Annual report 2016

Our strategy TO BE THE BEST PUB

Our vision is to be the best pub company in Britain; the best for our customers, our teams, our communities and our shareholders. By being the best, we believe we will generate superior underlying growth and returns for our stakeholders. Pubs have to contend with a wider set of competitors, including coffee shops, takeaway aggregators and grab and go stores and a faster pace of consumer change than ever before. This means we will look to redefine what our pubs offer their customers, ensuring they have a broader and more lasting appeal. In order to deliver our vision, we have identified five strategic priorities for the medium term:

Best for our customers, best for our teams, best for our
shareholders and best for our communities

We must ensure our brands stand out and remain relevant to today’s increasingly demanding consumer in order to drive long-term growth. We are optimising our brands and formats and using the scale this brings to increase investment in our brand propositions to drive greater brand awareness and loyalty. We will look to broaden the appeal of our pubs, both in terms of the customers who use them and their reasons for visiting. For our Local Pubs estate, Pub Partners and Brewing & Brands, the Greene King brand is key to superior performance and we will extend our brand marketing leadership by investing more in communicating the brand’s benefits. A strong digital presence is vital in building successful brands and we will create the digital industry leader through combining the best of Greene King and Spirit’s digital expertise to drive customer engagement, engender higher levels of customer brand loyalty and improve the return on our marketing investment.

We remain committed to exceeding customer expectations and we will achieve this by constantly improving the value offer to our customers, the service delivery of our teams and the quality of our food and drink offer. We will use our scale to deliver leading value propositions through the successful execution of known value item (KVI) and everyday low pricing (EDLP) strategies to drive a sustainable mix of volume and spend per head growth. We will increase investment in our people to ensure we lead the industry on service and successfully compete with the wider competitive set. Lastly, we will evolve and improve the quality of the food, drink and accommodation we offer our customers, regularly benchmarking against the best in class.

Being the first choice for people who want to work in the hospitality sector is important to us and we want to offer every existing team member the opportunity to grow and develop. Our refreshed career pathway ‘Craft your career’ provides individuals with structured development opportunities while further initiatives include our focus on apprenticeships across the business, which has led to a commitment to employ a further 10,000 apprentices over the next three years.

We also want to recruit, retain and develop the best operators in our Pub Partners business and this means extending our focus on training and development to both existing and future licensees.

Overall, investing more in the recruitment, retention and development of our people will lead to a better trained and more motivated team across our business, which will be reflected in ongoing improvements in team retention and customer service.

We want to own and run the best pubs in Britain, which we will achieve through proactive management of our pub portfolio and continued industry-leading investment in our estate. We will further grow the share of our profits from managed pubs, where we can determine the customer experience, while valuing the role that Pub Partners plays in generating cash, adding scale and promoting the Greene King brand. The best pubs have the best beers and we will continue to brew our own industry-leading beer brands. We believe the strong relationship between our pubs and our breweries is a clear competitive advantage.

We now operate 1,823 pubs, restaurants and hotels in our managed estate. We will selectively build and acquire new pubs and transfer exceptional tenanted and leased pubs to Pub Company when the opportunity arises. We will also selectively reduce the size of our current managed estate by selling pubs that dilute returns or have an unattractive long-term outlook. In Pub Partners, we now operate 1,212 pubs and we will reduce the size of the estate through disposals from the tail and through transfers to Pub Company. Our medium-term target for our Pub Partners estate is around 1,000 pubs.

Our preference remains to own the freehold title of our assets and, where it makes financial sense, we will selectively acquire pub freeholds where we currently operate the pub on a lease.

Underpinning our company strategy is a financial strategy to maximise the strength and flexibility of our balance sheet. Through a relentless focus on cash generated from operations, we will continue to cover our debt service obligation, our core capital expenditure and our dividend through internally generated cash flow. After the year end, we successfully completed the issuance of an additional £300m of bonds in the Greene King secured financing vehicle, realising net proceeds of £180m after settling certain interest rate swap liabilities. This additional financing provides longer-term funding for general business operations including increasing our optionality to invest in the business.

Delivering attractive shareholder returns,
earnings and dividend growth