6th Jul 2005 07:00
Greene King PLC06 July 2005 PRESS RELEASE Part 1 of 2 Immediate release 6 July 2005 GREENE KING PLC FINAL RESULTS FOR YEAR TO 1 MAY 2005 SIGNIFICANT PROGRESS, RECORD RESULTS • Turnover + 33% to £732.6m• EBITDA * + 39% to £189.7m• Trading profit * + 39% to £155.7m• Profit before tax * + 14% to £94.0m• Adjusted earnings per share + 14% to 91.5p• Dividends per share + 10% to 36.3p• Strong performances from all three divisions: - Pub Company trading profit +65% - Pub Partners trading profit +13% - Brewing Company trading profit +11%• Laurel acquisition successfully integrated• Innovative refinancing at attractive interest rates• Greene King IPA became the Number One cask beer brand in the UK• High quality business well-placed for sustained earnings growth * before goodwill and exceptional items Chief Executive, Rooney Anand, comments: 'Last year was one of significant progress for the group leading to recordresults. The acquisition of Laurel, its successful integration and an improvedfunding structure have made Greene King a stronger business. Trading in thecurrent year has begun well for all three of our divisions and is in line withexpectations. We have a proven strategy that delivers value for ourshareholders and there are exciting opportunities to deliver further growth inthe future.' For further information: Greene King plc Rooney Anand, Chief Executive Tel: 01284 763222 Michael Shallow, Finance DirectorFinancial Dynamics Ben Foster/Charlie Watenphul Tel: 020 7831 3113 A copy of the results presentation will be available on our website:www.greeneking.co.uk Chairman's Statement Chairman I would like to begin by paying tribute to David McCall, who retired on 1 May2005 after ten years as the chairman of the company. Personally, I count myselfvery fortunate to have served under him. He was highly supportive of me in myrole as chief executive and has led the company and the board with greatdistinction. We have all come a long way together in the last decade and havedone so with a very happy board of directors under David's leadership. Ourthanks are due to him in great measure and we will miss the invaluable mixtureof his cheerful style and shrewd business sense. I am sure that he will be ahard act to follow and we all wish David the very best in his retirement. Results I am delighted to be reporting on another year of strong profit growth for thefifty-two weeks ended 1 May 2005. Our three trading divisions have all playedtheir part in producing these record results and we have also benefited from thefirst 39 weeks of trading contribution from our acquisition of the Laurelneighbourhood estate. Turnover for the year was up 33 per cent to £732.6 millionand trading profit increased by 39 per cent to £155.7 million. Our profit beforetax, goodwill and exceptional items rose by 14 per cent to £94.0 million andadjusted earnings per share by 14 per cent to 91.5 pence. We have increased ourearnings per share by more than 10 per cent per annum compound over the lasteleven years. Laurel acquisition We acquired the 432 pubs which made up the Laurel neighbourhood estate for £654million last summer, completing the deal on 6 August 2004. The integrationprocess, named 'The best of both worlds' to reflect our aim of recognising andretaining the particular operational strengths of both our own Pub Company andLaurel, was completed very successfully in February, ahead of schedule. We havebeen able to transfer about 117 pubs from Pub Company to our Pub Partnersdivision as a result of the Laurel deal, which has further helped to improve thequality of our pub estate. Dividend The board recommends a final net dividend of 25.85 pence per share, which willproduce an increase of 10 per cent in the total net dividend for the year to36.3 pence per share. The final dividend, if approved, will be paid on 12September 2005 to those shareholders on the register at the close of business on5 August 2005. Finance We have a very strong balance sheet which is backed by our extensive freeholdpub assets and highly positive free cash flow. This allowed us to finance theLaurel acquisition by raising extra debt rather than having to resort to themore costly option of issuing more equity. At the year-end our debt stood at£1020.2 million, equivalent to a debt to equity ratio of 149 per cent and aninterest cover multiple of 2.5 times, figures with which we feel verycomfortable. Securitisation The initial funding for the Laurel deal was arranged through a short-term bankloan, with the intention that we would renegotiate this quickly into a mixtureof securitised debt and a medium term bank loan. We subsequently raised £600million through a securitisation package, against 904 managed and tenanted pubs,at very advantageous terms and £450 million from a 5 year bank loan. Thiscomplemented funding of £150 million already in place. The re-financing exercisewas completed in March 2005. Assets We sold 51 properties during the year, consisting of a mix of non-strategicmanaged houses unsuitable for conversion to tenancy or lease, non-sustainablesmaller tenanted