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Thu 30th Nov 2017 - Update: Greene King and Marston’s results, Butcombe
Greene King reports challenging first half, improving tends since period end: Greene King has reported revenue down 1.2% to £1,031.4m in the 24 weeks to 15 October 2017 with operating profit down 7.5% to £188.4m. The company reported ‘further outperformance from Local Pubs, Pub Partners and Brewing & Brands in a challenging first half’. It said that strong cost mitigation is on track to deliver £40-45m of cost savings. It stated brand optimisation is delivering return on investment of over 25%, with Fayre & Square to be de-branded by year end as part of its plan to reduce our value food exposure. A Spirit refinancing is under way with a new facility agreed and bond prepayment announced. It stated that pub company volume trends improved post period end after £10m investment in value, service and quality. Pub Company like-for-like sales were down 1.4%, Pub Partners like-for-like net profit +1.5% and Brewing & Brands own-brewed volume was up 0.3%. Chief executive Rooney Anand said: “The first half was challenging for our managed pubs, but our actions to strengthen performance have produced an improvement since the period end. We have committed additional investment to enhance the customer experience, including being more competitive on price, having more team members available at key times and strengthening local marketing activity. Pub Partners and Brewing & Brands again outperformed the market, generating cash for the group and raising the profile of Greene King. We will continue to benefit from our ability to generate significant cost savings and to improve investment returns to over 25% from rebranded pubs. Greene King is a strong, competitive business with industry-leading brands, a strong and flexible balance sheet, a sustainable dividend and an excellent track record of outperforming in challenging conditions. We are adapting our strategy to ensure we continue to sustain our long-term competitiveness, strong cash generation and attractive returns to shareholders.” The company added: “It was a challenging first half of the year with the UK consumer spending more cautiously and unprecedented cost pressures impacting on the pub sector. Pub Company traded below the market due in part to its exposure to value food, our estate being more exposed to the poor August and September weather, increased competitor discounting and our decision to defer brand optimisation capital expenditure in the previous financial year. In response, we initiated specific actions to improve Pub Company competitiveness. The plan includes additional promotional activity and known value item pricing, strengthened local activity plans and targeted additional labour investment at key trading occasions. While it is still early days, through this £10m investment in value, service and quality (VSQ), we have seen encouraging signs of success with the food cover trend improving by 1.3%pts and drink volumes by 2.6%pts in the last six weeks. In the period, Local Pubs continued to outperform the market and we saw strong growth from Farmhouse Inns. Its carvery model benefitted from the poorer weather in August and September but its performance also partly reflects the success of our brand optimisation programme, which overall is generating a return on investment (ROI) in excess of 25%. This programme is on track and we continue to expect to debrand Fayre & Square by the end of the year, as part of our plans to reduce our exposure to value food. Pub Company net promoter score (NPS) was ahead of last year by 6.4%pts and the food quality score was up 2.5%pts. We expect our additional labour investment to maintain this positive momentum as we continue to improve the customer experience. Both Pub Partners and Brewing & Brands were less affected by external factors and outperformed their markets, generating significant cash, providing additional purchasing scale and enhancing the reputation of the Greene King brand. We expect to mitigate £40-45m of the £60m cost headwinds in the full year. This programme consists of additional synergies over the £35m target, procurement savings and a full review of the cost base. The Spirit debenture refinancing is under way and we have made good progress. We have signed a new bank facility to fund the internal transfer of pubs from the Spirit debenture and given notice of prepayment of the Spirit class A1, A6 and A7 bonds on the next repayment date at the end of December. This eliminates the cash sweep and margin step-up contained within the Spirit debenture and increases the flexibility around our pub estate.”

