Annual report 2016

Investment case Our overall vision is toBUILD THE BEST PUBS

  • A compelling blend of growth and dividends
  • Significant and exciting opportunities following the acquisition of Spirit Pub Company
    • Synergy, scale and reinvestment
    • Brand optimisation
  • Award-winning teams
  • A high quality, well positioned estate
  • A strong and flexible balance sheet

Our overall vision is to build the best pubs business in Britain; best for our customers, best for our teams, best for our shareholders and best for our communities.

Within this, our aim is to offer customers experiences that they will value, remember and want to share. We will achieve this aim principally through the delivery of our five strategic priorities that will ensure we offer compelling brand propositions, in high quality pubs, with unrivalled value, service and quality delivered by our award-winning teams.

Over the last five years our proven growth strategy, combined with our attractive dividend policy, has delivered a total shareholder return of 104% compared with a total return for the FTSE All-Share of 29%. This includes 29.2% growth in Greene King dividends and 67.1% share price appreciation.1

1. Past performance is not an indicator of future returns.

Synergy, scale and reinvestment

The acquisition of Spirit Pub Company was an important step towards achieving our vision to be the best pub company in Britain. In addition to enhanced brand reach and recognition, we have the opportunity to realise significant cost synergies. We have announced a target of £35m annualised cost savings and we will reinvest synergies in excess of this target in our people, our systems and our brands.

Brand optimisation

Greene King acquired a strong portfolio of brands and formats with Spirit – one that it would have been very difficult to replicate organically – and we have embarked on an exciting journey to optimise the combined brand portfolio. The brand optimisation programme will be an important driver of future growth and value creation.

We have identified five growth brands – Hungry Horse, Flaming Grill, Farmhouse Inns, Chef & Brewer and the Greene King brand.

The portfolio of growth brands and formats covers a wide range of consumer occasions.

We estimate profit upside from investment in over 300 of our existing pubs to reposition them into these growth brands over the next three years. In 2016/17 we expect to spend £40–50m on converting around 100 sites to a growth brand.

Our people are fundamental to the success of our business and being the first choice for people who want to work in the hospitality sector is important to us.

Key to this is our strategy to engage employees through learning and, having exceeded our target of offering 2,000 apprenticeships last year, we have committed to employing a further 10,000 apprentices across the business over the next three years.

During the year, we were recognised by the Sunday Telegraph as a Top 50 Apprenticeship Employer and following our investment in people and training we were named as the Macro Apprenticeship Employer of the Year 2016 by Apprenticeships 4 England.

As at 1 May 2016 we operated 3,035 managed and tenanted pubs. The acquisition of Spirit Pub Company, completed in the year, has increased our national presence while maintaining a focus on the South East (including London) and the East, where around half of our estate is situated.

We own the freehold title on 83% of our estate. This gives us more freedom to renovate our pubs as we see fit and to buy and sell pubs when we want to in order to optimise growth and returns from the estate. It also removes the ongoing requirement to use a proportion of the cash that we generate to pay rent. We believe that these benefits, among others, outweigh the initial capital outlay associated with purchasing the freehold title of a pub.

Our preference is to hold the freehold title of our assets and, where it makes sense to do so, we will look to acquire the freehold title of leasehold pubs that we currently operate.

Our aim is to maximise the strength and the flexibility of our balance sheet, and through a relentless focus on cash generation we will continue to cover our debt service obligation, our core capital expenditure and our dividend through internally generated cash flow.

As at 1 May 2016, our net debt relative to EBITDA stood at 3.9x.1 We have successfully reduced this ratio in each of the last five years from 5.1x in 2012.

  1. Pro-forma.