GK: progress on reducing tenanted estate

Greene King has reported good progress on its three-to-five-year strategy to reduce the size of its tenanted estate from 1,600 to 1,100 and increase the size of its managed division from 900 to 1,100.

It reported like-for-like sales growth at its managed pubs of 3.8% for the first half of the year and moved into like-for-like profit growth - of 0.4% - at its leased and tenanted division for the 24 weeks to 17 October.

Greene King said it had completed or exchanged on eight new managed houses for its Hungry Horse and Eating Inn brands and transferred nine sites from tenanted to managed.

It meant that the group had utilised £122m, or 60%, of the proceeds from last year's rights issue, having acquired a total of 42 managed sites.

At the tenanted and leased arm, the group had increased investment by 40% and sold 14 lower-end sites.

Tenanted pubs​

Greene King said its tenanted Pub partners division was leading the sector. Revenue was down 1.2% to £68m but up 1.9% on a pub by pub basis while operating profit was down 1% but up 2.1% on a pub by pub basis.

Like-for-like EBITDA was up 4% and average EBITDA per pub up 2%. "In the period, we significantly increased our investment in the estate against last year; a total of £3.6m was invested, of which £2.4m was maintenance capex and £1.2m was expansionary capex, including further investment in Brulines' i-draught technology, which is now in 830 sites," said chief executive Rooney Anand.

"An additional £1.7m was spent on repairs through the revenue account. An average of 1,341 sites traded over the period. At the start of the financial year, 1,355 sites were trading and, during the period, 14 were sold and seven were closed for disposal. The closing balance was therefore 1,334 sites."

It had 64 pubs on temporary trading agreements at the end of trading period — down from 74 at the start of the year and 95% of the estate is now on substantive agreements.

"The more stable trading performance and improved licensee health measures are encouraging," said Anand. "However, there are still significant issues for the existing tenanted and leased model, with many sub-optimal locations, licensees and offers, beer volumes in permanent decline and rising cost pressures.

"Many tenanted and leased pubs are no longer competitive with either managed pubs or the off-trade and cannot sustain enough profit for both licensee and landlord."

He added: "In the short-term, we will continue to support those pubs under most pressure through licensee support in the form of rent concessions and wholesale discounts, and we have successfully launched our new Code of Practice, focusing on delivering greater transparency, flexibility and fairness to existing and prospective licensees."

Belhaven integration​

Greene King said it planned to fully integrate its Scottish pub and brewing business Belhaven, having delivered cost savings of £5m every year since its acquisition in 2005.

This would see the brewing and brands operations of Greene King and Belhaven merged into one business, under the leadership of Euan Venters, the current managing director of Belhaven.

Justin Adams, the managed director of Greene King Brewing Company, would be stepping down from the business in January, having told the group of his desire to seek fresh challenges last year.

Belhaven's 106 managed pubs will be merged into Greene King Retail, taking the division to 900 sites, while its 227 tenanted pubs would sit with Greene King Pub Partners.

Managed pubs​

Its managed like-for-like performance was on top of growth of 4.6% last year. Current comparable sales, for the six weeks since 17 October, were up 3.7%.

The group said pre-tax profits were up 17.1% to £73.1m on sales up 4.2% to £484.1m.

Overall, the group said it delivered EBITDA of £135.4m, up 6.1% on the same period last year from 1% fewer pubs.

Net debt at the end of the period stood at £1,324.5m, down a further £23.6m.