Annual report 2016

Our business model DELIVERING VALUE

The Greene King vision is to be the
best company in Britain: the best
for our customers, the best for
our teams, the best of our
shareholders and the best for
our communities.

Our integrated business model is
predicated on balancing strong
cash generation with investment
to further position the business
towards long-term growth markets
and, as a result, deliver value to
all of our key stakeholders.

Our business consists of three
divisions: Pub Company
(previously Retail), Pub Partners
and Brewing & Brands.

Underpinning our business model is a financial strategy to maximise the strength, flexibility and efficiency of our balance sheet, with the aim of supporting growth through investment in our existing estate and selectively acquiring new sites, while maintaining our progressive dividend policy

Best for our…

Hungry Horse awarded Best Value Pub Restaurant Menu1

Best Managed Pub Operator2

Improved value, service and quality; record NPS

Top 50 Apprenticeship Employer4

Best Work Experience Provider 20155

Will employ a further 10,000 apprentices over three years

Raised £2m for Macmillan — double our initial target

Water Efficient Project of the Year3

Prince’s Trust partnership

ROCE 9.4% +10bps

Operating cash flow +24.1%

Full year dividend +7.7%

  1. Menu Innovation and Development Awards.
  1. 2016 Publican awards.
  1. 2015 Energy Awards.
  1. The Daily Telegraph.
  1. Springboard Awards for Excellence.

Pub Company: Our Pub Company consists of both more food-focused destination pubs and restaurants and more community-focused local pubs. The principal revenue streams are food and drink available for consumption on our premises. We gain further revenue from our accommodation offer on some sites, and a number of our sites have gaming machines. The success of our Pub Company is driven by our customers’ desire to eat and drink outside of their homes and is specifically determined by the number of customers we attract and the amount that they spend with us. Pub Company (1,841 pubs) is the key growth driver for the group and in this division we typically own and operate the pubs. This division is a key focus area for growth and we will continue to invest the cash generated from the group in our people and our pubs to ensure that Pub Company continues to gain share of the UK eating and drinking out market.

Pub Partners: Pub Partners is responsible for operating our tenanted, leased and franchised pubs and aims to ensure that each pub has the right licensee to operate it, on the right agreement with the right offer. Revenue in our Pub Partners business of 1,215 pubs is principally achieved through the supply of beer and other drinks to our licensees and the rent that they pay us for the pub and our support. We also derive a small portion of revenue from gaming machines. Although we invest in this business – to ensure that we can offer prospective lessees the best pubs – the cash generated is principally reinvested into Pub Company.

Brewing & Brands: Our Brewing & Brands division operates two breweries, one in Bury St Edmunds and the other in Dunbar, that brew our core portfolio of ales, which are complemented by an innovative range of craft ales. We generate revenue in this division from the sale and distribution of ales produced by us in our own breweries, and from the sale and distribution of drinks (both alcoholic and non-alcoholic) produced by third parties. As well as to our internal customers in the other divisions, we also sell our ales to other pub companies and to individual free trade customers. A further important revenue stream is the sale of our own-brewed ales to supermarkets and other retail outlets and, increasingly, in the export market.

An integrated business model

In addition to driving growth in Pub Company through enhanced investment, further benefits of our integrated business model include the flexibility to transfer pubs between Pub Company and Pub Partners and ensure that we match each pub with the best operating model. Both Pub Company and Pub Partners are customers of Brewing & Brands increasing the distribution of our ales.

Acquisition of Spirit

The acquisition of Spirit has added additional scale in both Pub Company and Pub Partners, which, in addition to increasing our brand presence and recognition, creates opportunities to realise cost synergies in areas such as procurement and distribution. We have outlined a ‘best of both’ companies approach to the integration. For example, we have based our Pub Company division at the Spirit office in Burton-upon-Trent, while continuing to locate the Pub Partners division, Brewing & Brands and the company headquarters in Bury St Edmunds. This arrangement means that Pub Company is more centrally located, reflecting our national scale and reach in this division, while protecting the heritage and legacy of Greene King by retaining a significant presence in Suffolk. We will also optimise the combined brand portfolio, reducing the number of brands and formats from 20 to around ten, including five growth brands, and focusing our investment.