Greene King to shift focus towards managed houses

Greene King plans to slash the size of its tenanted pub estate over the next five years in a shift in focus towards its managed houses.

The Suffolk brewer said it planned to cut its tenanted estate by around 20 per cent to 1,200 pubs through disposals and transfers into the managed estate. At the same time it would expand its managed retail estate by more than 10 per cent by 2015 as part of a new strategy towards a more branded and food-led pub offer.

Greene King said it wanted to grow its managed pub estate from the existing 888 sites to 1,100 through acquisitions and transfers from tenancies, noting it saw "opportunities for growth in its destination pubs and restaurants, pubs with rooms and traditional suburban pubs".

The brewer said the branded investment and food-led strategy would generate faster profitable growth and would be funded from existing banks funds, the remaining proceeds of last year's rights issue and cash raised from selling off tenanted pubs.

It added that it aimed to "generate sustainable and improved rates of cash returns from a higher quality, more customer focused, tenanted estate.

"As part of this process, we will reduce the estate from our current base of 1,584 outlets to around 1,200 through a combination of disposals and transfers to retail. We will further leverage our purchasing scale and retail infrastructure to deliver higher returns for our licensees and our shareholders."

A third strand of the new focus would be to raise the investment in its beer brands, it added.

The new strategic direction was announced as the group revealed a three per cent rise in turnover for the year to May 2, 2010, to £984.1m.

Operating profits fell 2.3 per cent to £211.3m, while pre-tax profits rose nearly four per cent to £123m. Earnings per share fell 18.7 per cent to 43.4p, in part driven by last year's rights issue, while a dividend per share of 21.5p was up 2.4 per cent.

At £589.2m sales across Greene King's managed pub business accounted for around 60 per cent of the group's turnover, driven by a food-led focus. Operating profits were up 0.8 per cent at £106.4m.

Greene King said it had invested £13.4m in 47 Hungry Horse outlets in the year, taking the number of such sites to 147.

The group's tenanted pub estate saw sales slide 6.5 per cent to £145.1m, on an estate 5.1 per cent smaller.

It noted that average earnings before interest, tax and depreciation (EBITDA) per pub fell 3.2 per cent but said that better volume trends, tighter controls and the impact of the non-core disposal programme in the second half had led to average EBITDA per pub in the period rising by 0.2 per cent.

The brewer said it would aim to reposition its tenanted pub estate "towards a more retail-led approach" and accelerate the rate of disposals to create a smaller, more retail-focused business [which] can ensure a profitable long-term future for the division".

Belhaven, Greene King's Scottish retail estate, saw turnover up 11.7 per cent at £151.9m, with operating profits of £32.7m, up 8.3 per cent.

Greene King's brewing business saw sales up more than four per cent to nearly £98m, with operating profits up 0.9 per cent to £21.4m.

On trading in the eight weeks to June 27, 2010, the brewer said managed pub like-for-like sales were six per cent ahead, with Belhaven retail like-for-like turnover up 1.5 per cent.

Average EBITDA per pub in the tenanted estate in the first eight weeks of the current financial year was "broadly in line with last year".

Rooney Anand, the group's chief executive said trading in the first two months of the year had been "encouraging and ahead of our expectations for the period.

"Looking ahead, we are hopeful that the coalition government will be more supportive of our industry and look forward to working closely with them on responsible drinking, the tie and alcohol duty.

"Given the possible impact of the emergency budget on consumer spending, trading conditions are likely to remain challenging."