Greene King reports “transformational year”: Greene King has reported sales up 57.6% to £2,073bn in the year to 1 May 2016 – the transformational year since it acquired Spirit Pub Company. Adjusted profit before tax rose 52.2% to £256.5m. Managed like-for-likes rose by 1.5% and tenanted net income was up 2.7% on a like-for-like basis. Brewing & Brands own-brewed volume was up 2.9% with ale market share up 40 basis points to 10.5%. The company reported £16.7m of cost synergies delivered from the Spirit Pub Company acquisition versus a year one target of £12m. Managed like-for-like have made a strong start in the current year up 2.8%. Chief executive Rooney Anand said: “It has been a transformational year for Greene King. We completed the acquisition of Spirit Pub Company and reached the milestone of £2bn revenue. We have delivered growth across each of the three divisions, outperforming the market in a challenging environment, while making significant progress in combining the best of both businesses to build Britain’s best pub company. I am pleased to report a strong start to the new financial year, although it is likely that consumer confidence will be affected by Brexit in the near-term. However, Greene King has a strong track record of performing well in challenging conditions, we are a resilient business with a talented team and a strong balance sheet, and we will benefit from the opportunities created by the Spirit acquisition. We are well placed to continue delivering value to our shareholders.” Anand outline his five strategic targets: “We acquired a strong portfolio of brands and formats with Spirit – one that would have been very difficult to replicate organically – and we continue to anticipate material benefits from optimising the combined brand portfolio, which will provide an exciting growth opportunity over the next few years. The combined business has 20 brands and formats and our plan is to reduce this to around ten. We are evolving the future brand portfolio and plan to focus on five growth retail brands and formats: Hungry Horse, Flaming Grill, Farmhouse Inns, Chef & Brewer and Greene King. We will also continue to develop our hotels and Metropolitan, our premium London pub format. In order to select the growth brands and formats to invest in, we looked at the consumer relevance and financial performance of each brand, the long-term opportunities to grow and expand and the proximity to other pubs within the combined group. There is potential profit upside from investment in over 300 of our existing pubs to reposition them into the growth brands over the next three years. Our priority in 2016/17 is to convert around 100 Fayre & Square pubs into the growth brands, of which the majority will be rebranded as Hungry Horse. We also plan to simplify our Local Pubs estate. We will reduce the number of formats and we will replace any existing retail branding with Greene King branding, considerably increasing the size of the Greene King branded estate and creating a significant pub retail brand in the UK eating and drinking out market. In the current year, we expect to spend around £40-50m on these conversions and anticipate generating Ebitda returns significantly above our cost of capital. We expect a £1m dilutive profit impact in the first year, including the impact of additional opening costs.”

1. Build attractive and strong brands: “We must ensure our brands stand out and remain relevant to today’s increasingly demanding consumer in order to drive long-term growth. We are optimising our brands and formats and using the scale this brings to increase investment in our brand propositions to drive greater brand awareness and loyalty. We will look to broaden the appeal of our pubs, both in terms of the customers that use them and their reasons for visiting. For our Local Pubs estate, Pub Partners and Brewing & Brands, the Greene King brand is key to superior performance and we will extend our brand marketing leadership by investing more in communicating the brand’s benefits. A strong digital presence is vital in building successful brands and we will create the digital industry leader through combining the best of Greene King and Spirit’s digital expertise to drive customer engagement, engender higher levels of customer brand loyalty and improve the return on our marketing investment.”

2. Industry leading value, service and quality: “We remain committed to exceeding customer expectations and we will achieve this by constantly improving the value offer to our customers, the service delivery of our teams and the quality of our food and drink offer. We will use our scale to deliver leading value propositions through the successful execution of known value item (KVI) and every-day low pricing (EDLP) strategies to drive a sustainable mix of volume and spend per head growth. We will increase investment in our people to ensure we lead the industry on service and successfully compete with the wider competitive set. Lastly, we will evolve and improve the quality of the food, drink and accommodation we offer our customers, regularly benchmarking against the best in class.” 

3. Work with the best people: “Being the first choice for people who want to work in the hospitality sector is important to us and we want to offer every existing team member the opportunity to grow and develop. Our refreshed career pathway ‘Craft your career’ provides individuals with structured development opportunities while further initiatives include our focus on apprenticeships across the business, which has led to a commitment to employ a further 10,000 apprentices over the next three years. We also want to recruit, retain and develop the best operators in our Pub Partners business and this means extending our focus on training and development to both existing and future licensees. Overall, investing more in the recruitment, retention and development of our people will lead to a better trained and more motivated team across our business, which will be reflected in ongoing improvements in team retention and customer service.”

4. Own the best invested pub estate: “We want to own and run the best pubs in Britain, which we will achieve through proactive management of our pub portfolio and continued industry leading investment in our estate. We will further grow the share of our profits from managed pubs, where we can determine the customer experience, while valuing the role that Pub Partners plays in generating cash, adding scale and promoting the Greene King brand. The best pubs have the best beers and we will continue to brew our own industry leading beer brands. We believe the strong relationship between our pubs and our breweries is a clear competitive advantage. We now operate 1,823 pubs, restaurants and hotels in our managed estate. We will selectively build and acquire new pubs and transfer exceptional tenanted and leased pubs to Pub Company when the opportunity arises. We will also selectively reduce the size of our current managed estate by selling pubs that dilute returns or have an unattractive long-term outlook. In Pub Partners, we now operate 1,212 pubs and we will reduce the size of the estate through disposals from the tail and through transfers to Pub Company. Our medium term target for our Pub Partners estate is around 1,000 pubs. Our preference remains to own the freehold title of our assets and, where it makes financial sense, we will selectively acquire pub freeholds where we currently operate the pub on a lease.”

5. Maintain a strong balance sheet and flexible capital structure: “Underpinning our company strategy is a financial strategy to maximise the strength and flexibility of our balance sheet. Through a relentless focus on cash generated from operations, we will continue to cover our debt service obligation, our core capital expenditure and our dividend through internally generated cash flow. After the year-end, we successfully completed the issuance of an additional £300m of bonds in the Greene King secured financing vehicle, realising net proceeds of £180m after settling certain interest rate swap liabilities. This additional financing provides longer-term funding for general business operations including increasing our optionality to invest in the business.”