This has been another strong year for Greene King with good progress across all businesses delivering record revenue and profit. Revenue was £1,042.7m, up 6.0% on last year, with strong growth in Greene King Retail and Brewing and Brands. Operating profit was £222.0m, 5.1% ahead of last year, with a healthy operating margin of 21.3%. Profit before tax and exceptionals was £140.0m, up 13.8% on last year and another record performance, while adjusted earnings per share was up 11.1% at 48.2p. The board is recommending a final dividend of 16.8p per share, 7.7% ahead of last year, taking the total dividend for the year to 23.1p per share, up 7.4%.
We have delivered a record performance in a year in which the UK economy moved out of recession but failed to deliver anticipated growth levels. Real household income fell and is expected to do so again in 2011, impacting on consumer confidence. We also saw changeable trading in the second half of the year due to the weather, with snow across the country in December but much better Spring weather. We also benefited from a successful Royal Wedding weekend.
The pub and beer industry also continues to face political and social challenges. The duty escalator is penalising responsible drinkers and accelerating the closure of pubs and clubs in communities across the country, as alcohol is increasingly consumed in the home. We believe the government should be doing more to reverse current consumption trends, starting with setting a credible and meaningful minimum price for alcohol to target irresponsible retailers and drinkers without penalising the responsible majority.
To deliver a record performance in this context demonstrates the success of our strategy for growth and the strength of the people, the brands and the pubs at Greene King. We believe the best way to deliver long-term, profitable growth is to focus on expanding our Retail business and growing our share of the eating out market. This strategy is supported by improving the quality of our tenanted and leased estate via targeted disposals, agreement innovation and enhanced control of the offer, and investing in our leading ale brand portfolio.
Across all businesses, our operational focus on delivering industry-leading Value, Service & Quality (VSQ) to our customers has driven our record performance. In this austere age, our customers are looking for 'affordable treats', which we are delivering by continuously adding value to our offers, particularly in food, by exceeding customer expectations on service, and by maintaining industry leading product and offer quality.
We are focused on increasing our share of the growing eating-out market. In Retail, food and food-related sales are approaching 60% of total sales following another year of strong growth. We have upgraded kitchen facilities across the estate, further developed our menus and targeted cover growth and share gains through delivering exceptional value to our customers. Similarly in Pub Partners, our investment is focused on improving the food capability of our pubs. Our recruitment and training is increasingly geared to improving the overall food expertise amongst our licensees and we continue to utilise our Retail expertise to offer licensees a range of food solutions to grow their food sales.
We are investing in the development of the Greene King brand. We have launched our 'proper pubs' and 'proper pint' campaigns, investing £2.5m, and since the year-end, we have launched the new Greene King brand identity. We have updated brand imagery, brand colours and the company website, to reflect Greene King's reputation for delivering authentic hospitality to its customers.
We have completed the integration of Belhaven, maintaining business continuity and capturing anticipated synergies of £1m per annum. Belhaven has been a great success story for Greene King. Profits have increased by 77% since the 2005 acquisition, following another good year this year. Investment in Scotland continues: our new brewhouse opened for business in May 2011 and we acquired another four Retail pubs in the year. I am confident that the fully integrated Scottish operations will continue to be successful going forward. As a result of this integration, our Business Review is presented on the basis of the post integration model.
Our strategy for growth is three-fold: first, expanding the number of sites in Retail, our biggest and fastest growing division, to 1,100, and improving the overall quality of the estate; second, reducing our tenanted and leased business to around 1,200 sites, and taking more control over the offer in the core estate; and third, increasing investment and driving growth of our core ale brands. Following good progress in the year, we remain on track to meet our targets.
We started the year with 888 sites and ended the year with 915 sites. We acquired, or transferred in from Pub Partners, 39 sites and disposed of a small number of sites, mainly from the value high street segment.
In addition, we exchanged on eight greenfield sites. All acquisitions should improve the overall quality of the Retail estate by either driving greater exposure to the eating out market or driving the premiumisation of our overall offer. The net acquisition cost of the acquired sites was £130.7m and these acquired sites are expected to deliver an average site EBITDA of £436.4k, more than double the average for the existing estate.
We acquired Cloverleaf Restaurants on 28 January 2011 for £55.7m. Cloverleaf consists of 12 freehold, food-led sites, delivering, at the time of the acquisition, an average weekly turnover (AWT) of c.£40k and average EBITDA per site of c.£540k. Food is 69% of sales. Cloverleaf brings us carvery expertise and another concept to expand through our new-build programme. The Cloverleaf pipeline of new sites will deliver a minimum of ten additional sites trading by the end of April 2013 and we are looking to expand the concept further south and into Scotland.
We acquired Realpubs on 27 April 2011 for £52.2m. Realpubs consists of 14 London pubs, all but one freehold, trading a well developed premium pub dining concept. AWT is c.£25k and EBITDA per site is c.£450k. Food is currently 33% of sales and growing strongly. We are looking to work closely with the team at Realpubs to spearhead our premium growth by converting a number of Greene King London pubs to the Realpubs concept, acquiring additional sites in London and expanding the Realpubs concept outside of the M25.
We reduced the number of tenanted and leased pubs by 4% and grew average EBITDA per pub in Pub Partners by 1.9%. We are increasingly operating Pub Partners as a more customer focused business, becoming more directive and influential over our licensees' offers. This is reflected in the agreement innovation we have delivered in the year, including the launch of Blueprint, our new and innovative franchise-style agreement, which is delivering site profit increases of £65–£70k per annum. We are recruiting better quality licensees through a more demanding recruitment process, we are reducing direct licensee support and we have increased investment in our pubs by 33%.
In the year we launched 'Man Deserves a Proper Pint', a £1m media campaign for Greene King IPA. The campaign is expected to reach around 14m men through the national press and male targeted magazines. We also increased our 'above-the-line' media investment in Belhaven Best with a new TV advertising campaign. Greene King IPA is the official beer of England Rugby and Old Speckled Hen sponsors prime time on the Dave TV Channel. Total investment in our brands in the year was £6.8m.
Trading conditions in this calendar year have been variable and recently this has been even more pronounced. As we have previously reported, April was unusually strong. Consumers then reined in their expenditure in May. June has seen more normalised trading, notwithstanding the tough comparatives with last year's World Cup.
In the first eight weeks of our new financial year, Retail LFL sales growth is 1% with underlying LFL growth, excluding the impact of the World Cup, of 3%; Pub Partners average EBITDA per pub growth is 1% with LFL EBITDA at -1%; and core brand own-brewed volume in Brewing and Brands is -2%.
We anticipate another challenging year as continued high inflation and the impact of government cutbacks limit consumer spending power. Despite this, we remain confident of the prospects for Greene King as our Retail expansion strategy and strong group-wide operational performance, driven by value, service and quality, will underpin another year of growth and significant progress.
Westgate Brewery
Bury St Edmunds
Suffolk IP33 1QT
Tel: +44 (0) 1284 763222
Company registration no: 24511
