 1-4% over RPI over those three years and average annual ROCE of 15.5-17% over those three years	10 years
Executive Share Option Scheme 17	April 2014	Senior employees	500p	598,225	Three years’ service and EPS growth of 1-4% over RPI on average over those three years	10 years
Executive Share Option Scheme 18	March 2015	Senior employees	1022p	298,045	Three years’ service and EPS growth of 1-7% over RPI on average over those three years	10 years
Executive Share Option Scheme 18a	May 2015	Senior employee	1056p	3,285	Three years’ service and EPS growth of 1-7% over RPI on average over those three years	10 years
Performance Share Plan 6	March 2015	Senior executives	£nil	146,174	Three years’ service, EPS annual compound growth of 1-7% over RPI over those three years and average annual ROCE of 19-21.5% over those three years	10 years
Performance Share Plan 7	March 2016	Senior executives	£nil	133,271	Three years’ service, EPS average annual growth of 2-8% over RPI over those three years and average annual ROCE of 22-27% over those three years	10 years
Executive Share Option Scheme 19	April 2016	Senior employees	1088p	235,857	Three years’ service and EPS growth of 2-8% over RPI on average over those three years	10 years
Savings-Related Share Option Scheme 17	April 2016	All employees	870p	361,853	Three years’ service	3.5 years
Performance Share Plan 8	May 2017	Senior executives	£nil	206,404	Three years’ service, EPS average annual growth of 5-11% over those three years and average annual ROCE of 23-27% over those three years	10 years
Executive Share Option Scheme 20	April 2017	Senior employees	1033p	246,219	Three years’ service and EPS growth of 5-11% on average over those three years	10 years
Savings-Related Share Option Scheme 18	April 2017	All employees	807p	403,560	Three years’ service	3.5 years
Performance Share Plan 9	March 2018	Senior executives	£nil	190,943	Three years’ service, EPS average annual growth of 5-11% over those three years and average annual ROCE of 25-29% over those three years	10 years
Executive Share Option Scheme 21	March 2018	Senior employees	1197p	228,923	Three years’ service and EPS growth of 5-11% on average over those three years	10 years
Savings-Related Share Option Scheme 19	April 2018	All employees	954p	335,482	Three years’ service	3.5 years
Performance Share Plan 10	April 2019	Senior executives	£nil	128,534	Three years’ service, EPS average annual growth of 5-11% over those three years and average annual ROCE of 24-28% over those three years	10 years
Executive Share Option Scheme 22	April 2019	Senior employees	1830p	140,913	Three years’ service, EPS average annual growth of 5-11% over those three years and average annual ROCE of 24-28% over those three years	10 years
Savings-Related Share Option Scheme 20	April 2019	All employees	1484p	230,604	Three years’ service	3.5 years
Savings-Related Share Option Scheme 21	April 2020	All employees	1424p	239,673	Three years’ service	3.5 years
Performance Share Plan 11	October 2020	Senior executives	£nil	166,366	Three years’ service, EPS performance in 2022, ROCE performance in 2022 and two strategic objectives	10 years
Executive Share Option Scheme 23	November 2020	Senior employees	1720p	121,202	Three years’ service, EPS performance in 2022, ROCE performance in 2022 and two strategic objectives	10 years

The number and weighted average exercise price of share options is as follows:

	2020		2019
	Weighted average exercise price	Number of options	Weighted average exercise price	Number of options
Outstanding at the beginning of the year	781p	2,342,496	690p	2,744,060
Lapsed during the year	1203p	(87,654)	870p	(200,762)
Exercised during the year	703p	(429,086)	697p	(700,853)
Granted during the year	1043p	527,211	1200p	500,051
Outstanding at the end of the year	607p	2,352,967	781p	2,342,496
Exercisable at the end of the year	569p	721,628	546p	423,556

The options outstanding at 2 January 2021 have an exercise price in the range of £nil to £18.30 and have a weighted average contractual life of 5.36 years. The options exercised during the year had a weighted average market value of £17.61 (2019: £20.13).

