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Risk Warning
28/01/2010
PUB group Greene King reported "very strong" Christmas trading but said sales suffered a setback in January's snow storms.
The group, which has around 2,500 pubs in England and Scotland, said it was expanding its portfolio by buying eight freehold managed pubs from Punch Taverns for £15.9m.
Greene King, which has around 90 pubs in Yorkshire, said like-for-like sales were up five per cent in the 35 weeks to January 3, but this slowed to 4.3 per cent three weeks later thanks to the poor weather.
It echoed comments by rival JD Wetherspoon, which recently said 1.2 per cent sales growth in the 10 weeks to January 3 slumped to a 0.3 per cent fall when taking in next two weeks.
Greene King saw buoyant trading over the two-week Christmas period, helping the group produce "profitable growth despite the challenging conditions".
Food sales growth was "very strong", helping lift drinks sales, as customers traded down from restaurants to pubs during the recession. But the Suffolk-based firm warned that sales growth would ease as the year progressed due to tough trading comparisons and the return of VAT to 17.5 per cent this month. "Whilst the UK consumer outlook is still uncertain, we are confident we will meet the board's expectations for this financial year," the company said.
The group noted improving trends in its tenanted pubs, helped by easier comparisons and stronger beer sales due to price support for licensees. It expects this support to cost it up to £6.5m this year.
Greene King said the division was helped by the offloading of its weaker pubs and the improving "health" of licensees. Applications to run pubs were 20 per cent higher than a year earlier in December, the company said.
Average earnings per pub have been just 0.8 per cent lower since October 18, although they are 4.9 per cent down for the first 36 weeks of the financial year.
The firm also hailed another good showing from its Old Speckled Hen and Abbot Ale brewing business, which rode out the snow to post a 7.2 per cent rise in volumes after 38 weeks. However, it expects brewing growth to moderate in coming months, given tough comparatives a year earlier.
Its Scottish Bellhaven brewery arm "remains on course for another successful year", it said. Sales were 7.4 per cent ahead of last year.
Greene King raised £207.5m last year via a rights issue to acquire pubs from struggling rivals, as well as buy back debt. The company has now spent £79m of the funds raised on 26 managed pubs as well as repurchasing debt.
The group believes it has got a good deal with the latest pubs acquired, adding that the quality, location and historic return of the pubs "would support a value in excess of £16m". They generated underlying earnings of £1.3m last year.
Analysts said the group's shares look compelling. Richard Curr, head of dealing at Prime CFDs, said: "For Greene King to deliver 4.3 per cent sales growth through the exceptional UK winter weather in January is no mean achievement."
Analysts at Evolution Securities said:" Consensus full year pre-tax profits are likely to nudge up (£2m to £3m) but the share price may do little more than flicker the market's approval. The second half looks tougher with consumer belt tightening and 20 per cent VAT on the radar."
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