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Conditions still tough for Greene King despite World Cup boost

Shares in the pub operator fell on Thursday morning as it warned that industry headwinds – higher costs and weak consumer confidence – are showing no signs of abating
england flag and beer
Like-for-like sales are up 2.2% so far in its new financial year

Greene King PLC (LON:GNK) has said it is already feeling the benefit of England’s decent start to the World Cup, but a slide in full-year profits and continued “challenging” conditions sent shares in the pub group sharply lower on Thursday.

Nearly all pub and restaurant operators have struggled over the past year or so as they battle higher costs and squeezed household incomes, which have put pressure on their top and bottom lines.

READ: Beast from the East hits sales at GNK

Greene King, which operates almost 2,000 pubs up and down the UK, also blamed the Beast from the East as it reported a 1.8% fall in revenue to £2.18bn (2017: £2.22bn) alongside a 9.3% dip in underlying profits (EBITDA), which came in at £373.1mln (2017: £411.5mln).

The numbers were by-and-large as expected, given the trading update just before the end of its financial year in April.

The drop-off in revenue and profitability was primarily due to poor food sales and weaker margins in the FTSE 250 firm’s Pub Company division, which accounts for more than 80% of group revenue.

World Cup boost

England’s decent start to the World Cup, coupled with the recent warm weather has helped to boost trading at the start of the new financial year, though.

In the first eight weeks, like-for-like sales were up 2.2% in the Pub Company division, which managed to rack up record drink sales in May.

Despite the positive start, Greene King warned that industry conditions remain “challenging” and show no sign of easing and it expects costs to rise by another £45-50mln this year. Some of that will be offset by £30-35mln worth of cost savings and like-for-like sales growth.

Conditions still not easy, though

“We made good progress improving the performance of the business during the second half of the year, despite a challenging trading environment,” said chief executive Rooney Anand.

“While it is still early days, this positive momentum has continued into the new financial year, aided by good weather and popular sporting events.”

He added: “We expect the trading environment to remain challenging for some time, but we strongly believe people will continue to choose the great British pub as the place to enjoy time with friends and family.

Greene King declared a final dividend of 33.2p, the same as it paid out last year. At one point earlier this year, analysts had thought that it could be cut.

In late afternoon trading, Greene King shares were 9% lower at 581p.

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