The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on the Black-Scholes model for all Savings-Related Share Option Schemes and Executive Share Option Schemes and for Performance Share Plan options granted from 2014 onwards. The fair value per option granted and the assumptions used in these calculations are as follows:

	2020			2019
	Performance Share Plan 11 October 2020	Executive Share Option Scheme 23 November 2020	Savings-Related Share Option Scheme 21 April 2020	Performance Share Plan 10 April 2019	Executive Share Option Scheme 22 April 2019	Savings-Related Share Option Scheme 20 April 2019
Fair value at grant date	1325p	493p	519p	1726p	307p	469p
Share price	1407p	1720p	1780p	1830p	1830p	1855p
Exercise price	Nil	1720p	1424p	Nil	1830p	1484p
Expected volatility	45.81%	48.43%	38.02%	28.06%	28.06%	28.07%
Option life	3 years	3 years	3 years	3 years	3 years	3 years
Expected dividend yield	2.00%	2.00%	2.52%	1.95%	1.95%	1.92%
Risk-free rate	(0.05%)	(0.04%)	0.12%	0.75%	0.75%	0.64%

The expected volatility is based on historical volatility, adjusted for any expected changes to future volatility due to publicly available information. The historical volatility is calculated using a weekly rolling share price for the three-year period immediately prior to the option grant date.

The costs charged/(credited) to the income statement relating to share-based payments were as follows:

	2020 £m	2019 £m
Share options granted in 2016	–	0.3
Share options granted in 2017	0.2	1.9
Share options granted in 2018	(0.2)	1.5
Share options granted in 2019	0.5	0.7
Share options granted in 2020	0.4	–
Total expense recognised as employee costs	0.9	4.4

22 Provisions

	Group and Parent Company
	2020 Dilapidations £m	2020 National Insurance £m	2020 Redundancy £m	2020 Other £m	2020 Total £m	2019 Dilapidations £m	2019 National Insurance £m	2019 Redundancy £m	2019 Other £m	2019 Total £m
Balance at start of year	2.3	2.3	1.1	1.7	7.4	2.8	0.8	3.5	2.3	9.4
Additional provision in the year:
Ordinary	1.2	–	10.6	2.1	13.9	1.1	2.1	0.8	–	4.0
Exceptional	–	–	0.2	–	0.2	–	–	0.7	–	0.7
Utilised in year:
Ordinary	(0.1)	(0.2)	(9.4)	(0.4)	(10.1)	(0.4)	(0.6)	(0.5)	(0.1)	(1.6)
Exceptional	–	–	(0.8)	–	(0.8)	–	–	(3.4)	–	(3.4)
Provisions reversed during the year:
Ordinary	(0.7)	(0.6)	(0.7)	(1.1)	(3.1)	(1.0)	–	–	(0.5)	(1.5)
Exceptional	–	–	(0.1)	–	(0.1)	(0.2)	–	–	–	(0.2)
Balance at end of year	2.7	1.5	0.9	2.3	7.4	2.3	2.3	1.1	1.7	7.4
Included in current liabilities	1.4	1.4	0.7	0.9	4.4	1.5	1.7	1.1	1.5	5.8
Included in non-current liabilities	1.3	0.1	0.2	1.4	3.0	0.8	0.6	–	0.2	1.6
	2.7	1.5	0.9	2.3	7.4	2.3	2.3	1.1	1.7	7.4

The provisions at the end of the year relate to ordinary or exceptional activity as follows:

Ordinary	2.5	1.5	0.8	2.1	6.9	2.1	2.3	0.3	1.5	6.2
Exceptional	0.2	–	0.1	0.2	0.5	0.2	–	0.8	0.2	1.2
	2.7	1.5	0.9	2.3	7.4	2.3	2.3	1.1	1.7	7.4

Dilapidation provisions have been made based on the future expected repair costs required to restore the Group’s leased buildings to their fair condition at the end of their respective lease terms, where it is considered a reliable estimate can be made.

