Greene King closer to becoming a REIT

Greene King is the latest pub company to believe that "in principle" it could become a real estate investment trust (REIT).

Announcing its results for the year May 4, 2008, the Suffolk brewer and pub operator said it had been given an indication by HM Revenue & Customs that it could become a REIT without having to demerge its managed pub business.

However it said it "still needed to be convinced" such a move could deliver long term economic value for the company. It plans to update the market on developments in December, at the time of its interim results.

As for its results, Greene King said overall turnover rose five per cent to £960.5m, with operating profit up eight per cent to £236.2m and pre-tax profits up two per cent to £142m. Adjuested earninsg per share were up 14.2 per cent, while its dividend for the year rose 13.5 per cent to 26p.

Trading in the first eight weeks of the current financial year had meanwhile seen managed pub sales down 2.8 per cent, although the group said food and accommodation sales were in growth, while sales across the tenanted and leased business were flat.

Greene King's Brewing Company's own-brewed volume was down by two per cent, which the group believes to be ahead of the market.

Belhaven was showing strong like-for-likes, the company added.

Looking at the group's annual numbers, Greene King's 800-odd managed pubs saw overall turnover up six per cent to £578.7m, with operating profits up five per cent at £116.5m. Food accounted for 34 per cent of sales, while like-for-like food sales growth was two per cent. Total like-for-like sales across the managed operation were down one per cent.

Before the impact of its mainly leasehold Loch Fyne seafood restaurant chain, retail margins were up 0.5 per cent.

Greene King's tenanted and leased pub arm, Pub Partners, saw turnover rise two per cent to £167.2m, with operating profit up nine per cent to £81.4m and operating profit per pub up eight per cent to £56,400.

The group said rent concessions were down on the previous year, while bad debts accounted for 0.3 per cent of turnover.

Belhaven, the group's 321-pub strong Scottish operation, delivered what Greene King chief executive Rooney Anand described as "an outstanding result" in the second year of the smoking ban there, with turnover up eight per cent at £126.1m and operating profit up 18 per cent at £27.5m.

The Belhaven performance was a "fitting valediction" of retiring managing director Stuart Ross' "commitment and contribution" to the business, Anand said.

Greene King's brewing business saw turnover fall three per cent to £88.5m, with operating profits down six per cent at £21.6m.

While own-brewed volumes were up six per cent on the previous year, sales of third party lager and other drink sales fell year-on-year, the group said.

Half of Greene King's Brewing Company sales are from this area and together with rising costs, plus the move away from lager in pubs, meant sales were lower throughout the year.

Summing up his company's results Anand said: "The year saw an unprecedented set of challenges for the industry but I am pleased to report exceptional performance across the business.

"Our results in Scotland, with operating profit up 18 per cent in the second year of the smoking ban, give me some encouragement for future prospects in England.

"The economy is not likely to improve in the short term, and we are not immune to the difficulties this presents for our market, but we are better placed than many others, thanks to the resilience and flexibility of our business and our team."