Financial overview: Greene King reported revenue of £562.1m for the 36 weeks ending 3 January 2021. The shortened period was to align the accounts with that of its parent company CK Asset Holdings. The figure was down 70.7% compared with the previous 52-week period and down 63.4% compared with the pro forma 36-week period. Statutory loss before tax was £248.6m (2020: £273m loss), after a net credit of £30.9m for exceptional costs and non-underlying items (2020: £380.6m of costs). Ebitda for the 36-week period was minus £77.5m compared with £411.9m for the previous 52-week period. Greene King stated in its accounts: “The group’s liquidity remains strong, reflecting the resilience of the group’s capital structure. Financially, we have sought assistance from our parent company in the form of additional loans, with an additional £750m facility being put in place in the period, taking the total to £1.5bn. The business also utilised the government’s Covid Corporate Financing Fund, borrowing £300m, which was repaid in full by 31 March, in line with the terms of the loan. Alongside these, we introduced strict cash preservation measures, including obtaining payment deferral with suppliers and landlords, postponement of all non-essential capex and operational expenditure, suspension of all marketing activity and deferral of non-essential activity. Our two securitisation vehicles were unable to meet certain requirements of their financial covenants during the period due to the closure of our pubs. We sought and obtained a waiver of those covenants from the bondholders in the Greene King securitisation and sought, but did not obtain, one from the Spirit debenture bondholders. As a result, the debenture remains in a state of technical default at the year-end, however, the directors believe it’s highly improbable that a default will be enforced. During the period, the group received government support totalling £159.7m – £136m of furlough grants for job retention, £23m for Eat Out To Help Out to support trading during August 2020 and £700,000 of state aid grants. In addition, the group continued to defer the January to March 2020 quarterly VAT liability in accordance with the latest government guidance and also benefited from the temporary reduction in the VAT rate to 5% for certain supplies in the hospitality sector.” The directors did not propose a dividend. Mackenzie said: “We are in a reasonable position, given the circumstances.” 

 

Current trading: The company opened 452 of its managed pubs in England for outside trading on 12 April – about 30% of the estate – followed by a further 108 pubs on Thursday (28 April). In Scotland, 50 pubs opened on 26 April, with a further 69 set to open in May, if the roadmap allows. In Wales, 12 pubs reopened for outdoor trading on 26 April. Meanwhile, about 60% of the company’s tenanted sites have now reopened. Mackenzie said it had been “a good start”. He said: “We’ve been pleasantly surprised by the numbers engaging with pubs again and it’s great to have our teams back. But a couple of weeks’ good trading outside is not going to solve everything. It’s been extremely challenging. During the 36 weeks reported, we were shut for almost half of those and we faced further restrictions during the other periods with the tier system and curfew, for example. While we’ve had some good weather since a third of our pub gardens opened, we’re trading at significantly reduced capacity and still losing money. The big issue is for the government to confirm the reopening of indoor hospitality on 17 May and, more importantly, the lifting of all restrictions on 21 June that will allow us – and the industry – to trade profitably once again. That’s when we can start looking to the future, invest in jobs and help build back the economy. It’s imperative the government sticks to those timelines. We will pay full business rates soon after fully reopening on 21 June and the government will have to look at that again if restrictions still apply. Just because like-for-like sales look good from outside trading for a few weeks, it will not resolve all the problems in the industry.”

 

Managed estate: At the year end, the group operated 1,668 managed pubs under four key brands. Managed division revenue for the period was down 71.2% to £448.2m (36-week pro forma: down 64%). During the year, the company also rolled out the Order & Pay app to 1,495 sites (having only previously been available in its Hungry Horse estate) with 24.9% of all sales now being made through the app.

 

Tenanted estate: At the year end, the group operated 990 tenanted pubs with a wet-led bias. Revenue was down 74.2% (36-week pro forma: down 67.6%) to £40.8m. Up to 90% rent concessions have been provided to tied pub tenants to support them throughout periods of closure with additional support of free replacement stock for out-of-date beer and cider. During the period, a total of £27m was invested in supporting tenants.

 

Expansion opportunities: While Greene King is focused on its existing estate as the business gets back up and running, Mackenzie did not rule out the potential for acquisitions, whether that be on a site-by-site basis or individual companies. He said: “We are concentrating on building back but we will look at opportunities to fill gaps geographically where it works for us. It’s not our priority at the moment because we want to focus on the good-quality estate that we already have.” 

