Greene King has reported record retail revenue for the year to 3 May, reaching £1bn. Like-for-like sales in its managed pubs were up 0.4% with Pub Partners +3.5% and brewing own volumes +4.2%.
The company reported a “steady start to the new financial year” with like-for-like net income in Pub Partners up 1.2% but own brewing volumes in Brewing & Brands down 3.7%, “against tough comparatives and a year-on-year delay in the timing of export sales”. It said the new drink-driving regulations in Scotland reduced Retail like-for-likes by 50bps during the period. For the same eight week period, managed like-for-like sales at Spirit were up 0.8%.
On Spirit, it said: “Our early analysis of the business is encouraging and we see a number of exciting opportunities for the combined business.”
Chief executive Rooney Anand said: “Greene King has delivered another record year in a challenging trading environment.
“We have also completed a successful five-year strategic plan, surpassing our goals, as we delivered significant progress, changed the business mix and better positioned the company for the future.
“We now enter another exciting new phase in the company’s history, with the acquisition of Spirit. We warmly welcome Spirit’s employees and its shareholders to Greene King. The acquisition will further strengthen our platform to deliver sustainable, long-term success for the benefit of our customers, our employees and our shareholders.”
In the year, total revenue was £1,315.3m, up 3%, while operating profit before exceptional items was down 1.7% to £256.2m and profit before tax and exceptional items (PBTE) was down 0.8%, each being affected by lower like-for-like sales growth and the impact of the disposal of 275 pubs to Hawthorn Leisure. Adjusted earnings per share were up 1.3% to 61.0p. After making allowance for the disposal of the pubs, the retained business grew PBTE by 6.9% and adjusted earnings per share by 9.2%.
Total Retail revenue grew by 5.9%, outperforming the market, which grew by 4.9% over a comparable period. Like-for-like sales growth was 0.4%, with Greene King LFL saying a disappointing World Cup in the first half, tougher comparatives in the second half and the impact of the new drink driving legislation in Scotland from December, all affected perfromance.
Room sales achieved the best like-for-like sales growth while like-for-like sales in drink and food performed broadly similarly. The best performing brands and formats were Metropolitan, the premium London estate, Farmhouse Inns, the growing carvery brand, core Local pubs and OEI.
The company said it had identified a number of ongoing and emerging consumer trends including all-day eating out and inter-generational eating out occasions.
Day-time Retail sales grew 8% following an expansion of the breakfast offer in Hungry Horse, the introduction of ‘Afternoon Tea’ in Farmhouse Inns, new lighter snacks such as chocolate-coated popcorn and a salt-beef sandwich, and a new weekend brunch offer in Loch Fyne Seafood & Grill, including meals such as ‘the full Scottish’. The company said this had led to a 76% increase in weekly sales from 7am to 11am.
Its ‘Golden Years’ offers have continued to rollout to further brands across the estate with the introduction of sharing tables and zones designed to enhance sharing occasions in selected new sites. The company also introduced a new ice cream offer for families in Farmhouse Inns to complement its ‘Cakeaway’ offer.
The company said that average licensee tenure, across its leased estate, at the end of the year, stood at five years and seven months. It said it also saw continued low levels of licensee debt and the number of temporary agreements remained at just 12 at the year-end. Looking ahead, it believes the acquisition of Spirit will further improve the quality of its Pub Partners estate, as it adds 416 pubs at an average EBITDA per pub of £77k.
During the year, the company sold 314 non-core sites for a total of £94.1m, including the sale to Hawthorn Leisure. The 39 disposals outside of the Hawthorn Leisure transaction realised a sale value of £18.5m.
The company’s five-year strategic plan has seen it expand the retail estate by 19.4% and improve average EBITDA per pub by 24%. Since 2010, it has added 172 sites to the retail estate, including 32 sites this year, ending the year on 1,060 pubs, restaurants and hotels. It said the acquisitions of Cloverleaf, RealPubs and Capital Pubs accelerated the progress in Retail and, overall, average EBITDA per pub improved 24% over the five years. The return on the cash invested during the period in new sites was 15.1%, ahead of WACC, and generating shareholder value.
Greene King also reduced its Pub Partners estate by 46% and improved average EBITDA per pub by 33%. Over the five years, it has sold or transferred 735 tenanted and leased sites including 310 this year, significantly ahead of the initial target of 1,200 sites. Since 2010, average EBITDA per pub has risen by 33% to £69.9k.
The company said it had continued its cask ale leadership position and since 2010, OBV grew 19.7% against an ale market that declined 12.6%. Over the five years, we increased our volume share of the UK ale market by 1.2%pts to 10%.
Anand said: “While economic indicators generally continued to improve throughout the year, the underlying trends within the sector slowed down as customers diverted discretionary spending towards ‘bigger ticket items’. However, we are confident that our continued investment in the business will feed through into stronger underlying growth going forward, supported by ongoing improvements in consumer confidence and disposable income.
“With 62%* of UK leisure spending, the eating and drinking out markets dominate the UK leisure market. Within the eating out market, 27% of spend comes from pubs and bars with spend in branded pubs and bars forecasted to be 14% in 2015, up from 11% in 2010. We believe pubs and bars, and particularly branded pubs and bars, will continue to play a significant role within the UK leisure market.
“Now that the Small Business, Enterprise and Employment Bill has become law, we will continue to work closely with the government to make sure that important secondary legislation is balanced, does not add unnecessary ‘red tape’ and encourages continued investment in the tenanted and leased sector.
“Our Scottish business suffered in the year from the introduction of a lower drink-driving limit just before Christmas. We have mitigated the impact as much as we can through a number of initiatives. However, the lower limit has changed consumer behaviour towards drinking out in Scotland and we expect to see continued LFL sales weakness, at least in the first full year following its introduction.”
