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Greggs Profit Climbs on Meal Deals, Fairtrade Coffee

Greggs Plc, the U.K.’s biggest bakery chain, said full-year profit climbed 10 percent as more customers bought Fairtrade coffee and breakfast meal deals.

Net income for the 52 weeks ended Jan. 1 rose to 37.9 million pounds ($61 million), or 37.3 pence a share, from 34.4 million pounds, or 34 pence a share, a year earlier, the Newcastle, England-based company said in a statement today. Sales grew to 662.3 million pounds.

Rising global commodity prices, which have pushed up the cost of ingredients, and pressure on consumer spending will continue to make this year “challenging,” Chief Executive Officer Ken McMeikan said.

British consumers “still want to enjoy their lives as much as they can and will seek out greater value but they don’t want to necessarily compromise on the quality of food they get,” McMeikan said in a conference call. “The breakfast market is a big opportunity and coffee is a big opportunity for Greggs.”

The company plans to add about 80 shops this year, following the opening of 93 outlets last year. Greggs said performance in the year so far is as forecast, with total sales for the 10 weeks ended March 12 increasing 3.8 percent. The chain said that any price increases passed on to customers will be lower than the rise in commodities such as wheat, according to McMeikan.

“It will be pennies for any increases we put through,” he said, “We are not exposed to the immediate rise in commodities as we have extended our cover further forward.”

Greggs said customer demand for hot drinks grew strongly during the year as the baker rolled out more coffee machines serving freshly ground Fairtrade coffee which is priced about 40 percent below that of other high-street coffee chains. Greggs plans to have coffee machines at all its outlets by end of this year, McMeikan said.

“Despite fears over rising raw material costs such as wheat, a profit margin ahead of analyst expectations has been achieved, led by a series of management initiatives,” Keith Bowman, an analyst at Hargreaves Lansdown Plc said in an e-mailed note today. Bowman recommends buying the stock.

The stock climbed as much as 5.5 percent in London trading before closing little changed at 466.3 pence, giving the company a market value of 471.7 million pounds.

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