National insurance costs are provided in respect of future share options exercises.

Other provisions are largely in respect of onerous costs relating to closed shops where the lease has not yet expired.

The majority of all of the provisions are expected to be utilised within four years such that the impact of discounting would not be material.

23 Capital and reserves

Share capital

	Ordinary shares
	2020 Number	2019 Number
In issue and fully paid at start of year – ordinary shares of 2p	101,155,901	101,155,901
Issued on exercise of share options	270,137	–
In issue and fully paid at the end of year – ordinary shares of 2p	101,426,038	101,155,901

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

During the year 270,137 shares were issued as a result of the exercise of vested options granted to senior management under the Executive Share Option Scheme and the exercise of options under the Savings-Related Share Option Scheme. Options were exercised at an average price of £8.23.

Capital redemption reserve

The capital redemption reserve relates to the nominal value of issued share capital bought back by the Company and cancelled.

Own shares held

Deducted from retained earnings is £39.0 million (2019: £39.9 million) in respect of own shares held by the Greggs Employee Benefit Trust. The Trust, which was established during 1988 to act as a repository of issued Company shares, holds 227,965 shares (2019: 406,357 shares) with a market value at 2 January 2021 of £4.1 million (2019: £9.3 million) which have not vested unconditionally in employees. During the year the Trust purchased 25,600 (2019: 547,713) shares for an aggregate consideration of £0.5 million (2019: £11.8 million) and sold 203,992 (2019: 702,222) shares for an aggregate consideration of £1.5 million (2019: £4.9 million).

The shares held by the Greggs Employee Benefit Trust can be purchased either by employees on the exercise of an option under the Greggs Executive Share Option Schemes, Greggs Savings-Related Share Option Scheme and Greggs Performance Share Plan or by the trustees of the Greggs Employee Share Scheme. The trustees have elected to waive the dividends payable on these shares.

Dividends

The following tables analyse dividends when paid and the year to which they relate:

	2020 Per share pence	2019 Per share pence
2018 final dividend	–	25.0p
2019 interim dividend	–	11.9p
2019 special dividend	–	35.0p
2019 final dividend	–	–
	–	71.9p

The final declared dividend of 33.0p in respect of 2019 was cancelled as a cash preservation measure in response to the Covid-19 crisis. No dividends have been declared in respect of 2020.

	2020 £m	2019 £m
2018 final dividend	–	25.3
2019 interim dividend	–	12.0
2019 special dividend	–	35.3
2019 final dividend	–	–
	–	72.6

24 Capital commitments

During the 53 weeks ended 2 January 2021, the Group entered into contracts to purchase property, plant and equipment and intangible assets for £8.5 million (2019: £35.7 million) which are expected to be settled in the following financial year.

25 Related parties

Identity of related parties

The Group has a related-party relationship with its subsidiaries (see Note 13), Directors and executive officers and pension schemes.

Trading transactions with subsidiaries – Group

There have been no transactions between the Company and its subsidiaries or associates during the year (2019: none).

Trading transactions with subsidiaries – Parent Company

	Amounts owed to related parties		Amounts owed by related parties
	2020 £m	2019 £m	2020 £m	2019 £m
Dormant subsidiaries	7.8	7.8	–	–

The Greggs Foundation is also a related party and during the year the Company made a donation to the Greggs Foundation of £1.1 million (2019: £1.3 million), as well as passing on £0.3 million (2019: £0.4 million) raised from the sale of carrier bags and £0.2 million (2019: £0.3 million) raised from the sale of products. The Greggs Foundation holds 300,000 shares in Greggs plc and Richard Hutton, a Director of Greggs plc, is a trustee of the Greggs Foundation.

Transactions with key management personnel

Details of Directors’ shareholdings, share options, emoluments, pension benefits and other non-cash benefits can be found in the Directors’ remuneration report on pages 79 to 101. Summary information on remuneration of key management personnel is included in Note 5.

