The week ahead: Pasty tax threatens to spoil Greggs’ recipe

Bakery chain Greggs could face a grilling from shareholders and the City on Wednesday about how much the proposed “pasty tax” is likely to eat into earnings.

The chain, which is holding its annual meeting, has been fighting plans announced in March’s Budget to extend the 20 per cent rate of VAT to its hot takeaway food – including pasties and sausage rolls.

Scots-born chief executive Ken McMeikan helped deliver nearly half a million signatures to 10 Downing Street last month, claiming that the tax is unworkable, would hit the poor hardest and may further damage the high street.

Clive Black, an analyst at Shore Capital, said the UK government’s plans would hit Greggs’ savoury range, which accounts for about a third of its sales, and had previously been exempt because the products are left to cool after being cooked.

He said the challenge will be trying to work out what proportion of its products are sold above room temperature and attract the tax.

He added: “In a tough consumer environment, where volumes are already under pressure, any increase in price would clearly not be good news for Greggs.

“However, the group would not be alone in applying the increase, and we believe the impact could be more significant for some of the constrained regional bakers.”

The City will be hoping that the publicity surrounding the pasty tax protests will have helped boost sales.

Utility group SSE, which trades as Scottish Hydro, Southern Electric and Swalec, was supplying household energy at a loss for much of last year because of rising costs and a delay in increasing bills until September.

It has also seen a slump in the consumption of gas, with usage for the nine months to 31 December down by 26.6 per cent compared with a year ago because of the economic downturn and warmer conditions over the autumn.

Those weather trends continued over much of the first three months of 2012, meaning there could be further pressure on household margins.

Perth-based SSE’s adjusted profits on Wednesday are expected to show a similar level of growth to that seen in each of the last three years, suggesting a rise of about 2 per cent to £1.33 billion – although this could be influenced by weather and lower consumption.

The company has signalled that its dividend for shareholders will increase by at least 2 per cent more than inflation.

Harvester-owner Mitchells & Butlers is likely to suffer a hangover from a cocktail of rising taxes and food costs when it reports half-year results on Friday.

The group, whose other brands include All Bar One and O’Neill’s, reported a resilient 4.4 per cent sales increase in the 17 weeks to 21 January, with food driving the growth.

However, trading slowed in January and is expected to have remained subdued in February, although March’s heatwave should have provided a lift.

Strong growth in emerging markets will help the world’s biggest caterer, Compass Group, shrug off rising food prices and tough conditions in the UK on Wednesday.

Compass has seen its shares rise 20 per cent in the past half-year as it has benefited from the trend of companies and public sector organisations outsourcing catering.