Greene King chief attacks 'ever larger' pub groups

Tim Bridge, chief executive of Greene King, attacked the trend towards "ever larger pub groups" and investment in "expensive and undifferentiated' pub concepts this morning, saying they were not the answer to the fundamental challenge facing the pubs industry, the growth in alternative leisure pursuits.

Bridge made his comments as Greene King unveiled record results for the year to May 4, with turnover up 8% to £535.6m, trading profit up 11% to £103.3m and profit before tax up 8% to £75.0m.

Although uninvested like-for-like turnover in the managed house estate was up just 0.9%, and turnover in the tenanted estate on the same basis up 2.3%, total beer MAT sales were up 7%.

Bridge said: "All three of our businesses have participated fully in the achievement of these record results. The company is in good shape and we believe that our integrated strategy is sound, our people and assets of high quality and our financial structure prudent. We are therefore confident that we can continue to generate attractive returns for our shareholders."

In Greene King's view, he said, the tribulations of the managed pub sector have been brought about by too many highly rented short leasehold properties and by over-investment in "indifferent" retail brands. It was a specific problem, he said, and not a generic one to do with the managed house model per se.

Bridge said the current vogue for tenanted estates "should not blind us to the fact that there can be potential pitfalls in the tenanted model. Setting a higher level of maintainable rent than a pub is able to justify or discovering that there is a potential shortage of talented licensees, may become a problem in the future."

Greene King laid out £61m in capital expenditure during the year, including £13.8m on improving the Old English Inns pubs-with-accommodation it acquired in 2001 "in order to restore them to the standards expected by their discerning customers". In all the managed house estate had £41.8m, spent on it, £30.2m going on 121 major development schemes. with the average spend per major development rising from £146,000 last year to £250,000 this.

The company's trade benefited from a 46-week contribution from the Morrells business which was acquired in June last year for £63.4m. Of the ex-Morrells pubs, 18 went into the managed Pub Company division, 77 into the tenanted Pub Partners set up and 12 are in the process of being sold.

Greene King sold 94 properties during the year, mostly leasehold pubs "acquired as part of larger acquisitions in previous years" and marginal tenanted pubs "unable to provide a licensee with a good income", for a total of £32.5m, or £346,000 a pub on average, giving a profit on book value of £3.1m.

Thirty pubs were transferred from management to tenancy, while 59 "tail-end" tenanted pubs were sold, 37 of them in a package to Punch Taverns. The managed estate fell to 571 pubs, while the tenanted side grew to

Managed house trading margins grew from 16.2% to 16.7%. despite an increase in the proportion of lower-margin food sales from 31% to 33% and a "significant" rise in minimum wage costs. Average weekly turnover rose 5.5% to £10,737, and trading profit per outlet rose 6.5% to £93,000 a year. Bridge said the company will be looking expand the Hungry Horse and Old English brands through "selective" property purchases, and also introduce new retail ideas "to add more differentiation to our customer offer".

On the tenanted pubs side, the number of outlets rose 7.7% to 1,141 and turnover rose 16.7% to £111.7m. Turnover per outlet per week rose 9.8% to £1,883, and trading profit per outlet rose 7.8% to just under £38,400 a year as trading margins stayed flat at 39.2%. Even the 877 uninvested like-for-like pubs saw a rise in turnover of 2.3%, while the 63 improvement schemes, costing £12.8m, saw returns "significantly ahead of our cost of capital".

At the Greene King Brewing Company, turnover grew 4% to £95.6m, while trading profit grew 12% to £13,3m and trading margin grew one percentage point to 13.9%, while return on capital employed rose to 24.7%. Greene King IPA saw MAT volume growth of 4%, while Abbot Ale saw volume growth of 21% and Old Speckled Hen grew 14%.

Current trading, excluding the impact of the Jubilee week last year, has seen like-for-like turnover at uninvested Pub Company outlets up 1% for the eight weeks to 29 June, while beer sales in the tenanted Pub Partners division were up 6% and total beer volumes were up 5%.