Annual report 2016

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PUB COMPANY

At the year end our Pub Company division comprised 1,823 pubs and restaurants open across Britain, appealing to a broad range of the population.

Our growth brands

The Boathouse in Peterborough has been converted to a Chef & Brewer during the year.

REVENUE
£1,688.2m

SHARE OF TOTAL REVENUE
81.4%

LIKE-FOR-LIKE SALES
+1.5%

OPERATING PROFIT1
+56.8%

NPS IN THE GREENE KING ESTATE
+7.9%pts

INCREASE IN ONLINE TABLE BOOKINGs
41%

Our Pub Company strategy is to attract customers with exciting brands that deliver unrivalled value, service and quality. The acquisition of Spirit Pub Company has helped us accelerate this strategy through the addition of successful brands and the opportunity to learn from each other and enhance the customer offer. It also allows us to generate greater scale to drive cost efficiencies that can be reinvested in the business.

In the former Greene King estate, total sales grew by 5.1%, while total sales increased 68.7% to £1,688.2m when including Spirit.

Full year LFL sales growth in the Greene King and Spirit managed estates was 1.9% and 1.0% respectively. On a combined basis, LFL sales grew by 1.5%, ahead of the market, which grew by 1.3%2 over a broadly comparable period. We achieved LFL sales growth in food, drink and accommodation and, by brand, we saw notable strength in Chef & Brewer.

  1. Before exceptionals.
  2. Coffer Peach Business Tracker.

On a combined basis, operating profit increased 56.8% to £299.2m. The combined operating margin declined 1.4%pts reflecting higher lease costs following the Spirit acquisition and a 0.3%pt reduction in the margin in the Greene King managed estate due to ongoing investment in our people and our service proposition.

THE ACQUISITION OF SPIRIT ADDED SUCCESSFUL BRANDS AND THE OPPORTUNITY TO ENHANCE THE CUSTOMER OFFER.

1. Build attractive and strong brands

We constantly improve our brands and the offer within them to ensure they remain fresh and appealing to today’s demanding consumer. For example, to extend the appeal of Hungry Horse while retaining the brand’s family focus, we are trialling improved zoning, allowing more families to dine in a comfortable environment, while other customers enjoy the option to watch sport.

On digital, we have combined the ‘best of both’ from the Greene King and Spirit businesses and our ambition is to create seamless hospitality across the whole customer experience. Aiming to facilitate the customer journey, we developed our online booking capabilities, which contributed to a 41% increase in online bookings. Feedback from our customers on how we are doing is important to us and during the year we relaunched our ‘Hungry For Feedback’ initiative in Hungry Horse while, recognising the increasingly important role of social media, we further rolled out the ‘Always On Service’ initiative encouraging pub teams to engage with customers on Facebook at a pub level. We continued to personalise the content of our email communications with customers and saw an 18% increase in visits to our pub websites.

Our food festivals turn classic pub food and drink into interesting events, giving customers more reasons to visit and offering them the opportunity to trade up, which can drive spend per head. Further initiatives to expand the appeal of the traditional pub included the relaunch of our value-oriented breakfast offer in Farmhouse Inns, extended breakfast service hours in Hungry Horse and the introduction of a ‘Grab ‘n’ Go’ price point for a coffee and a pastry in Local Pubs. Including the Spirit estate, the proportion of sales generated before 5.00pm increased by 7.6%, including by 8.6% in the five retail growth brands.

2. Industry-leading value, service and quality

During the year, we expanded the number of KVIs across the Greene King estate, driving repeat visits among core customers and positively impacting volumes and gross margins. We introduced an ‘EDLP’ approach into the Spirit estate and, aiming to enhance the customer experience, particularly ahead of the Euros, upgraded our sports viewing facilities in Flaming Grill and in Local Pubs. Elsewhere, we were proud to see Hungry Horse win best value pub restaurant menu at the Menu Innovation and Development Awards. On service, initiatives focusing on great service at all customer touch points led to further increases in NPS since the half year and a 7.9%pt increase in the full year in the original Greene King estate to a new company record since measurement began in 2011. Quality improvements included a refreshed ‘Steak Education’ programme in Flaming Grill, and, in the Greene King estate, further improvements in core dishes contributed to a 2.3%pt increase in quality scores compared to last year.

3. Work with the best people

Our teams are vital to our success and we are pleased with the trend in team member retention since the acquisition of Spirit, demonstrating the resilience and commitment of our pub teams throughout the integration progress to date. During the year, we began developing updated employee value propositions by brand, which outline recruitment, retention and development opportunities in each as well as the overall employee experience. This initiative has delivered positive results to date including the highest team member retention in Hungry Horse since measurement began.

On apprenticeships, we had over 3,000 apprentices in learning during the year and we were delighted to be recognised for our commitment to apprenticeships through the award of Macro Employer of the Year by Apprenticeships 4 England. We were also named as one of the top 50 apprenticeship employers in the UK by the Daily Telegraph.

4. Own the best invested pub estate

We continued to invest in our estate to ensure that our pubs remain enticing places for our customers to spend their time. During the year, we spent £139.0m on maintaining and developing the combined estate, including £51.8m on the Spirit managed estate and, reflecting a rigorous approach to investment allocation, we achieved annualised EBITDA returns in excess of 27%. Taking advantage of opportunities to selectively and strategically expand our Pub Company estate, we opened 13 new pubs in the year. We disposed of 26 pubs from the combined managed business including ten disposals that were required by the Competition and Markets Authority (CMA).

Overall, we were pleased to be recognised with the award of Best Managed Operator at the prestigious Publican Awards.

We had over 3,000 apprentices in learning during the year.

  1. Excludes synergies in the existing Greene King business.
  2. Includes Spirit acquisition fair value accounting adjustments, synergies and a 45-week contribution from Spirit.