Marston’s reports turnover and profit growth: Marston’s has reported revenue rose 8% to £1,011.3m in the 52 weeks to 30 September with profit before tax up 24% to £100.3m. Average profit per pub was up 2% – 19 pubs and bars opened, 9 pubs and bars acquired, A total of Eight lodges opened, taking estate to over 1,250 rooms. Chief executive Ralph Findlay said: “We have achieved strong revenue growth and higher earnings, despite increasing employment and property costs. Our business has been transformed in recent years with a significant improvement in the quality of both our pub and beer businesses. While political and economic uncertainty is likely to continue, we remain confident that our proposition founded on providing great customer experiences, the very best service and value for money, leaves Marston’s positioned to deliver further growth in the year ahead.” The company added: “Total underlying revenue increased by 9.5% reflecting the acquisition of the Charles Wells Beer Business (“CWBB”), the contribution from new openings and pub acquisitions and positive like-for-like sales in our pub business. Group operating margins were in line with guidance but behind last year reflecting increased costs in Destination and Premium, the continued impact of converting pubs from tenancy to franchise and the short-term dilution impact of the CWBB acquisition which operates at a lower margin than our existing beer businesses ahead of the synergies to be generated in the next financial year. Underlying operating profit of £174.5 million (2016: £172.7 million) was up 1.0%. Underlying profit before tax was up 2.9% to £100.1 million (2016: £97.3 million), principally reflecting the contribution from new pubs and bars and the strong Brewing performance. Basic underlying earnings per share for the period of 14.2 pence per share (2016: 13.9 pence per share) were up 2.2% on last year, reflecting a lower tax rate in the period, and despite the higher number of shares following the equity issuance referred to below. On a statutory basis, profit before tax was £100.3 million (2016: £80.8 million) and earnings per share were 14.2 pence per share (2016: 12.7 pence per share). The year-on-year change principally reflects the positive movement in the fair value of interest rate swaps in the period. In June we acquired CWBB for an initial cash consideration of £55 million, plus working capital and fair value adjustments of £36 million. The acquisition was funded through a £76 million equity raise in May. The business incorporates a portfolio of well-known brands including Bombardier, Young’s and McEwan’s ale, together with the UK distribution rights for Estrella Damm, the Catalan lager. The acquisition is consistent with our strategy of focusing on premium beer brands with local provenance, as well as providing opportunities for growth in the developing free trade market. Additionally, the acquisition further strengthens Marston’s presence in London and the south east and presents a platform to expand our beer business into Scotland. The integration continues to proceed as planned and we expect to deliver synergies of £2 million in financial year 2018 and total synergies of £4 million by 2019, in line with the previous guidance. During the year the group also acquired a small package of pubs from Whitbread, to further enhance our Destination and Premium estate, for a consideration of £13 million with a refurbishment investment of £3 million. In addition, in May, we acquired three Pointing Dog premium bars for a total consideration of £8 million. The profit contribution of these acquisitions was minimal in 2017 as we undertook a refurbishment programme. Operating cash flow of £213.6 million is £30.8 million higher than last year principally reflecting higher creditors. This is offset in part by the initial working capital impact of the CWBB acquisition. Net debt at the period end was £1,329 million (2016: £1,269 million), with the differential driven by working capital from CWBB described above and the timing of new-site expenditure. Net debt excluding property leases is in line with last year. Since the year end we have recovered £15 million of the debtors arising from CWBB. Excluding property leases with freehold reversion entitlement, and on a pro-forma basis (incorporating the post synergy benefits of CWBB and the benefits of the acquisition of the pubs from Whitbread during the year) the ratio of net debt to underlying Ebitda was 4.7 times at the period end (2016: 4.8 times) which is expected to reduce over time as the business grows and our long-term debt amortises. In addition, fixed charge cover remains at 2.6 times (2016: 2.6 times). Cash Return on Cash Capital Employed (CROCCE) of 10.7% was slightly below last year as a result of the timing of the acquisitions and new openings. In 2018 our CROCCE will benefit from the anticipated synergies from CWBB and the full year benefits of the pub acquisitions described above. The proposed final dividend of 4.8 pence per share provides a total dividend for the year of 7.5 pence per share and represents a 2.7% increase on 2016. Dividend cover is 1.9 times and our dividend policy remains to target progressive increases in the dividend at a cover of around two times in the medium term.”

Butcombe opens new depot and buys two more pubs: Butcombe Brewing Company ha opened a new depot in Bridgwater – and bough two new pubs. The new 54,000 square foot depot provides 12 local jobs and supports the double-digit growth in Butcombe’s keg range which includes Butcombe Original, Goram (Avon IPA), and Bohemia (Pilsner). The facilities at the depot include a craft beer production unit, alongside a beer storage and delivery facility. Butcombe have also purchased a bottling and kegging line which will bring the quality control of their bottled and kegs beers back in house. In addition to the new depot, Butcombe have also acquired two pubs in Somerset. The pubs are the Bower Inn in Bridgwater – an attractive 18th century pub offering guests a choice of 16 well-appointed ensuite rooms, set in a picturesque cottage garden. The purchase allows Butcombe to provide a total of 70 bedrooms within its managed estate. Last week, Butcombe also acquired the Rodney Stoke Inn on the edge of the Mendip Hills. The pub also joins Butcombe’s growing managed estate. The two separate acquisitions increase Butcombe’s total estate to 45 pubs – more than doubling in size since the start of the year. To support their staff, Butcombe Pubs & Inns launched Butcombe Academy on the 23rd November alongside HIT training. This is the first stage to its training program which will also see the introduction of CPL online training throughout the managed and tenanted estates across The Liberation Group. Mark Crowther, chief executive of The Liberation Group, said: “The opening of our new depot, academy, and our rapidly expanding pub estate are vital parts of Butcombe’s landmark year, as we’ve moved closer to our goal of becoming the top brewer and pub company in the West Country. Our depot will allow us to increase production to keep pace with growing demand, and serve our customers more effectively at a lower cost. We intend to reinvest the savings into the development of the Butcombe beer brands to secure our future growth. The two high-quality pub acquisition enhance our expanding portfolio, and strengthen our presence in our West Country heartland. These pubs complement our existing portfolio and will benefit from supply by our market leading regional brewery with its well-known brands. We pride ourselves on supporting our staff and tenants to offer excellent service.”

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