pubs, a few short leasehold properties and some unlicensedproperties. The asset sales totalled £45.6 million, on which we made a surplusof £13.4 million over book value. Pub Company Our managed house division began the year trading through 528 pubs. Pub Companythen became the main beneficiary of the Laurel acquisition and spent about sixmonths in a climate of considerable change, with the heavy responsibility ofmanaging the integration process. This was completed very successfully and atthe year-end, after a number of transfers to Pub Partners and selective sales,Pub Company was running 820 managed houses. The trading results were very solid,with positive like for like sales and an increase in the trading profit marginacross a much larger business. Pub Partners Our tenanted and leased division started the year with 1153 and finished with1244 pubs after receiving the Pub Company transfers. Their key task was to findthe best possible new tenants and lessees for the transferred pubs inconsiderable numbers within a fairly short space of time. This has been done andthe trading profit for the division was well ahead of last year, not merely inquantum, but in terms of average trading profit per pub. Brewing Company Our brewing division has had another great year and the reputation of ourown-brewed ale brands spreads ever wider. Greene King IPA became the biggestselling cask ale in Britain during the year, while both Old Speckled Hen andAbbot Ale have seen their sales volumes increase too. The fastest growingmarkets for us were our national account sales to other pub groups and our takehome sales to supermarkets, but we also sold more beer through the independentfree trade and export markets. The trading profit and its percentage margin toturnover have increased again. Non-executive directors Graham Greene retired from the board at last year's AGM and we included avalediction to him in our 2004 report. In March 2005 we were pleased to welcomeJane Scriven to our board as a non-executive director. She has been a directorof Geest plc for the last 9 years running their continental European operationsand is also a qualified solicitor. We believe she will be a great asset to us.Since the year-end, we are equally pleased to have been joined by John Brady asour fifth non-executive director. He has been a consultant with McKinsey & Cofor twenty-four years and we look forward to benefiting from his extensivemarketing and retailing experience. People This has been another great year for the company and I want to thank ouremployees and licensees very much for their skill, hard work, commitment andloyalty which have made it possible. We have welcomed large numbers of peoplefrom Laurel into Greene King and we respect the special talents which they havebrought to us, just as we hope that they will benefit from being part of a fullyintegrated company with three increasingly profitable trading divisions.Together we are stronger and we all look forward to the future with confidence. Tim BridgeChairman 5 July 2005 Chief Executive's Review I am pleased to announce another year of record results for the company, furtherbuilding on our 30 year track record of uninterrupted, profitable growth. Allthree of our trading divisions performed well growing revenue and tradingprofits, benefiting from 39 weeks trading from the Laurel Neighbourhoodacquisition. In 2004/05, Greene King plc delivered +33% revenue growth and +39%trading profit growth. These results demonstrate the high quality of ourassets, our brands and the calibre and commitment of our people. Strategy The results have been achieved by executing a clearly proven strategy to delivershareholder value. Our emphasis is on achieving organic growth, supplemented bya prudent acquisition strategy, through three, horizontally integrated tradingdivisions. The integrated model provides us with financial and operationalsynergies, as well as the opportunity to share intellectual capital across thegroup. It allows flexibility to transfer pubs between our two estates, helpingto maximise the returns on our assets, as well as giving us balance and anelement of natural hedging. All three divisions are characterised by being highly focused operations with anoverriding commitment to the delivery of quality and service to the customer.The businesses are underpinned by the quality of our assets and brands, and aclearly able and motivated team. They are positioned to trade successfullywithout employing low pricing or discounts as the primary competitive tool. Weprefer to target discerning customers who demand a differentiated, qualityoffer. We have positioned ourselves by: • Operating in, and revitalising, traditional sectors of the hospitality and drinks markets • Raising the quality of our assets via focused investment • Marketing brands which possess a strong consumer appeal • Nurturing our talent pool and constantly developing our unique culture • Targeting our businesses on achieving sustainable investment returns. The consistency of this strategy, and its execution, has enabled us to achievewell above