Greene King 'cautiously optimistic'

Greene King is looking forward with "cautious optimism" after a 1.3% rise in revenue to £942.3m for the 52 weeks to 3 May.

Operating profit dipped 6.7% to £231.8m and profit before tax was down 15% to £139.4m but it reported a like-for-like sales increase of 1.7% in its managed division and that its tenanted division had stabilised. Own brewed beer volumes have also risen 1.8% over the year.

Leased pubs​

Revenue at its Pub Partners division was down 5.4% at £155.2m, with operating profit down 11.3% to £70.9m. A total of £7m was invested with an additional £6.3m on capex schemes and £3.3m on repairs. An average of 1,445 sites traded over the period with a total of 1,391 trading at the end of the period following closures or sales.

Earnings Before Interest, Tax, Depreciation and Amoritisation per pub was down 6.7%. Following its resturcturing of the leased estate into the Core estate and Independence Pub Company, 12 pubs are now totally free of tie and 46 are operating on a partial tie. First year licensee retention rose to 88%.

Greene King has spent £4m on licensee support during the year on rent concessions and extra discounts. "This additional support is not given on the basis of 'charity', but is conditional on our licensees changing elements of their business to increase their consumer appeal," said chief executive Rooney Anand.

"This support includes 'Crunch Time', an initiative to ensure many of our licensees can compete more effectively in the current environment, guaranteeing licensees gross margins on leading products at competitive prices. 120 pubs were fully operational on 'Crunch Time' by the year end, a further 80 have signed up since then and the resulting volume performance of these sites is very encouraging so far.

"We have also introduced the Pelican Buying Company to our licensees, allowing them to benefit, in terms of supplier accessibility and cost savings, from its economies of scale, and we have upgraded our food and marketing support to licensees by further utilising our Retail infrastructure."

He added: "As a result of the various initiatives and investment we and our licensees have been making, the vital signs of licensee health have remained stable through the year. At the year-end, we only had 30 pubs closed for reopening, just 2% of the entire estate, there were 272 licensees on cash-with-order against 245 at the end of last year and 137 temporary agreements against 131 last year."

BEC inquiry​

Anand said the company was "monitoring developments"arising from the Business and Enterprise Committee report into pubco power, which recommended a full Competition Commission inquiry into the beer tie.

"We have been successfully operating a tie for over 200 years with short-term tenancies currently representing 78% of our agreements and long-term leases representing just 22%.

"Tenancies offer the lowest cost entry route into the pub industry for potential licensees and the model ensures we share in the upside and the downside of an economic cycle with our licensees. We were the first to introduce a Code of Practice in 1998 and it has been continuously evolving since then. Going forward, our business model will continue to adapt in order to ensure Greene King remains appealing and fair to both prospective and existing licensees, whilst delivering attractive returns to our shareholders."

Managed pubs​

The number of managed pubs fell from 792 to 772 during the year after disposals and conversions to tenancy. Sales were 0.3% ahead of last year at £569.5m but operating profit dipped 7.6% to £105.6m.

Like-for-like sales were up 1.7% driven by strong performance in both drinks and food, which now accounts for 35% of total sales.

Hungry Horse outlets achieved like-for-like growth of 8.1% fuelled by a 9% drop in the average price of a main meal, which sparked a 14% uplift in covers. The introduction of a two-course meal offer for £9.95 also sparked cover growth in its Inns outlets.

The Local Savers initiative in slashing drinks prices by 13% at 77 of its Local pubs resulted in a 12% uplift in like-for-like sales. All main meals at Local Savers pubs are below £3.50.

"Value is not just about price," said Anand. "We have further improved our customer offers, we continue to invest in our sites, we are recruiting better quality employees and we are improving standards and customer service across the business."

Revenues across its 325-strong Belhaven estate in Scotland achieved a record operating profit of £30.2m. Its managed pubs enjoyed a 5.4% increase in like-for-like sales with food revenues up 49%. Tenanted pubs benefited from extra BDM support and tenanted operating profit rose by 12.1% in the year.

Brewing​

Own brewed volumes grew 1.8% on last year with revenues up 8.2% to £93.9m and operating profit unchanged at £21.2m despite a £1.5m increase in fuel, energy and raw materials costs.

To help cut costs it outsourced distribution from its Totton and Crayford depots to Tradeteam. "Not only does this make our business model even more efficient, but increased delivery frequencies should improve customer service levels and lower HGV mileage and CO2 emissions will help protect the environment," said Anand.

During the year, Greene King paid off £46.7m worth of debt and raised £207.5m through a rights issue to pay back securitised debt and acquire new sites.

"The funds raised by our recent rights issue will further strengthen our position through selective acquisitions and opportunistic debt reduction, resulting in an enhanced estate, an even stronger capital structure and greater opportunities for growth.

"We therefore look forward with cautious optimism and believe we have the best assets, brands and people to continue growing our share of the market."