Bottoms up: Greene King heralds heatwave as profits and revenue grow in World Cup year
Shares in pub owner Greene King ticked up in early morning trading as investors welcomed growing like-for-like sales in its pubs across the UK after a sweltering summer saw drink sales swell.
The figures
Statutory profit before tax grew 3.2 per cent to £127.7m in the pub chain’s half-year results, compared to the same six months to the middle of October in 2017.
Adjusted pre-tax profits were hit by £5m in restructuring costs, but still grew 0.2 per cent to £128.2m.
Revenue grew 1.9 per cent to £1.05bn as Greene King grew free cash flow from £10.6m last year to £25.4m this year.
Net debt fell by £100m to £2bn as the pub owner maintained an 8.8p dividend, though basic earnings per share shrank six per cent to 33.1p.
Why it’s interesting
Greene King thanked the same hot summer that sank Thomas Cook’s shares this week for boosting its own, as it also credited England’s extended run in the World Cup for fans flocking to its pubs.
The brewer also posted a positive outlook, with Christmas bookings “well ahead” of 2017 as the pub owner remains on track to limit full-year net cost inflation to between £10m and £20m.
The company closed 40 restaurants and 13 other properties to net £30m, which it spent on building three new sites and buying two properties.
As the Bank of England warns against a worst case no-deal Brexit scenario, the firm said it has identified “key areas of risk” in its business in case of that outcome, working with supply chain to safeguard the supply of goods to its pubs and breweries.
Richard Hunter, head of markets at Interactive Investor, said Greene King’s careful balance sheet management and summer fortune have left it in a good position.
“Like-for-like sales within its pub estate have not only grown but have outstripped the sector, helped in part by the reduction of competition in the face of ongoing pub closures elsewhere.
“Meanwhile, the disposal of non-core pubs allows the reinvestment into new sites, with this estate optimisation continuing to underpin the balance sheet,” he added.
However, Hunt also warned against the possibility of a sour Brexit outcome, saying: “The omnipresent spectre of Brexit looms over prospects, particularly if it results in subdued consumer confidence. The net debt figure, whilst manageable in current conditions, is significant and will need careful ongoing management.”
“Greene King has turned in a robust performance, as was only to be expected after a stonking summer for drink led pubs and beer breweries,” added Paul Hickman, analyst at Edison Investment Research.
“The question for the second half whether the gains from like-for-like growth and investment can sufficiently plug the gap between cost inflation of around £45-50m and mitigation of £30-35m.”
What Greene King said
Rooney Anand, chief executive officer, said:
“We have seen continued positive momentum in [our] pub company, which was sustained beyond the boost of the World Cup and the summer weather. The hard work of our teams, combined with the investments we made to improve our customer experience, is driving sales outperformance to the market.
“We remain highly cash generative, meeting our debt repayment requirements, investing in our pubs and paying an attractive, sustainable dividend out of operating free cashflow. Good progress was made refinancing the spirit debenture, which will reduce the cost of our debt and increase the strength and flexibility of our balance sheet.
“Looking forward, Christmas bookings are up on last year and we look forward to ensuring customers have a great time celebrating the festive season in our pubs. Ongoing uncertainty around Brexit may impact on consumer confidence, but as a team we are focused on our key strategic priorities and remain confident of our outlook for the financial year.”