GK moves to unlock value as profits soar

PUBS and brewing group Greene King cheered investors yesterday as it unveiled forecast-beating profits together with moves to unlock further value for shareholders.

Changes planned by company, which employs around 1,000 people in Suffolk across its brewing and head office operations in Bury St Edmunds and its managed pubs around the county, include releasing funds by transferring the ownership of up to 700 pubs to a joint venture with a new property partner.

The so-called “OpCo/PropCo” scheme will see Greene King continue to run the pubs, but with the operating company paying rent to the property company, in which the group will have a 50% stake.

News of the property split, together with plans to extract more value from the company's balance sheet, came alongside results showing a higher than expected 17% increase in profits before tax and exceptional items to £139.8million for the year to April 29, against £119.6million last time.

Turnover increased by 12% to £917.5million - including a 34 week contribution from Hardys & Hanson, the Nottinghamshire-based pubs and brewing company - with operating profit rising by 14% to £218.1million and the operating margin by 0.5 of a percentage point to 23.8%.

Chief executive Rooney Anand said it was pleasing to see all four of the group's operating divisions reporting growth, including its Belhaven business in Scotland which performed ahead of expectations during the first year of the Scottish smoking ban.

Pub Company, the group's managed house division which includes the Hungry Horse chain, improved its margin from 19.8% to 20.3% - despite higher energy and Sky TV costs - with operating profit rising by 8% to £110.7million on revenue up 6% at £546.0million.

Like-for-like sales were 3.4% ahead, with the division ending the year with 788 pubs against 761 at the start, largely due to the addition of pubs from Hardys & Hansons. At the end of the financial year, the division was split into to new divisions: Destination Pubs (278 sites) focused on branded pubs and Local Pubs (510 sites)

Pub Partners, the tenanted and leased pubs division, improved is margin by 2.2 percentage points to 45.5%, with revenue 10% up at £164.0million and operating profit 15% ahead at £74.7million.

Like-for-like sales were 1.7% up, with the division ending the year with 1,417 pubs against 1,353 at the start. The increase reflected the addition of 185 pubs from Hardys & Hansons and the transfer of 21 pubs from Pub Partners, off-set by the sale of 142 pubs considered to be most exposed to the smoking ban.

Brewing Company, the brewing, brand management and distribution business, increased its operating margin by 1.8 percentage points to 25.2%, with revenue rising by 4% to £91.1million and operating profit by 12% to £23.0million.

Greene King IPA and Old Speckled Hen, the group's leading brands in the on-trade and off-trade respectively, each increased their market share, with the total own-brewed volume up 2.1% against a beer market down by 1.7%.

Cask sales of Old Speckled Hen grew by 7%, following the launch of an on-trade version with a lower (4.5%) alcohol content, while the year also saw the launch of Greene King IPA Chilled to target the growing market for extra cold beer.

Belhaven, the group's combined pubs and brewing business in Scotland, improved its margin by 0.6 percentage points to 20.0%, with operating profit up 4% at £23.3million on revenue 1% ahead at £116.4million.

Mr Anand said: “These record results are another step in over four decades of uninterrupted profit growth. I am particularly pleased that they were achieved by strong performances in al our divisions, combined with the benefits from effectively integrated acquisitions.”

The integration of Hardys & Hansons, acquired in September, was on-track to achieve the expected synergies of £5million in a full year while the sale in December of 155 pubs to Admiral Taverns had been accompanied by an agreement to supply beer to the entire Admiral estate in England.

“We will continue to dispose of, as well as to acquire, sites in a timely manner and at the right price, in order to optimise the quality of our estate,” said Mr Anand.

The group was “very well placed” to rise to the challenges and opportunities represented by the English smoking ban, having learned from the Scottish experience and invested £10million in outdoor areas at its pubs and marketing programmes, he added.

Mr Anand said that he and 99 other managers had each visited five pubs on the first day of the smoking ban in England and spoken to 10 customers at each site, representing a sample of 5,000 people. Of these, 67% viewed the smoking ban as a substantial improvement and 45% said they would probably visit a pub more often.

Looking ahead, Mr Anand added that the new financial year had started well for the group, with like-for-like sales up across the business, and the board was confident of a strong performance throughout the year.