 

Disposals and property: Net disposal proceeds were £7.7m, being generated from the disposal of 12 non-core pubs and other various non-pub properties. In addition, the group purchased from other subsidiaries in the CK Asset Holdings group the freehold or long leasehold of 137 sites that were already leased for £373.2m consideration. The current estate valuation indicates a market value of £4.3bn, versus a book value of £3.7bn.

 

Delivery: Mackenzie said most of its sites were offering delivery but he was focused on making sure the business offers customers a “fantastic experience” in its pubs. He added: “Some pubs have seen it be successful and some less so. We will look to hone the food offer as we reopen but delivery is never going to be a major revenue stream for us – it’s a nice add-on. Our focus is on giving people a fantastic experience in our pubs – and part of getting back to that is for them to be able to stand at the bar again.” Delivery is available from almost 1,400 sites while almost 1,500 were offering takeaway up to the latest lockdown in January.

 

Virtual brands: Greene King has tested a number of virtual brands, including Proper Pub Classics Co, Chicken Crazy and The Big Cake Company across selected sites. Mackenzie said the company made the decision not to continue with them during lockdown but will get them back up and running in due course. He added the company would focus on its current portfolio of virtual brands for the time being but may look to add to it in the future.

 

Capex: The business invested in its pub gardens during the lockdown period in preparation for the resumption of outdoor trading. Mackenzie said the company had a pipeline of projects ready to go but wanted assurances from the government the reopening roadmap wouldn’t change “before putting our feet on the pedal”. He said the business was in a position to move quickly once the government does so because of its strong balance sheet. He added the group was looking to begin investment in the second half of the year but “would move that forward if trading in May and June allows the company to do so.” As part of its commitment to managing the safe reopening of its pubs, the company invested £7m during the year in “Pub Safe”-related processes, including protective measures for teams and customers. All team members completed comprehensive training ahead of returning to work, and investment was also made in additional team members “to keep hygiene standards high”. Core capital expenditure of £29.6m in its managed estate during the financial year was largely limited to that of a maintenance nature with some investment in garden schemes developing outside space. Core capital expenditure of £3.5m in the leased and tenanted estate was largely limited to that of a maintenance nature.

 

Recruitment and people: Mackenzie said the company had worked hard to improve engagement with its teams during the lockdown period and to retain staff. The company set up its Team Member Support Fund, providing grants to team members facing financial hardship. More than £1m has been administered to date through the fund, which was set up from savings from salary sacrifices made by the executive team and company contributions. Mackenzie said while there was bound to be a shortage of labour in the market given the circumstances, he believed Greene King’s reputation would allow the company to recruit suitable staff. He said: “In London, it will be a bit of a challenge and also some of the other cities, given people are taking jobs closer to home. But we are delighted to have our teams back. They work incredibly hard and this is what they live for.” The company took the decision to close 79 pubs, with a third of them being shut on a permanent basis, and the remainder closed until further notice, which resulted in 607 redundancies and 285 successful redeployments within the business. To support and protect jobs, the business used the government’s Coronavirus Job Retention Scheme, and furloughed up to 99% of team members at different times during the period, topping up salaries to 80% for those above the scheme’s cap. Greene King has supported more than 1,000 apprentices on its programme since March 2020 and is on course to meet its pledge of providing 20,000 apprenticeships. At the end of the period the company had more than 41,000, including circa 29,000 on a part-time basis.

 

Strategic projects: Greene King stated in its accounts: “We believe there will be opportunities for dynamic pub operators such as Greene King to benefit from the market turmoil. Prior to the lockdown, we were already working on a range of strategic projects designed to ensure we were well-placed to meet changing consumer demand, with increased focus on experiential offers, healthy food and drink options and sustainability, as well as drink premiumisation (as demonstrated by the growth of gin-based drinks) and digital innovation. A key part of the company’s plans has been to ensure consumers have even greater choice and convenience through delivery and mobile payment platforms. These will sit alongside the ongoing focus on improving the value, service and quality of our offers, targeting volume-led sales growth and improving brand loyalty.”

 

Bedrooms: Greene King has 3,358 bedrooms in its estate and Mackenzie said the company was looking at increasing that number “once we get back up and running properly”. He said: “That will form part of our strategy as we move forward.”

  

Future outlook: Mackenzie said much depended on the government sticking to the roadmap, but was optimistic about the prospects for the company and the industry. He re-emphasised the key date was 21 June and the business could spend the next 12 months building back, with 2022 seeing “something of a return to normality”. He added: “Thanks to its strong foundations and the supportive ownership of CK Asset Holdings, the business is well-placed to emerge from covid-19 and play its part in kick-starting the UK economy – as long as the government sticks to the roadmap.”