Greene King

Time well spent


Annual report 2017

Introduction

the leading pub company and brewer


Greene King is the country’s leading integrated pub retailer and brewer. At our year end we operated 2,924 managed, tenanted, leased and franchised pubs, restaurants and hotels, including well known brands such as our Greene King locals estate, Hungry Horse, Flaming Grill, Farmhouse Inns and Chef & Brewer. We have a proud history of brewing award-winning ales for more than 200 years and our leading ale brand portfolio includes Old Speckled Hen, Greene King IPA, Abbot Ale and Belhaven Best.

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Performance highlights

Record results


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  1. An explanation of the group’s use of alternative performance measures (APMs), including definitions and reconciliations, is included in the Annual Report on page 127.
  2. EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional and non-underlying items and is calculated as operating profit before exceptional and non-underlying items adjusted for the depreciation and amortisation charge for the period.


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Review of 2017

Successful Integration


The team has worked extremely hard over the last two years on the integration.

In my first statement a year ago, I stated that Greene King was a strong business with an excellent track record which, following the Spirit acquisition, was at an exciting time in its development. A year on, this remains the case. The team has worked extremely hard over the last two years on the integration, which has completed one year ahead of schedule. This means we can now give all our focus to pursuing opportunities to grow and take share, prioritising long-term value creation, while delivering continued strong cash generation and maintaining a robust balance sheet. Ours is a strategically strong and well managed business which is positioned to address the tougher trading environment forecast for the next few years.

Chairman's statement

Another year of good performance


Our business model is well placed to outperform the market.

Consumer confidence in the UK has softened over the last 12 months with nominal wage growth starting to fall behind rising levels of cost inflation leading to a squeeze on disposable household income. While spending on essentials has held up, discretionary spending has started to fall. Within this, we believe that affordable treats such as visits to the pub will continue to play an important role in consumer discretionary spending. We anticipate that this challenging environment will intensify over the next few years, partly due to the ongoing political and economic uncertainty in the UK. If this is the case, we think our business model is well placed to outperform the market: Pub Company has good national coverage with a bias towards London and the South East; we operate pubs in the value, mainstream and premium sectors; and we have a good mix of sales between drink, food and rooms. In addition, 30% of our profits come from our cash generative non-retail businesses, Pub Partners and Brewing & Brands.

Chief executive's review

REVENUES REACHED A RECORD HIGH


The total dividend for the year is 33.2p per share.

Revenue was £2,216.5m, an increase of 6.9% compared to the prior year reflecting the benefit from like-for-like sales growth and a full year contribution from Spirit. Pub Company was the biggest driver of the increase, with revenue up 7.7% and average revenue per pub rising 3.4%. The combined Pub Company business now accounts for over 82% of group revenue. Total revenue in Pub Partners was £198.8m. Average tenanted and leased revenue per pub increased 5.5% and average EBITDA per pub grew 7.9% due to the improved quality of the pub estate and also benefiting from fair value accounting and the inclusion of synergies. Brewing & Brands grew revenue 1.7% to £200.3m.

Financial review

Focus areas

Best for

Customers

Our offering is delivered by the best people and in high quality, appealing pubs with clear and exciting brands and formats.

We aim to be the best in the eyes of the customer, which means offering them industry-leading value, service and quality.

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Best for

Teams

The greatest asset we have at Greene King is our people. We employ around 44,000 team members across the group and so being an attractive place to work, retaining the best people and developing and investing in them are keys to our continued success.

we believe we have a responsibility to support young people by creating opportunities to earn and learn.

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Best for

Communities

Our pubs support their communities in a number of ways, but charity is one of the key areas of focus.

We strive to be the best for the communities in which we serve.

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Operational review

Pub Company


At the year end our Pub Company division comprised 1,769 pubs and restaurants open across Britain, appealing to a broad range of the population.

OUR FOCUS BRANDS

AVERAGE NUMBER OF PUBS TRADING

1,812 +4.1%

REVENUE

£1,817.4m +7.7%

EBITDA¹

£403.2m +4.5%

OPERATING PROFIT¹

£308.1m +3.0%

OPERATING PROFIT MARGIN¹

17.0% -0.7%pts

AVERAGE EBITDA PER PUB¹

£222.5k +0.3%

1. Before exceptional and non-underlying items.

Pub Company

Pub Partners


Pub Partners is responsible for operating our tenanted, leased and franchised pubs across Britain and aims to be the preferred partner for the best operators in the industry.

OUR AGREEMENTS

  • Standard tenancy agreement
  • Standard lease agreement
  • Franchise tenancy
  • Local Hero franchise-style agreement
  • Turnover tenancy
  • Turnover lease
  • Retail Ready agreement
  • MRO agreement
  • Joint venture agreement

AVERAGE NUMBER OF PUBS TRADING

1,196 +0.3%

REVENUE

£198.8m +5.8%

EBITDA¹

£103.1m +8.2%

OPERATING PROFIT¹

£92.8m +8.8%

OPERATING PROFIT MARGIN¹

46.7% +1.3%pts

AVERAGE EBITDA PER PUB¹

£86.2k +7.9%

1. Before exceptional and non-underlying items.

Pub Partners

Brewing & Brands


Brewing & Brands sells and distributes a wide range of award-winning craft ales to both the on and the off-trade. They are brewed in one of our two breweries in Bury St Edmunds and Dunbar.

OUR CORE BRANDS


REVENUE

£200.3m +1.7%

EBITDA¹

£36.2m -4.2%

OPERATING PROFIT¹

£31.0m -5.2%

OPERATING PROFIT MARGIN¹

15.5% -1.1%pts

1. Before exceptional and non-underlying items.

Brewing & Brands

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full annual report

We have a proud history of brewing award-winning ales for more than 200 years and our leading ale brand portfolio includes Old Speckled Hen, Greene King IPA, Abbot Ale and Belhaven Best.

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Strategic Report

Our overall vision is to be the best pub company in Britain. This means building a business that is best for our customers, best for our teams, best for our shareholders and best for our communities.

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Corporate Governance

At board level we continue to ensure that we have a well balanced and effective board, strong oversight of risk management, alignment of remuneration policies with shareholder interests and sound shareholder relationships.

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Financial Statements

Revenues reached a record high of £2,216.5m, an increase of 6.9% compared to the prior year.

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