Greene King warns of tougher times ahead
Friday, 4 July 2008
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The brewer and pub operator Greene Kinghas warned that the UK's fragile economy is set toget worse as it revealedthat sales at its core managed pubs business slipped nearly 3 per cent in the past eight weeks.
Greene King's chief executive, Rooney Anand, said: "I am not an economics expert but everything I am reading and sensing is that things will get worse not better. But we have budgeted and planned on that basis."
Greene King, which has around 2,500 pubs inEngland and Scotland, posted pre-tax profits, before exceptional items, up 2 per cent to £142m for the 53 weeks to 4 May. Sales grew by 5 per cent to £960.5m.
Mr Anand said: "We should take solace from the fact that these are good results in any year," but he added that the company has had to contend with the credit crunch, the smoking ban, the wettest summer on record last year, and an increase in excise duty on alcohol in the past year.
Geof Collyer, a research analyst at Deutsche Bank, said: "Despite a deteriorating economy and the smoking ban, all the key metrics in H2 were ahead for each division apartfrom brewing."
However, the pub operator, which also brews beers including Abbot Ale, said that its retail like-for-like sales were down 2.8 per cent since the end of its financial year, compared with the same period last year, although it is still generating growth in food and accommodation sales.
Following the update, Greene King's shares rose by 33p to 433.5p.
Mr Anand said that Greene King's pubs, of which 95 per cent have outside patios or garden space, have performed robustly during the smoking ban. Food sales now account for 34 per cent of its retail sales, but when food-related sales are added, dining sales account for half of the total.
Mr Anand said: "There is now a broader section of customers that will go into pubs. We have been working on introducing food, serving customers quicker, and changing menus for a number of years."
Its pubs in Scotland, managed through its Belhaven division, delivered operating profit growthof 18 per cent in the second year of the smoking ban.
Mr Anand said Greene King remains to be convinced about whether it should convert to a real estate investment trust (Reit), which some view as a tax-efficient way to manage a large property portfolio, as the pub operators Enterprise Inns and Mitchells & Butlers have said they plan to do. But he said the company had a duty to shareholders to consider such options.
HM Revenue & Customs has indicated that Greene King could in principle move to a Reit without demerging the company.
Greene King is proposing a 14 per cent increase in its dividend to 26p.
Mr Anand said it would consider acquiring other businesses if they became available at the right price.
In August 2007, Greene King acquired Loch Fyne Restaurants, which had 36 outlets at the time, for £64.2m. It also acquired New Century Inns, which had 49 tenanted and leased pubs, for £32.8m in November 2007.