average earnings per share and dividend growth over many years andprovides significant scope for future increases in shareholder value. Laurel Neighbourhood Pubs The acquisition of Laurel's Neighbourhood Business for a consideration of £654million was completed on 6 August 2004. The Laurel estate is made up of 432high quality, well-invested and largely freehold pubs that are focused oncommunity and traditional town locations. These pubs complement our existingoperations well and are delivering benefits to all three of our operatingdivisions. In Laurel, we acquired excellent pub assets, led by a strong management team,sector-leading operating systems and a very good cultural fit. The opportunityfor us, therefore, was to extract the best practices and systems from bothGreene King Pub Company and Laurel, and then roll these out across the combinedbusiness. This was more important to us than achieving a more rapid integrationby imposing purely Greene King practices on Laurel, although we were still ableto complete the integration ahead of schedule in February 2005. As a result, wedeveloped the 'best of both worlds' strategy which has enabled us tosignificantly improve, amongst other things, the planning and execution of ourpromotions, the communication process between our pubs and our managers and thequality of our liquor and food offer across both estates. We remain on track toachieve £6 million of synergies within our first full year of ownership, atestament to both the strategic and financial logic of this quality acquisition. At the time, the deal was funded with a short-term debt facility. Since then,however, we have developed our debt strategy to allow the company the financialflexibility to continue to invest for future growth whilst taking advantage oflonger-term and lower-cost bond finance. On 2 March 2005, we announced a £600million bond issue that received an excellent response from investors leading tovery attractive interest rates. The highly innovative bond was securitised onjust under half of the pub estate, including both managed and tenanted formatsso that we could retain the ability to transfer pubs between the two. Throughthis re-financing, we have been able to save around £6 million a year ininterest costs and enhance total returns to shareholders. Pub Company Pub Company, our managed house division, reported an increase in turnover of 50%to £495.9 million and an increase in trading profit of 65% to £93.8 million. Asa result of the Laurel acquisition, the average number of pubs trading duringthe period increased from 551 to 801. Turnover Trading Trading Trading (£m) profit profit change profit marginPub (£m) (%) (%)Company 2004 331.6 56.9 +4 17.22005 495.9 93.8 +65 18.9 Our total like-for-like sales were up 1.7%. This figure includes a total of 398pubs, all of which were in the estate at the start of the year ended May 2004. Both Pub Company and Pub Partners benefit from our ability to transfer pubsbetween the two divisions, thereby enabling us to maximise the profitability ineach individual pub. During the year, we transferred 117 outlets from PubCompany into the separate division that was set up following the acquisition ofLaurel. These pubs were smaller than our managed estate average and, in anindustry environment of rising overheads driven by external and regulatory cost,their earnings fell below the threshold needed to sustain this model.Conversely, their transfer into tenancies puts them at the upper end of PubPartners' estate, providing a very good business for the right tenants and astronger, more sustainable profit stream for the company. Over the year, thetotal size of the Pub Company estate increased by 292 pubs to 820. The average sales per pub increased by 3% and the average trading profit per pubwas up 13%. Trading margins improved 1.7 percentage points to 18.9%. Thisstrong improvement in margin was achieved by improved sourcing arrangements andtighter product mix management. During the year, we continued our strategy of effective capital expenditure inour estate and invested £31.0 million in the development of our estate. Wefurther improved both the targeting and execution of capital investment and, asa result, we have been able to bring down the average spend per pub withoutcompromising on the final result. Consequently, the returns that we achieved onthis investment increased to 16%. Pub Company continued its focus on improving the customer offer and service.During the year, we launched a state of the art system that allows housemanagers to promote activities tailored specifically to their local markets.This system then enables all our managers to share these initiatives, helping toincrease levels of best practice and drive organic growth. Ten new food menuswere also launched to ensure we remain at the forefront of consumer tastes. Thefocus of these is on high quality, healthy food at reasonable prices. Examplesof our new dishes include smoked haddock fishcakes and porcini mushroom risotto. Pub Company is run in four divisions; Hungry Horse, Real Pubs North and South,Town Local and