Time well spent

Annual report 2018

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 2,855 managed, tenanted, leased and franchised pubs, restaurants and hotels, including well-known brands such as Greene King local pubs, Hungry Horse, Chef & Brewer and Farmhouse Inns. We also have a proud history of brewing award-winning ales for more than 200 years and our leading ale brand portfolio includes Greene King IPA, Old Speckled Hen, Abbot Ale and Belhaven Best.

Download full report

2,855

pubs, restaurants and hotels

39,000

Employees

33.2p

Dividend per share

Performance highlights

Successful customer investment

Successful customer investment and cost mitigation programmes

  • Pub Company like-for-like (LFL) sales -1.2% excluding the impact of snow, up 20 bps since the half year; improved customer service scores
  • Driven by investment in value, service and quality (VSQ) and good Christmas/Easter trading
  • £44m cost savings delivered through mitigation programme and Spirit synergies
  • Brand optimisation programme delivered 25% return on investment; Fayre & Square fully debranded
  • Pub Partners LFL net profit +0.4%; Brewing & Brands revenue +7.4%

Resilient financial metrics

  • Strong cash generation; £89.9m post core capex and dividends, more than covers debt amortisation
  • Net debt to EBITDA1,2 4.2x
  • Well-invested and located pub estate; 82% freehold or long leasehold
  • Dividend per share3 of 33.2p; long-term track record of attractive, sustainable dividend

1. Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 5 of the financial statements.

2. The directors use a number of alternative performance measures (APMs) that are considered critical to aid the understanding of the group’s performance. APMs are explained on page 128 of this annual report.

3. 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 year.

Strategic priorities to continue driving momentum

  • Improve underlying sales growth in Pub Company
  • Develop a more efficient and effective organisation
  • Further strengthen the capital structure

Current trading and outlook

  • Pub Company LFL sales +2.2% over the last eight weeks, aided by good weather and sporting fixtures; Pub Partners and Brewing & Brands trading in line with expectations
  • Strong World Cup trading; 59% of consumers expect to watch an England game at the pub
  • Expect £45–50m cost inflation; £30–35m cost savings and targeting Pub Company LFL growth

Review of 2018

Chairman's statement


Underlying trading improved in the second half and we have confidence in the long-term prospects of the business.

Download

Greene King is a strong business with an excellent track record of delivery and resilience in tough market conditions. This has been a challenging financial year with pressures on both revenue and margins as consumer confidence remains fragile and a number of industry-specific input costs continue to rise ahead of headline inflation. Moreover, adverse weather in the second half and stronger competition across the year have given us additional challenges. I am pleased that the investments we made in the customer offer and other actions taken in the second half are starting to pay off and that underlying trading is improving. We are fully focused on delivering our aim of building the best pub and beer company in Britain.

Chairman's statement

Chief executive's review


We have made good progress on Key initiatives and we have a strong strategy to drive momentum.

Download

Greene King has shown its resilience and made good progress on key initiatives which drove an improvement in the momentum of the business during a year of unprecedented cost inflation, weak consumer confidence and increased competition. Snowy weather impacted trading in the second half of the year but our £10m VSQ customer investment helped to improve underlying Pub Company trading. Pub Partners delivered another year of increased LFL net profit while Brewing & Brands grew revenue by 7.4% in a declining beer market. We have a strong strategy in place to continue driving momentum in the top line, to mitigate costs and to deliver value to our customers, our employees, our shareholders and our communities.

Chief executive's review

Financial review


Our new bank facility will improve the group’s ability to refinance spirit secured loans.

Download

Revenue was £2,176.7m, a decline of 1.8% compared to the prior year, reflecting lower Pub Company LFL sales, somewhat impacted by snow, and the impact of the non-core pub disposal programme. Pub Company was the biggest driver, with revenue down 2.7% to £1,767.7m. Non-core disposals helped AWT per pub rise 1.6%. The Pub Company business accounts for 81% of group revenue. Total revenue in Pub Partners was £193.9m. Tenanted and leased AWT per pub increased 2.4% and average EBITDA per pub grew 3.1% due to the continuing improvement in the quality of the pub estate. Brewing & Brands grew revenue 7.4% to £215.1m due to increasing the number of new customers.

Financial review

Focus areas

Best for customers

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

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

Download Focus area

Best for team

Our ambition is for Greene King to be a great place to work for our 39,000 employees.

we want to create an environment where our team members can reach their full potential.

Download focus area

best for communities

Our pubs play an important role in their local communities, by employing local people, raising funds for charity and serving our customers.

We have now raised £4m for Macmillan Cancer support.

Download focus area

Operational review

Pub Company


At the year end our Pub Company division comprised 1,745 pubs and restaurants open across Britain, appealing to a broad range of the population.

