Greene King responds to "flight to value

Tackling costs and appealing to value-minded customers has helped Suffolk brewer Greene King report pre-tax profits for the first six months of its financial year up 2.8 per cent.

Announcing results for the 24 weeks to October 18, 2009, the brewer said the trading environment remained "demanding", but that each of its businesses had seen profit growth.

Rooney Anand, Greene King's chief executive, said that having "detected the warning signs" two years ago as to where the economy might be heading the group had "acted quickly to adapt our offer to consumers to reflect their flight to value".

This meant investing in growth areas such as food, wine and coffee and in support for its licensees, both managed and tenanted, he said.

Tackling and then reducing costs and maintaining them at a lower level had offset above inflationary cost pressures, Anand said.

Anand added that 2009 "proved to be less severe than we had feared", but that while trading in the first five weeks of the second half were encouraging, the outlook for 2010 "remains uncertain".

Overall turnover for the first six months rose 4.3 per cent to £464.5m, with operating profits down 3.3 per cent at £106.8m. Pre-tax profits came in at £60.7m.

Earnings per share, adjusted for April's rights issue, were 17 per cent lower at 22.6p, while the first half dividend remained unchanged at 5.9p.

The group's managed pub operation, which accounts for more than half of the group's turnover and operating profit in the period, saw sales up 4.5 per cent to £278.2m, while operating profits were down 0.4 per cent at £52.1m.

Like-for-like drink sales were said to have increased, though no figure was given, while food growth came in at 9.2 per cent.

Greene King said it spent a total of £20.7m on its managed estate in the period and further announced it had acquired seven pubs from Mitchells & Butlers for £12.7m, partly funded from proceeds from its rights issue earlier this year.

The brewer's tenanted pub business had a tough time, reflecting the economic situation. Overall turnover across the 1,382 pubs was down eight per cent at £68.8m, although its estate was down in numbers by nearly six per cent.

Operating profits for the division were 13.7 per cent lower, while average pub earnings before tax was down 6.4 per cent.

Greene King said it planned to return more than 100 pubs from its turnaround arm, known as the Independence Pub Company, to the core business by the end of the financial year, leaving just over 200 pubs in the IPC.

The brewer claimed that at the halfway stage of its turnaround programme it was seeing "encouraging improvement" in a number of licensee health measures.

It said its actions would lead to a "fitter and more dynamic tenanted business model a year from now", it added.

Belhaven, Greene King's Scottish pub and brewing business, saw revenues up nearly 15 per cent at £72.2m, with operating profits up just shy of nine per cent at £15.9m.

Greene King's brewing operation saw revenues up 9.4 per cent at £45.3m, with operating profit up 5.4 per cent at £9.7m. Operating margins were down nearly one percentage point.