2nd UPDATE: Greene King To Expand Managed Pubs Business

1st Jul 2010 09:39

(Adds detail and comment from the CEO.) By Michael Carolan Of DOW JONES NEWSWIRES LONDON (Dow Jones)--U.K. pub group Greene King PLC (GNK.LN) said Thursday it plans to accelerate the growth of its estate of managed pubs while shrinking its tenanted pub business as it further increases its exposure to the more profitable eating-out market. The Suffolk-based brewer and pub owner said it had decided to accelerate the pace of its change to focus more on retail and key brands. To do this it plans to grow its managed pub business by a quarter to around 1,100 pubs over the next three to five years. It currently operates 888 managed pubs. The company has brewed and owned pubs for over 200 years. As well as managing its own pubs and restaurants, it also rents 1,584 pubs to individual landlords. Greene King's managed pub business includes the brands Hungry Horse, Old English Inns, Loch Fyne Restaurants and Eating Inn, all focused on the sale of food rather than drink. Chief Executive Rooney Anand said on a conference call with reporters that between 10% and 25% of the increase would be a result of transfers from the tenanted estate, with the rest of the growth coming from acquisitions. He said that with its GBP400 million undrawn facility, Greene King has the headroom to take advantage of acquisition opportunities. He said there had already been "plenty of people knocking on our door," looking to sell pub assets. At the same time, the company will cut the estate of pubs it leases to individual landlords to 1,200 from 1,584, largely through disposals. "This strategy will generate faster, profitable sales growth and increase our exposure to the long-term growth of the eating out market," said Anand. Anand said that the move to shrink the tenanted estate was at least partly driven by political reasons. The "tied pub" model--whereby tenants must buy their drinks from the same pub companies from which they rent their pubs--has come in for much criticism in the past two years as being unfair to tenants. Pub companies have responded by loosening the tie and surrendering some of their power to their tenants. Anand said that by operating a smaller, tighter estate, it could focus on pubs which could be profitable for both the company and its tenants. Managed pub groups such as J.D. Wetherspoon PLC (JDW.LN) and Mitchells & Butlers PLC (MAB.LN) have fared much better in the recession than tenanted companies such as Enterprise Inns PLC (ETI.LN) and Punch Taverns PLC (PUB.LN). Anand said the move to shrink the tenanted estate didn't mark the beginning of Greene King's withdrawal from the tenanted pub industry. "We've been around for 200 years," he said. "We've seen cycles come and go." The company also said its pretax profit before exceptional items was GBP123 million in the year to May 2, up 3.8% from GBP118.5 million the previous year and in line with analysts' expectations. Anand said the company had an encouraging start to the new financial year with trading to date better than expected. Comparable sales in the managed business grew 6% in the first eight weeks of the new financial year, with sales in Scotland up 1.5%. The tenanted estate continued to stabilize with average profit per pub broadly in line with last year. The plan to only operate high quality, sustainable pubs will ensure the division moves back into sustainable profit growth in the next 12 to 18 months, said Anand. The upbeat trading update boosted the company's shares, which by 0825 GMT were up 3 pence, or 0.7%, to 395 pence, the fifth highest gainer on an overall lower FTSE 250 mid-cap index. -By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; [email protected] (END) Dow Jones Newswires July 01, 2010 04:39 ET (08:39 GMT)