OUR FOCUS BRANDS

AVERAGE NUMBER OF PUBS TRADING

1,733 -4.4%

REVENUE

£1,767.7m -2.7%

EBITDA1,2

£362.9m -10.0%

OPERATING PROFIT1,2

£268.2m -13.0%

OPERATING PROFIT MARGIN1,2

15.2% -1.8%pts

AVERAGE EBITDA PER PUB1,2

£209.4k -5.9%

1. Adjusted measures exclude the impact of exceptional and non-underlying items.

2. An explanation of the group’s use of alternative performance measures (APMs), including definitions and reconciliations, is included in the glossary on page 128.

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 lease
  • Local Hero franchise-style agreement
  • Turnover tenancy
  • Turnover lease
  • Retail ready agreement
  • Joint venture agreement
  • Scholarship agreement
AVERAGE NUMBER OF PUBS TRADING

1,140 -4.7%

REVENUE

£193.9m -2.5%

EBITDA1,2

£101.3m -1.7%

OPERATING PROFIT1,2

£91.4m +1.5%

OPERATING PROFIT MARGIN1,2

47.1% +0.4%pts

AVERAGE EBITDA PER PUB1,2

£88.9k +3.1%

1. Adjusted measures exclude the impact of exceptional and non-underlying items.

2. An explanation of the group’s use of alternative performance measures (APMs), including definitions and reconciliations, is included in the glossary on page 128.

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

£215.1m +7.4%

EBITDA1,2

£36.0m -0.6%

OPERATING PROFIT1,2

£30.7m -1.0%

OPERATING PROFIT MARGIN1,2

14.3% -1.2%pts

1. Adjusted measures exclude the impact of exceptional and non-underlying items.

2. An explanation of the group’s use of alternative performance measures (APMs), including definitions and reconciliations, is included in the glossary on page 128.

Brewing & Brands
‘Time Well Spent’
  • Local wet-led estate of over 1,000 pubs
  • Recognised brand being extended within the estate
  • Over 2,000 Greene King branded pubs across Pub Company and Pub Partners estate

‘Beautiful country pubs’
  • Mid-market, food-led, suburban and semi-rural offer
  • Highly ranked brand for service and overall experience1

1. MCA Pub Brand Monitor Q1 2018.

‘Feast together’
  • Suburban and out-of-town carvery offer
  • Voted top pub brand in four of five categories, including Overall Experience and Food Quality and Taste1
    1. MCA Pub Brand Monitor Q1 2018.

‘Generous value every day’
  • Value-for-money community and destination pub offer
  • Putting the pub back into community Hungry Horse

Our people

DEVELOPING PEOPLE WHO EXCEED EXPECTATIONS

As an employer of 39,000 people we are focused on and committed to making Greene King a great place to work.


Corporate responsibility

Serving local communities

Our pubs are in the privileged position of being at the heart of their local communities. While Macmillan Cancer Support is our national charity partner, our fundraising by pubs takes place locally and this year we have communicated to our employees and customers in local areas the positive impact they have made in their region. In addition to supporting Macmillan, our pubs and offices also champion local causes which are important to their teams and customers.

34

employees cycled from London to Paris

Download CR report

Driving responsible retailing

As the country’s leading pub retailer, we recognise our responsibility to provide our customers with a wide choice of food, including healthier options.

1,660 pubs

were awarded a four or five‑star rating

Download CR report

Supporting young people

As a leader in the hospitality industry, we want to support young people into work by offering opportunities to learn a skill and a trade and helping them start their career journeys.

110

Young people supported through Get into Hospitality

Download CR report

Operating sustainably

We were the first to apply for and obtain a Water Supply and Sewerage Licence (WSSL) and switched all of our 3,000+ supply points on 1 April 2017 and were the first to switch in the new open water market.

Plastics:

440 tonnes

of plastic have been given a second life as recycled materials

Download CR report

Downloads

full annual report

Greene King’s vision is to be the best pub and beer company in Britain and our mission is to be the best for our customers, employees, shareholders and communities.

Download

GNK_oar17_FC.jpg

Strategic Report

Our priorities for the year are to improve underlying sales growth, develop a more efficient and effective organisation and further strengthen our capital structure.

Download

GNK_oar17_Strat.jpg

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.

Download

GNK_oar17_CG.jpg

Financial Statements

Although revenue and adjusted profit before tax declined, the group continued to be highly cash generative.

Download

GNK_oar17_Financials.jpg

This is an interactive version of Greene King plc's Annual report 2018. The content herein should be read in conjunction with and with reference to the printed version, which is available to download from this website.

Greene King plc, Westgate Brewery, Bury St Edmunds, Suffolk IP33 1QT

© 2018 Greene King plc