Inns. Number of outlets Number of outlets at at 2 May 2004 1 May 2005Pub Company divisions Hungry Horse Branded pubs with great value 137 135 food business Real Pubs Unbranded community pubs 129 357 Town Local Unbranded town centre and town 127 171 local pubs Inns Mix of inns with rooms and 135 157 destination food businesses Total 528 820 Hungry Horse is our only overtly branded format and the pubs are mainly locatedin urban communities. The outlets retain individuality but are linked by the 'Hungry Horse' branding and great value food menus. The brand, which we acquiredas part of the Magic Pub Company in 1996, is a considerable success withconsumers and was recently named 'Pub Retail Food Brand of the Year' at thePublican Awards. At the year-end, we had 135 Hungry Horse outlets. Following the acquisition of Laurel, we implemented an initiative to classifythe range of Real Pub sites in order to help streamline our marketing and sitedevelopment processes going forward. The exercise has helped us to identify anumber of formats or models that can be introduced to other houses within thisdivision and include: • Quality Local: a more upmarket pub offer offering a traditional, quality pub feel • Champion: a concept retained from Laurel with a sport/activity-led offer trading to a local community • M Series: a more modern interpretation of a community local business providing appeal across the age-range. Real Pubs continued to have a strong focus on sporting events and arepredominantly located at the heart of the communities in which they aresituated. These pubs operate more successfully and efficiently without acollective branding. During the year we introduced business models to help ourmanagers clearly define areas within our pubs where customers can play or watchsport helping to increase the number of customers and profitability. Over the course of the year, we changed the name of our High Street division toTown Local. The change reflects the more traditional town image of the majorityof our properties with very few being on the competitive high street. Inns, ourfourth division, is made up of traditional coaching inns and hotels that provideaccommodation, and a strong emphasis on high quality food and a wide range ofwines and cask ales. During the year we implemented accommodation workshops forall hotels to teach the latest techniques in driving room and yield managementas well as a new booking system allowing us to improve the utilisation of roomstock. Pub Company's success relies on its ability to attract customers and providethem with an overall experience to ensure that they return. Our strategy hingeson giving those who understand their customers the best - our house managers -the flexibility to run their pubs in a way that meets the expectations of thecustomers whilst, at the same time, maximising the returns for our business.This ability to harness the talent and enterprise of our managers whilstmaximising the benefits of our scale is a key factor in our success. Pub Partners Pub Partners, our tenanted and leased pub business, delivered another strongperformance. Turnover was up 8.8% to £125.1 million. Trading profit increasedby 13.0% to £54.0 million with trading margins that improved by 1.6 percentagepoints to 43.2%. Volume sales of beer increased by 2.5%, wines and spirits by4.7% and soft drinks fell by 2.4%. Turnover Trading Trading profit Trading profitPub (£m) profit change marginPartners (£m) (%) (%) 2004 115.0 47.8 +9 41.62005 125.1 54.0 +13 43.2 Pub Partners began the year with 1153 pubs. During the period, we transferred84 pubs from Pub Company and 33 from the Laurel acquisition and made oneindividual acquisition. A total of 27 outlets were sold during the year. At theyear-end we had 1244 tenanted and leased properties. Average trading profit perpub increased by 8% based on an average number of pubs during the period of1187. The capital investment in our estate totalled £10.4 million of which £4.5million related to property improvements and £5.9 million to maintenancecapital. In addition we spent £3.8 million on property repairs through therevenue account. The improvement capital was spread between 42 pubs at anaverage of £107k each. The returns on investment remained strong. We offer a number of different agreements to ensure the right match for both theindividual pub and lessee. We do, however, differ from many other industryoperators in that, for the majority of our pubs, we prefer shorter,non-assignable tenancies to longer assignable leases. The shorter tenancy is abetter fit for our high quality and well invested community pubs and provides anumber of advantages for both our tenants and ourselves. For the tenants, itallows a lower cost of entry and commits us to sharing the costs of maintainingthe building. The main benefit for us is that we retain the role of recruitinga new tenant if our existing one decides to leave. These shorter tenanciesaccounted for 78% of our estate. The balance of the agreements are longer-termassignable leases. These play an important role in attracting talented