MCA speaks to Greene King chief executive Rooney Anand on the back of the group’s half-year results yesterday. He discusses the extension of the timeframe for converting non-core brands to its growth formats and how this impacts on its approach to new-build pubs. He also reveals the company’s first trail with Deliveroo and the headwinds facing the company into 2017.

The company announced yesterday that the timetable for converting non-core brands to its growth formats had been extended from three to four years. Over the past year the focus has principally been on Fare & Square, which has predominantly been moved over to Hungry Horse. Anand said Fayre & Square would be completely debranded by April 2018.

He told MCA there were several reasons for the change to the timescale.

He said: “External factors have certainly one element to this. Since June 23 the environment has undoubtedly changed and it is wise to give yourself options and flexibility.

“But also, this is a considerable undertaking – we’re talking about 300 conversions across four brands. We have to make sure we get this absolutely right so that we have an exciting platform to build from. This is a hugely significant deal and in the grand scheme of things an extra six to 12 months is nothing if it means you are certain you are doing it right.

“We are also conscious that we are both being sensible with our spending and ensuring the rest of the estate is not neglected. We have to balance the cash required to do the conversions and make sure the rest of the estate gets the investment it needs.

“It’s also hugely about people. You can’t attempt something on this scale without having the right general managers and assistant managers across the estate. We have tended to rob the core estate of the best operators and that inevitably has consequences. Giving ourselves a bit more breathing space means we can more effectively manage that talent pool.

“Finally, it’s about taking time to assess the best way forward for each individual site. We are not interested in forcing brands on to sites and in locations where they don’t fit.”

Asked if the conversion programme would include the introduction of new brands. Anand said: “The principal focus is behind growth brands.”

New builds

During the period the group opened seven new-build sites with a target of 10-15 openings per year.

Anand said: “Before the Spirit acquisition, new builds were very much the key focus for us and I expect that to ultimately be the case again. We certainly haven’t stopped but just reduced the rate at which we are opening new sites. It very strongly features in long-term thinking but will continue at a slower pace alongside the conversion programme.

Acquisitions

Asked about the appetite for further acquisition, Anand said: “For moment we would be best served by exploiting and attracting best value through the two companies. That is both in terms of getting the best out of the two teams and finding the best way of working and plotting the right course for the properties.”

On the potential for acquisitions of beer brands, Anand said: “Our strategy for a long time has been to buy pubs and occasionally some breweries and some brands have come as part of that. The primary has been and continues to be the pubs. Our strategy remains to become the number one pub company in the UK, and therefore the number one pub company in the world.

Costs

Greene King yesterday laid out some of the principal cost pressures facing them in the coming years.

In the current financial year, the National Living Wage, is set to cost £4m, with the same in FY18 and £6m in FY19. While utilities costs are 91% fixed across the estate, inflation of c3.5% is expected in this year and 9% in FY18. Forex impact in the current year is expected to be c£2m. The full impact of the Apprenticeship Levy is likely to be c£3.5m per year from FY18 onwards. Meanwhile, the business rates revaluation will cost £7m in FY18 and a further £4m in FY19.

Delivery

Greene King has been working with Deliveroo in a trail across the Loch Fyne sites.

Anand said: “Given the strong level of growth some of these brands have reported we can ill-afford to ignore what is clearly an emerging trend. How long-term that trend is remains the question.

“We would want to explore and exploit its potential. But fundamentally we want people to come and enjoy our pubs. I also think that you might be able to sell a bit more food but we have businesses designed to serve customers in the business. If they are being asked to wait while delivery gets preference, that’s not great.”

Accommodation

Anand said the 3,500 rooms the group operates remains an important driver of sales, but stressed: “The key is that it augments our pubs. We’re not running hotels, we’re running pubs with rooms.”

Analyst reaction

Mark Brumby, of Langton Capital said: ”Greene King has conceded that costs are rising more rapidly than anticipated and says that the conversion of ex-Spirit sites will take longer than initially planned.

”The former is because of external events and will impact the industry rat her than GNK alone.

”The latter may make sense but, overall, the factors outlined above will lead to lower margins and estimates for FY18 have come down.

”Nonetheless, we would suggest that GNK is one of the UK’s better-positioned pub companies and, with its shares now trading at a single-digit multiple, it is not expensive. Affordable treats will remain, well affordable and there is something to be said for getting out of the house.”

Payroll email error

The group has this morning apologised to staff after some had their personal bank details accidentally emailed out by the payroll department.

The Times has reported an email was sent out including a list of over 2,000 bank account numbers and sort codes for some staff.

After discovering their mistake, Greene King, which has now launched a full investigation, said its IT team worked through the night to delete the emails from inboxes.

To compensate their staff, the company, which described the incident as “totally unacceptable” offered staff affected the option to have a 12-month subscription to an identity theft alert scheme, paid for by Greene King.

A spokesman for Greene King said: “On Thursday night we discovered the bank account number and sort code details for just over 2,000 of our 44,000 team members were emailed in error to a number of our pubs earlier in the evening as part of a communication about an HMRC tax code error.”

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