Brewer reveals �200m rights issue

SUFFOLK-based pubs and brewing group Greene King is seeking to raise more than �200 million through the issue of new shares to repay debt and create a “war chest” to fund acquisitions.

SUFFOLK-based pubs and brewing group Greene King is seeking to raise more than �200 million through the issue of new shares to repay debt and create a “war chest” to fund acquisitions.

The Bury St Edmunds company has announced a three-for-five rights issue under which shareholders will be invited to buy around 80.7million new shares.

With the offer being fully underwritten by Deutsche Bank, the move is set to raise around �207.5 million, net of expenses,

Greene King said some of the cash would be used to make “selective acquisitions as attractive prices” of pubs in the Home Counties, London and Scotland.

“The current economic and competitive environment means some players within the UK pub sector are experiencing operational underperformance and pressure on cashflows,” said Greene King in a statement.

“The board believes this operational underperformance, combined with excessive financial and/or operational leverage, will lead to an increasing number of high quality assets being offered for sale at attractive prices.

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“As a major UK pub company with a highly regarded management team and an excellent track record of acquisitions, the board believes that Greene King is well positioned to take advantage of such opportunities.”

Greene King said the rest of the proceeds would be used to take advantage of current conditions in credit markets by repurchasing some of its securitised debt “at significantly below par value”.

Greene King also said yesterday that trading across its businesses had “generally improved” since last update in January for the first 38 weeks of the year, ending May 3.

After 49 weeks, to the week ending April 12, like-for-like sales at the managed house business Greene King Retail were up 0.8% - against minus 1.1% after 38 weeks - with the operating margin for the full year expected to be only “slight down” on the previous year.

The underlying profit trend within the group's tenanted and leased business, Pub Partners, remained “broadly in line” with that reported in January at minus 6% on a like-for-like basis (against minus 5.3%) due mainly to a decline in beer volumes and increased levels of support for licensees.

However, the group Brewing Company's own-brewed volumes were up 1.8% after 49 weeks (against minus 1.5% after 38 weeks), a “strong performance” driven by a focus on quality brands such as Greene King IPA and Old Speckled Hen.

Rooney Anand, the group's chief executive, said today: “Greene King is currently unique amongst the major pub companies in paying down debt while keeping up levels of capital investment and continuing to pay dividends to our shareholders.

“This has been achieved through a consistent, long-term approach combined with strong operational skills and financial discipline throughout our businesses. Recent trading, which has been resilient against a demanding backdrop, underlines the success of this strategy.

“Today's rights issue will enable us to take advantage of a compelling opportunity both to enhance our estate and further strengthen our sound capital position. The increase in high quality pubs being put up for sale will deliver chances to make earnings-accretive acquisitions.

“At the same time, there is the potential to opportunistically buy back our debt at discounted

levels. These combined actions will make Greene King an even stronger business,” he added.

Greene King added yesterday that its profits before tax and exceptional items for the full year were now expected to be “not less than �115 million”, which it said was “in line with both consensus estimates and the board's expectations for the year.”

However, there would be a hit from exceptional operating items of around �53 million. This would consist chiefly of impairment of property, plant and equipment of around �54 million with this, and other one-off items, being partly offset by a net profit on disposals.

There would also be exceptional financing costs of between �10 million and �30 million, relating to a number of interest rate swaps becoming ineffective due to the proposed reduction in debt following the Rights Issue.