Greggs plc Ten-year history
	2011	2012 (as restated)2	2013	2014 (as restated)1,3	20151	2016	2017	2018	20195	20201
Turnover (£m)	701.1	734.5	762.4	806.1	835.7	894.2	960.0	1,029.3	1,167.9	811.3
Total sales growth/(decline)	5.8%	4.8%	3.8%	5.7%	3.7%	7.0%	7.4%	7.2%	13.5%	(30.5%)
Company-managed shop like-for-like sales growth/(decline)	1.4%	(2.7%)	(0.8%)	4.5%	4.7%	4.2%	3.7%	2.9%	9.2%	(36.2%)
Profit/(loss) before tax (PBT) excluding exceptional items (£m)	53.1	50.9	41.3	58.3	73.1	80.3	81.7	89.8	114.2	(12.9)
PBT margin excluding exceptional items	7.6%	6.9%	5.4%	7.2%	8.7%	9.0%	8.5%	8.7%	9.8%	(15.9%)
Pre-tax exceptional credit/(charge) (£m)	7.4	1.4	(8.1)	(8.5)	–	(5.2)	(9.9)	(7.2)	(5.9)	(0.8)
Profit/(loss) on ordinary activities including exceptional items and before tax (£m)	60.5	52.4	33.2	49.7	73.0	75.1	71.9	82.6	108.3	(13.7)
Diluted earnings per share excluding exceptional items (pence)	38.8	38.3	30.6	43.4	55.8	60.8	63.5	70.3	89.7	(12.9)
Dividend per share (pence)	19.3	19.5	19.5	22.0	48.64	31.0	32.3	35.7	46.96	–
Total shareholder return	13.0%	(6.1%)	0.6%	69.7%	87.1%	(23.8%)	47.5%	(7.4%)	87.5%	(22.0%)
Capital expenditure (£m)	59.1	46.9	47.6	48.9	71.7	80.4	70.4	73.0	86.0	58.7
Return on capital employed (excluding exceptional items)	24.4%	21.3%	16.4%	22.4%	26.8%	28.1%	26.9%	27.4%	20.0%	(2.4%)
Number of shops in operation at year end	1,571	1,671	1,671	1,650	1,698	1,764	1,854	1,953	2,050	2,078

12014 and 2020 were 53 week years, impacting on total sales growth for that year and the year immediately following

2restated following the adoption of IAS 19 (Revised)

3restated to include revenue in respect of franchise fit-out costs

4includes a special dividend of 20.0p paid in 2015.

5IFRS 16 leases was implemented at the start of the financial year using the modified retrospective approach. Prior year comparatives have not been restated.

6Includes a special dividend of 35.0p. The final dividend declared in respect of 2019 was cancelled as a cash preservation measure during the Covid-19 crisis

Calculation of alternative performance measures

All of the non-GAAP measures detailed above can be calculated from the GAAP measures included in the annual accounts with the exception of those detailed below.

Like-for-like (LFL) sales growth – compares year-on-year cash sales in our company-managed shops, with a calendar year’s trading history and is calculated as follows:

	2020 £m	2019 £m
Current year LFL sales	665.2	987.8
Prior year LFL sales	1,042.2	904.7
(Decline)/growth	(377.0)	83.1
LFL sales (decline)/growth percentage	(36.2%)	9.2%

Return on capital employed – calculated by dividing profit before tax by the average total assets less current liabilities for the year.

	2020 £m	2019 Underlying £m	2019 Including exceptional items £m
(Loss)/profit before tax	(13.7)	114.2	108.3
Capital employed:
Opening	580.1	559.3	559.3
Closing	589.8	580.1	580.1
Average	584.9	569.7	569.7
Return on capital employed	(2.3%)	20.0%	19.0%

Net cash inflow from operating activities after lease payments – calculated by deducting the repayment of principle of lease liabilities from net cash flow from operating activities

	2020 £m	2019 £m
Net cash inflow from operating activities	43.6	219.1
Repayment of principle of lease liabilities	(42.1)	(49.6)
Net cash inflow from operating activities after lease payments	1.5	169.5