GK warns of extreme trading conditions

Greene King has reported that the "health measures" of its tenants remain broadly unchanged despite warning that they face "the most extreme trading conditions" ever seen.

The Suffolk-based brewer and operator said that it had experienced a 5.3% drop in like-for-like profit in its tenanted and leased division for the 38 weeks to 25 January driven by a decline in beer volumes and an increase in the level of licensee support.

It believes that its re-organisation of the Pub Partners division into 1,060 Core and 400 Independent pubs "will play an important role in adapting our business to face the most extreme trading conditions we and our licensees have seen".

The independent division, which encompasses Greene King's most entrepreneurial licensees, is seen to be in less need of support so BDM ratios remain at around one per 60 pubs. But as part of the company's efforts to attract multiple operators, for the first time a number of lease pubs could go free of tie on wine, spirits, minerals and possibly machines. Rents would be agreed on a per pub basis.

In the core estate, similar free-of-tie terms will be offered to some new tenants. And for some newcomers, a new three or five-year agreement will be offered with a fixed rent that increases annually in line with the Retail Price Index, but has no rent reviews.

Managed pubs​

Greene King experienced a strong Christmas across its managed houses with like-for-like sales up 2.4% over the last eight weeks. Overall like-for-like sales for the period were down 1.1% in the Retail division.

"We continue to maintain a fine balance between delivering better value to our customers and withstanding the continued cost pressures that the business is having to absorb," it said. "Key drivers of our improved like-for-like sales performance include strong Christmas bookings, further improvement in Hungry Horse and targeted investment in sports-led satellite TV, particularly within Local Pubs."

Its own beer volumes fell 1.5% for the 38 weeks on last year with the off-trade continuing to outperform the on-trade. Like-for-like sales at its managed Belhaven pubs in Scotland were up 2.4%. "There are clear signs that the economic slowdown is beginning to have an impact in Scotland and this is affecting our Scottish licensees and therefore, our tenanted volumes. We have however, pro-actively supported our licensees and, as is the case south of the border, the 'vital signs' of licensee health remain stable."

Outlook​

Greene King said it it continues to reduce its net debt and no refinancing was required prior to April 2012 on either securitisation or bank debt. It will continue with plans to spend £25m in capital expenditure on improving its estate.

It has sold 90 pubs and plots of excess land to date at a value of £35m and anticipates more disposals throughout 2009.

"The anticipated post-New Year slowdown has not, as yet, taken place, but we remain very cautious as to trading prospects for 2009, and we anticipate that the outlook for the rest of the year will remain very challenging.

"However, Greene King is well placed to cope with a prolonged consumer downturn, particularly given the steps being taken to further strengthen each element of our business, our sound balance sheet, and the prudent and firm approach taken to cost control, cash generation and debt repayment. Overall, our trading and financial position remains in line with our expectations."