Pubco targets £50m investment to boost brand awareness

PUBCO Greene King is targeting costs synergies of £35m following its acquisition of Staffordshire-based rival, Spirit Pub.

The company completed the £760m acquisition last summer and in its near first full year of ownership has already secured £16m in savings.

The figures were outlined in Greene King’s annual results statement, which revealed the synergies were ahead of target – despite the company’s decision to retain Spirit’s headquarters in Burton-upon-Trent.

“Following a strong start, momentum with the realisation of cost synergies continued in the second half with good progress on procurement, where we saw a number of supplier negotiations concluded sooner than anticipated,” said Greene King in its results statement.

“As a result, £16.7m of cost synergies were achieved in the year compared with our original expectation of around £12m. We continue to anticipate annual cost synergies in the region of £35m by the end of 2017/18, of which 80% will be realised by the end of this financial year. Non-recurring costs of achieving these synergies are still expected to total £25m.

“Our intention remains to invest cost synergies in excess of our stated target to strengthen key areas within our people, our systems and our brands.”

It said it was determined to make the best use of the latter.

“We acquired a strong portfolio of brands and formats with Spirit – one that would have been very difficult to replicate organically – and we continue to anticipate material benefits from optimising the combined brand portfolio, which will provide an exciting growth opportunity over the next few years,” it added.

The combined business has 20 brands and formats and GK said its plan was to reduce this to around ten.

“We are evolving the future brand portfolio and plan to focus on five growth retail brands and formats: Hungry Horse, Flaming Grill, Farmhouse Inns, Chef & Brewer and Greene King. We will also continue to develop our hotels and Metropolitan, our premium London pub format,” it said.
 
In order to select the growth brands and formats to invest in, it looked at the consumer relevance and financial performance of each brand, the long-term opportunities to grow and expand and the proximity to other pubs within the combined group.

From this, it said it had identified a potential profit upside from investment in over 300 of its  existing pubs to reposition them into the growth brands over the next three years.

“Our priority in 2016/17 is to convert around 100 Fayre & Square pubs into the growth brands, of which the majority will be rebranded as Hungry Horse,” it said.  

It also plans to simplify its Local Pubs estate. It will reduce the number of formats and will replace any existing retail branding with Greene King branding in a move to raise the profile of the brand in areas where it is under-represented.

“In the current year, we expect to spend around £40-50m on these conversions and anticipate generating EBITDA returns significantly above our cost of capital,” it said.

Full year revenues showed an increase of almost 58% to £2,073.0m, an increase of 57.6% compared to the prior year. Operating profit before exceptionals was £392.2m, up 53.1%.