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Morning Briefing for pub, restaurant and food wervice operators

Wed 1st Jul 2015 - Greene King reports managed like-for-likes up 0.4%
Greene King reports managed like-for-likes up 0.4%: Greene King has reported like-for-like sales in its managed division rose 0.4% in the 52 weeks to 3 May. Sales within its manage pubs hot £1bn for the first time. Its tenanted division, Pub Partners, saw a 3.5% rise in net income whilst its own-brewed volumes rose 4.2%. Profit before tax was down 2.7% to £168.5m. Overall turnover rose 1.1% to £1,315bn. The first eight weeks of the current financial year has seen managed like-for-like rise 0.6%, Pub Parners like-for-like net income up 1.2% and its own-brewed volumes decline by 3.7%. Chief executive Rooney Anand said: “Greene King has delivered another record year in a challenging trading environment. We have delivered good underlying growth across all parts of the business with Retail generating revenue of over £1bn for the first time. Underlying earnings growth of over 9% has enabled a dividend increase of 4.8%, reflecting our confidence in the strength of the business and its prospects for future growth. We have also completed a successful five-year strategic plan, surpassing our goals, as we delivered significant progress, changed the business mix and better positioned the company for the future. We now enter another exciting new phase in the company’s history, with the acquisition of Spirit. We warmly welcome Spirit’s employees and its shareholders to Greene King. The acquisition will further strengthen our platform to deliver sustainable, long-term success for the benefit of our customers, our employees and our shareholders.” In his review of performance, Anand added: “Our five-year strategic plan to improve growth and returns to our shareholders has been successful, helping to drive significant change in the business and better positioning Greene King for sustainable long-term growth. During the last five years, we have: Expanded our Retail estate by 19.4% and improved average  Ebitda per pub by 24%. Since 2010, we have added 172 sites to our retail estate, including 32 sites this year, ending the year on 1,060 pubs, restaurants and hotels. The acquisitions of Cloverleaf, RealPubs and Capital Pubs accelerated our progress in Retail and, overall, average  Ebitda per pub improved 24% over the five-years. The return on the cash we invested during the period in new sites was 15.1%, ahead of WACC, and generating shareholder value. Reduced our Pub Partners estate by 46% and improved average  Ebitda per pub by 33%. Over the five years, we sold or transferred 735 tenanted and leased sites including 310 this year, taking us significantly ahead of our initial target of 1,200 sites. Since 2010, average  Ebitda per pub has risen by 33% to £69.9k; Continued our cask ale leadership position through consistent and industry- leading brand investment. Since 2010, OBV grew 19.7% against an ale market that declined 12.6%. This outperformance was driven by investment and innovation in our industry-leading brand portfolio. Over the five years, we increased our volume share of the UK ale market by 1.2%pts to 10.0%. Having successfully delivered on our five-year plan, our immediate focus looking forward is to manage the twin challenges of delivering sustainable performance improvements in Greene King Retail, while successfully integrating Spirit Pub Company to create a clear industry leader. We have worked hard this year to drive improvements in value, service and quality across Retail, but we are clear that more needs to be done if we are to deliver positively memorable experiences to more savvy and connected customers, in an increasingly competitive market place. Linked to the core business challenge is the opportunity that the acquisition of Spirit brings. We completed the acquisition on 23 June, following the CMA’s formal acceptance of our undertaking to sell 16 pubs, thereby creating the UK’s leading managed pub company. With a combined estate of 3,100 pubs, restaurants and hotels, including over 1,000 in London and the south east, we are well positioned to deliver long-term growth. We expect to generate at least £30m of cost synergies and we anticipate there being further opportunities for value creation. The greater the benefits we realise, the more we will seek to invest in key areas of the combined business such as people, IT and marketing, thereby helping to further strengthen the core retail business.”

