Greene King to reduce tenanted pub estate

Greene King is to reduce the number of tenanted pubs in its estate from 1,584 to 1,200 through disposals and transfer to managed houses.

The Suffolk-based brewer and operator said it wanted "to accelerate the pace of change and growth towards a more retail and branded focus" and plans to increase the size of its managed estate from 888 to 1,100 in the next three to five years.

Greene King said that although its tenanted Pub Partners estate was performing well, it faced two specific challenges common to the whole tenanted sector.

"The ongoing regulatory pressures on the tied model and the long-term viability of many tenanted and leased pubs, given their comparatively weak offer against managed pubs, branded restaurants and the supermarkets," it said.

The company revealed that EBITDA per pub was around £52,300 for the year to 2 May — a drop of 3.2% but it insisted the division was stabilising, with a better second half performance that had seen an increase in EBITDA per site. Revenue was down 6.5% to £145.1m on an estate with 5.1% fewer pubs.

Turnaround programme​

It said it would use its new Code of Practice as a "catalyst for organisational change within Pub Partners" and reposition its tenanted pubs "towards a more retail-led approach".

Chief executive Rooney Anand said: "We believe a smaller, more retail-focused business can ensure a profitable long-term future for Pub Partners, allowing it to take an active role in the development of Greene King.

"Our plan to only operate high quality, sustainable pubs run by customer-focused licensees and supported by better control and direction from Pub Partners, should see Pub Partners move back into sustainable per pub profit growth over the next 12 to 18 months."

Greene King said it was now halfway through its turnaround programme for Pub Partners. There are currently 256 pubs in its Independence Pub Company turnaround division — down from 404 at its launch. A total of 83 of the pubs have been sold, 11 are closed for disposal and 54 have returned to the core estate. It plans to re-integrate the rest of the pubs into the core estate during the next year.

It has invested £5.1m on tenant support — averaging out at £3,700 per pub — through selective rent concessions and reductions and discounts through its Crunch Time price initiative. The rollout of Brulines new i-draught system to the estate had led to volume uplifts 5% ahead of expectations.

It now has 93% of its estate let on substantive agreements, with 74 temporary agreements at the year-end. There was just one pub closed for reopening at year-end down from 30 last year.

Resilient performance​

Overall, Anand said that a 3.1% increase in revenue to £984.1m and growth of 3.8% in profit before tax to £123m for the year highlighted "the strength, agility and resilience" of the group.

Operating profit at the group decreased by 2.3% to £211.3m and it said it had seen 1.1 percentage point decline in operating margins to 21.5%.

Like-for-like sales at Greene King Retail, the managed arm, increased by 3.5% in the year and the company said that second half margins had been maintained.

In Scotland, Belhaven managed like-for-like sales grew by 5.5%. The division saw a 10% rise in EBITDA to £38.4m.

It also revealed it had made a good start to the year with managed like-for-like sales up by 6% in the first eight weeks to 27 June.

The company said it had spent £100m of its rights issue and said that the average return on capital invested in the pubs it had acquired was 19.4%.

Greene King's own-brewed beer volumes increased by 3.4% and it plans to increase investment in its beers following a reduction in its tenanted estate and increased focus on branded managed houses.