lesseesto those pubs where there is a higher entry cost because they are more food-ledor include letting accommodation. Many of the original Old English Inns wouldfall into this category. The ability of our tenants and lessees to run successful businesses isfundamental to Pub Partners' performance. As a result, we have focused onproviding the very best information and infrastructure to licensees. Ourindustry-leading support package has been designed to add value to all areas oftheir businesses including online systems to give them valuable customerinformation that they need to maximise their takings; initiatives to protectthem from growing regulatory costs and significant marketing support. During2004, we were proud to win the British Institute of Innkeeping's NITAS Award forbest licensee induction programme, which was deemed by the judges to be a 'rolemodel for the industry'. Pub Partners set up a specialist team that, following six months of planning andpreparation, has worked on behalf of all our tenants and licensees to tackle theproblems associated with the recent licensing reforms. The team produced anddistributed a full briefing pack to them all, as well as visiting each one tohelp them complete the premises' licence and to give advice on how to completetheir personal licence application form. Pub Partners invested a total of over£1.5 million in this initiative and has saved each of our tenants and licenseesup to £2.5k. Pub Partners has updated its 'Share and Save' buying brochure which now includesover 50 suppliers offering licensees discounts and saving them between 10%-20%against trade prices across all product areas. We have also introduced 'Starline', a dedicated maintenance and repair customer service line to ensuretenants can report issues as they occur and receive a fast and effectiveresponse. This new service is achieving over 98.2% response rate to tenant callsand continues to be seen as one of the cornerstones of our support package. Wehave further enhanced our product and marketing support with the launch of the 'Business Builder Toolkit', in addition to our seasonal and monthly salesbuilding offers. Finally an enhanced pub investment package was launched,designed to make it easier for the tenant to plan how they might develop andimprove their facilities in the future. Pub Partners' success is built on attracting the best tenants to itshigh-quality pubs and helping them to develop their businesses with anindustry-leading support package. We will continue to invest in all aspects ofour operations and are confident of a profitable future for both our tenants andour company. Brewing Company Brewing Company produced another strong performance. Total own-brewed volumegrew by 3% and this was achieved at maintained prices in an overall cask alemarket that declined by 2% in volume. All of our brands performing stronglywith volume sales of IPA up by 4%, Old Speckled Hen by 6% and Abbot Ale by 4%.The performance of our brands led to an increase in turnover of 5.2% to £111.6million. Trading profit grew by 10.6% to £17.8 million with an increase to thetrading margin of 0.8 percentage points to 15.9%. Trading Trading profit Trading profitBrewing Turnover profit change marginCompany (£m) (£m) (%) (%) 2004 106.1 16.1 +21 15.22005 111.6 17.8 +11 15.9 2004 was an historic year for the company. Greene King IPA won gold in theChampion Beer of Britain Awards and soon afterwards (according to AC Nielsen)overtook Tetley's Bitter to become the Number One cask beer brand in the UK.These are fantastic achievements. They are testament to the pride shown in thebrand by members of the Brewing Company team, and to the hard work they have putinto the product quality, marketing and sales. Overall, our share of the UK cask ale market increased by 0.7 percentage pointsagainst a market that continues to show modest decline of around 2% per year.According to data from AC Nielsen, Abbot Ale continues to be the number onepremium cask beer in the South East. Old Speckled Hen further cemented itsposition as the number one premium ale brand in the multiple grocery market,selling 11.4 million bottles this year. Greene King Greene KingMarket share 2004 2005 (%) (%)On-trade cask ale - Great Britain 11.4 12.1Take home trade - Great Britain- Ale 8 9- Premium bottled ale 15.1 15.6(Source: AC Nielsen, Grocery Multiples, 11/06/05, MAT value) The sale of our brands in all four external channels continued to perform well.These represent the independent free trade, on-trade national accounts, the takehome trade and exports. During the year, sales to these channels accounted for79% of total own brewed sales and highlights the continued demand for ourpremium cask ales. The effective advertising and marketing of our brands played an important rolein supporting our position at the premium end of the market and developing ourconsumer appeal. We remain the largest advertiser of cask ale in the UnitedKingdom and during the year we successfully launched new advertising campaignsfor IPA and Abbot Ale alongside further initiatives such as the Abbot AlePerfect