Greene King optimistic over smoke ban

Greene King is optimistic about the impact of the smoking ban in England after reporting an 18% rise in profit at its Scottish Belhaven division in the second year of the ban there.

The Suffolk-based brewer and national operator said it had also received the go-ahead from HM Revenue & Customs to convert to tax-efficient Real Estate Investment Trust (Reit) status but still needed to be convinced that this structure would deliver long-term economic benefits for the company.

Chief executive Rooney Anand also warned that pubs would have to fight harder than ever before to retain customers as consumer confidence hits an 18-year low.

For the 53 weeks to 4 May Greene King reported revenue was up 5% to £960.5m, operating profit up 8% to £236.2m and profit before tax up 2% to £142m.

Scottish smoke ban success​

The number of pubs operating in Scotland grew to 321 from 299 in the year. In the 95 managed pubs food development was key in growing profit - food sales have now increased by more than 50% in the lat two years.

On the drinks side, Belhaven also grew volume and profit. Belhaven Best volumes were up 4.6%

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

"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."

Managed houses​

In its retail division, operating profit was up 5% and food sales grew to 34% of revenue. Food related sales, including drinks with a meal, now account for around 50% of all sales in the division.

The 36 Loch Fyne restaurants, purchases in August 2007 for £64.2m, are now fully integrated and the number of sites has grown by five.

Tenanted division​

Revenue at Pub Partners, Greene King's tenanted and leased division was up 2% at £167.2m, while operating profit rose 9% to £81.4m. Operating profit per pub was up 8%.

Greene KIng added 53 sites via the acquisition of New Century Inns for £32.8m.

Rent concessions for the year remained below 1% - lower than the previous year and 17 pubs were closed. Applications for pubs were 93% of last year's level.

"Pub Partners is focused on our partners' business health," said Anand.

"We have cut the price of soft drinks and bottled lager on many newer agreements, to allow more attractive pricing to the end customer. 'Share & Save', our third-party purchasing programme, can add 10% to a typical participating pub's bottom line.

"We optimise rather than maximise rents, balancing short-term rental yield against tenant morale, viability and long-term security of income.

"We offer both tenancies and leases and we try to ensure we always have the right licensee on the right agreement in the right pub.

"However, in general we do favour tenancies, which account for 79% of Pub Partners sites. With a tenancy, the licensee's fixed cost base is somewhat reduced compared to a straight lease, and we retain more control."

In terms of brewing, own-brewed volume rose 6% with strong performance in the off-trade.

Anand added: "Trading conditions have become more difficult. We are a year into the English smoking ban and consumer confidence is at its lowest for 18 years.

"We have faced major cost increases across a wide range of categories. Looking forward, pubs will have to fight even harder to protect and grow their share of discretionary spending, and on-trade beer sales will be under considerable pressure.

"But there are a number of our sales categories that continue to grow, including eating out, premium drinks and accommodation; and newer consumer groups continue to be attracted to our outlets."