Heatwave boost for Greene King

PUBS and brewing group Greene King said yesterday that value-for-money food offers and assistance for struggling licensees had helped it deliver a “resilient” set of annual results.

And the Bury St Edmunds-based company said the current year had also started well, with the warm weather providing a further boost to sales.

Headline pre-tax profits for the 12 months to May 3 came in at �118.5million - 15% down on the previous year's total of �139.4million but ahead of the �115million forecast in the company's most recent trading update.

Revenue was 1.3% ahead, at �954.6million against �942.3million, having been flat at the half-year stage.

“We have delivered a resilient set of results in the face of extremely challenging trading conditions,” said Greene King chief executive Rooney Anand.

“Trading generally improved from December, although cost pressures remain and both economic and political uncertainty are affecting consumer confidence.”

Greene King Retail, the group's managed pub and restaurant business, achieved revenue growth of 0.3%, from �567.7million to �569.5million, despite a 2.7% reduction in the average number of sites trading during the year, from 801 to 779.

An improved second half saw like-for-like sales come in 1.7% ahead overall, compared with a fall of 1.6% for the first half.

Greene King said the improved performance had been mainly driven by an enhanced value-for-money offer, with a 9% fall in the average price of a main meal at its Hungry Horse pub-restaurants during the year producing a 14% increase in covers.

The Loch Fyne seafood restaurants had avoided the two-for-one offers now common in the restaurant sector but had broadened its fixed-price menu offer and introduced regional pricing.

Overall, the division's operating profit was 7.6% down at �105.6million although the decline in operating profit margin was held to only 1.6 percentage points.

Pub Partners, the tenanted and leased division, saw revenue fall 5.4%, from �164.0million to �155.2million, on a trading estate virtually unchanged at 1,445 sites. Operating profit was down 11.3% at �70.9million and the operating margin was 3.0 percentage points off.

Greene King said that, in response to the pressures facing licensees, it had introduced a number of changes to make its business model “more agile”.

Within its core tenanted/leased estate the number of pubs per business development manager had been reduced in order to help licensees adapt more quickly while within a new Independence Pub Company “industry-leading” levels of flexibility had been introduced, with 12 pubs operating entirely free of tie by the year-end and 46 more only partially tied.

The group's Brewing Company operation achieved 8.2% growth in revenue, from �86.8million to �93.9million, although operating profit remained unchanged at �21.2million. The operating margin was down 1.8 percentage points, although Greene King said this mainly reflected a technical issue, relating to a decline in internal volumes.

Overall, however, a stronger second half saw own-brewed volumes come in 1.8% ahead for the year, a substantial turnaround from the decline of 3.8% reported at the half-year stage.

The group said Greene King IPA remained the UK's number one cask ale, with a 20.5% market share by volume, while Old Speckled Hen remained the top premium ale in the off-trade, with a volume share of 13.3% among the multiple grocers.

Belhaven, the group's integrated pubs and brewing business in Scotland, achived 9.9% revenue growth, from �123.7million to �136.0million, and operating profit grew by 11.9% to �30.2million, representing a margin of 22.2%, up 0.4 of a percentage point.

At the bottom line, Greene King reported a pre-tax profit of �54.3million, well down on last year's �147.9million, but this was due largely to a write-down of �53.5million in the paper value of part of its pub estate, most of which it had already warned of in its half-year results.

Since the year-end, the group has completed a �207.5million three-for-five rights issue, proceeds from which have already been used to acquire 11 high-performing pubs from Punch Taverns for �30.4million and to repurchase �22.4million of securitised debt at 51% of its nominal value.

In the year to May, Greene King paid down �46.9million of debt while maintaining capital investment at �84.5million.

Mr Anand said the pubs sector was “polarising”, with weaker players underperforming and reducing investment while stronger players such as Greene King, with healthier profits and cash conversion, were maintaining investment, accelerating market share gains and selectively targeting acquisitions.

Recent trading had been strong, he added, with like-for-like sales at Greene King Retail up 5.2% in the eight weeks to June 28 while the Brewing Company's own-brewed volumes were 12.1% ahead.

“Not only have our invested food-led businesses continue to perform well but our wet-led businesses have also been stronger,” he said. “The benefit of the realignment and adaptation of these businesses continues to come through, supported by the recent warmer and drier weather.”

A proposed final dividend of 15.1p per share will make total for the year of 22.4pps - unchanged from last year.

Hargreaves Lansdown equities analyst Keith Bowman said: “While the outlook remains challenging, as with any consumer-facing business, Greene King is viewed as a survivor and one which is likely to prosper from the over exuberance of rivals.”