Pub competition, which attracted over 10,000 entries, the Six NationsPromotion, as well as our ongoing relationship with Wasps and LaurenceDallaglio. There were significant developments with our 'Beer to Dine For'. Thisinnovative beer was launched in 2003 to educate consumers about the overallappeal of ales particularly when drunk with food, as well as to give the producta stylish and contemporary image. The promotion has been a great success and 'Beer to Dine For' is now available in 4 out of every 10 supermarkets in the UK,helped by Tesco becoming a customer during the year. In March and in partnershipwith the Morning Advertiser, we launched the successful 'National Beer with FoodWeek' as well as initiatives to audiences as wide ranging as the AllParliamentary Beer Group and the BBC Good Food Show. The brewery at Bury St Edmunds continued to run at maximum efficiency and iscurrently at 95% capacity on a two-shift system. Running the brewery in thisway means we do not have to resort to lower margin contract brewing. Capacitycan be increased when necessary and at minimal cost. We have planningpermission for additional fermenting vessels and we have started to run trialson the introduction of a third shift. Brewing Company continuously strives to have the best brands, products andcustomer service in the sector. The progress that we have made in all of theseareas brings us closer to realising our ambition of being Britain's Best BeerBusiness. Industry Challenges The 2003 Licensing Act will come into force in November 2005 and applicationsfor all of our pubs, in both estates, will be submitted by end of July 2005.This is in advance of the August deadline. The trading hours in the majority ofour pubs will not change substantially but, where there is specific customerdemand, we do expect to benefit from minor extensions to existing trading hours. In the November 2004 White Paper, the Government set out its proposals for a banon smoking in public places at the end of 2008. Consultation for theseproposals continues but, in the mean time, our planning is already at anadvanced stage. This is built on our commitment to providing all of ourcustomers - non-smoking and smoking - with continued choice and a memorableexperience, as well as ensuring a healthy working environment for our staff.Our estate is weighted towards food-led and family-orientated pubs and these areperceived to be at less risk from the ban. Within Pub Company, both smoking at the bar and back of house will be removedfrom all of our pubs by the end of 2005. We are also committed to increasingthe overall non-smoking floor space going forward. At the same time, 83% of ourmanaged pubs have external space that will enable us, with limited investment,to provide an attractive environment for smokers after the ban is introduced.So far in 2005, we have invested in 80 outlets and we will be continuing thisinitiative in the current financial year. In Pub Partners, our tenants and lessees will decide how best to respond to theproposed ban in the context of their own businesses. As with our managed pubs,this estate has a high proportion of outlets with external space at 89%. Weexpect to begin consultation in October 2005 to support our tenants in advanceof the smoking ban and to explore relevant capital investment in their sites. Lastly, there has been considerable recent attention on responsible drinking andthis has focused on promotional activity and issues surrounding city centrepubs, in particular. We are not at the forefront of this debate because veryfew of our pubs are on the high street and we do not use pricing as a primarycompetitive tool. However, this has not distracted us from our ongoingcommitment to running a responsible and sustainable business. In BrewingCompany, the message 'Please take as much care enjoying our beers as we dobrewing them - Drink Sensibly' will be on all of our packaging by the autumn.In Pub Company, we have strict guidelines to ensure that alcoholic drinks aremarketed and priced appropriately, supported by extensive training programmesfor our employees. These efforts were rewarded during the year when Greene KingPub Company was named as a finalist in the Morning Advertiser, ResponsibleRetailing Awards. Prospects Last year was one of significant progress for the group leading to recordresults. The acquisition of Laurel, its successful integration and an improvedfunding structure have made Greene King a stronger business. Trading in the current year has begun well for all three of our divisions and isin line with expectations. In the first eight weeks, total like-for-like salesin Pub Company, excluding the Euro 2004 effect, were up by 1.9%. In PubPartners, beer sales have improved by 8.0% and Brewing Company's total beersales by volume have improved by 3.0%. We have a proven strategy that deliversvalue for our shareholders and there are exciting opportunities to deliverfurther growth in the future. Rooney AnandChief Executive 5 July 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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