Greene King outlines six key initiatives in managed division: Greene King has outlined its six key areas of focus within its managed division. They are: 1. Managing constant change in customer perceptions of value, service and quality: In terms of value, we re-launched and expanded our known value item (KVI) strategy across Hungry Horse, Meet & Eat and Flame Grill offering customers enhanced value at 80% more sites than the previous year. In OEI, both leisure and corporate customers were able to take advantage of our great- value breaks, while in Farmhouse Inns we introduced a ‘Carvery Baps’ lunch offer for £3.95 and a new breakfast menu with ‘generosity’ at its core. On service, initiatives such as enhanced menu training programmes and menu simplification helped to improve our average NPS scores by 12.3%. In Farmhouse Inns, we reconfigured the carvery layout to reduce queue times by over 60%, while in Hungry Horse we introduced pagers to proactively manage peak trading customer requirements. On quality, we expanded the fresh supply chain in our Premium Locals format, which was subsequently recognised with the award of ‘best pub menu’ by Restaurant Magazine, while we were proud to see Flame Grill announced as the winner of the National Fish and Chip Awards in 2015. 2. Staying close to our customers: We have identified a number of ongoing and emerging consumer trends including all-day eating out and inter-generational eating out occasions. Day-time Retail sales grew 8% following an expansion of the breakfast offer in Hungry Horse, the introduction of ‘Afternoon Tea’ in Farmhouse Inns, new lighter snacks such as chocolate-coated popcorn and a salt-beef sandwich, and a new weekend brunch offer in Loch Fyne Seafood & Grill, which recognises the brand’s Scottish heritage by including meals such as ‘the full Scottish’, and has led to a 76% increase in weekly sales from 7am to 11am. We continue to promote family dining in our sites, with the roll-out of our ‘Golden Years’ offers to further brands across the estate and the introduction of sharing tables and zones designed to enhance sharing occasions in selected new sites. We also introduced a new ice cream offer for families in Farmhouse Inns to complement our successful ‘Cakeaway’ offer. 3. Expanding our digital platform: For the increasingly connected consumer, we further extended our digital capability, getting closer to our customers by increasing the channels through which we engage with them. Digital initiatives included the ‘Golden Ticket’ data capture project in Hungry Horse, with 115,000 customers signing up through a monthly prize draw to win £100 golden tickets, and the development of our OEI accommodation website to engage more customers on the move. We also introduced an App-based platform to capture live feedback from field-based employees. Overall, traffic to our websites grew by 20%, the number of loyalty card holders grew by 17% and the number of Facebook followers grew by 64%. 4. Growing our branded retail presence in the eating and drinking out markets: All our pubs are branded, utilising at least one of the pub name, a format or retail brand name, or Greene King. We are focused on growing our retail branding and at the year-end we had 763 sites with a retail brand or format, against 710 12 months earlier. Our leading brands and formats by number of sites are Hungry Horse, with 241 sites at the year-end, Meet & Eat (182 sites) and OEI (115 sites). The brands receiving the most expansion investment are Hungry Horse and Farmhouse Inns. 5. Employing and developing the best-trained and most motivated people in the sector: Our people are fundamental to the success of our business and we continued to grow our own talent with the launch of initiatives such as a bespoke apprenticeship scheme in Loch Fyne Seafood & Grill and the introduction of a coffee diploma for all team members in Hungry Horse. The impact of our people initiatives is evident in a 13.4% reduction in team turnover across Retail and improvements across our annual employee engagement survey. Now that we have completed the acquisition of Spirit, we employ over 40,000 people, half of whom are under 25. We take the responsibility of employing and developing so many young people seriously and will look to further increase investment in our people going forward. 6. Continuing industry-leading asset investment: We lead the industry in terms of investing in our existing estate and additions to our estate. Our investment in repairing, maintaining and improving the quality of our existing estate rose 5.5% to £79.3m, while we opened 26 sites and transferred in six sites from Pub Partners in the year helping to take the estate to 1,060 sites at the year-end. We spent £75.9m on acquiring and developing these sites. Our expansion programme slowed in the year as resources were diverted to important M&A activity, while, following the acquisition of Spirit’s 1,207 sites, we expect to open around 15 additional high quality new sites in the 2016 financial year. We also expect to sell a similar number of non-core Retail sites, on top of the agreed CMA disposals. 

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