The Deltic Group, the UK’s largest nightclub operator, saw like-for-like sales in the 26 weeks to 29 August increase 7.5%, with sales up 15.5%.
At the same time the 58-strong company has secured a new £15m banking arrangement with HSBC, which has agreed to provide a £10m term loan and £5m revolving credit facility. The new funding will be used to partially repay shareholder loans, invest in existing sites and fund future acquisitions.
Peter Marks, chief executive, said: “There’s been plenty of speculation about the health of the UK nightclub sector. Our consistently strong performance is testament to the fact that there is still huge consumer appetite for a big night out experience; something that only clubs can deliver.
“The fact that we’ve secured new banking facilities with HSBC and our continued sales growth, proves there’s still real upside in the sector for strong operators with well-invested venues.”
The company said that its refurbishment programme continued to deliver results and it is poised to make the single biggest investment in a UK regional club for 10 years. The £3m investment in Basildon will create a new triple scene club with a roof terrace bar, which it said will offer the latest in entertainment and service standards.
The group has already completed five refurbishments this year (Camberley, Andover, Ipswich, Exeter and Oxford), with circa £5m earmarked for five additional sites scheduled to open before Christmas, which in addition to Basildon include its first Bar & Beyond concept in Chelmsford and venues in Canterbury, Windsor and Tamworth.
As part of its “tactical acquisition strategy”, it recently acquired the 1,000-capacity Play club in Hereford.
Comment by M&C editor Mark Wingett, including interview with Deltic Group CEO Peter Marks.
It says something about the state of the market and of the respective businesses, that HSBC, which has been fairly picky when it comes to its exposure to the UK’s leisure sector, has picked Amber Taverns, the wet-led, freehold pub operator and now the nightclub artist formerly known as Luminar, to support. Both are outliers and both are successfully turning their noses up to perceived perceptions. While Amber chairman is acquiring freehold pubs in unfashionable locations and getting a c20% return on investment, Peter Marks is rising to the challenge of proving to the wider world that claims last month that the nightclub sector in the UK is on its last legs are wide of the mark.
He admits though that a lot has changed since he led a buyout of the then Luminar three and half years ago. “We weren’t inundated with bank offers three and half years ago, the sector and the banking market were in a difficult place,” he says. “However, here we are three and half years later with such a strong and steady story that we are able to attract HSBC to support our continued growth. They haven’t been truly active in our sector for many years, so I am especially glad they have decided to become our new banking partner. It underlines the hard work of Russell Margerrison (CFO) and his team and shows the improvement of the business as we passed all the due diligence and got the bank’s approval.
Marks admits he could talk until “the cows come home about how well the company is doing”, but it is only the numbers that the company has announced this morning that will help change perceptions that the sector is not on its last legs. He says: “Our numbers do not fit with the rubbish that was in the papers recently talking about the death of the nightclub business. We recognise that no one wants to hear a positive story.” It is thought that the group is on track to see EBITDA increase 20% in its full year, up from £11.4m in 2014.
He talks of a recent roundtable on licensing issues in Nottingham he participated in when all the operators were feeling much more confident than a year to further back up his point. “Town centres are getting stronger,” he continues. “It may be anecdotal at present but you can feel that in most of the towns and cities that people are feeling better about things.” He admits that trading in post-industrial towns in the north and Midlands remain challenging but that conversely Bristol, Leeds and Bournemouth were “on the up”.
The company is halfway through the refurbishment programme of its existing estate, with it classing a spend of £100k and over as a refurbishment. Every club in its estate would have had some kind of investment over the last three years, but in terms of major investment it will reach 30 clubs by the end of this calender year.
On top of his own group’s investment programme, Marks is happy that rival operators are also set to benefit from new investment and direction. Over the last 18 months, Better Capital has invest in Intertain, Novus Leiure hs restructured, Revolution has gained traction with its evolution programme, while Luke Johnson has invest in and clearly sees potential for Eclectic Clubs & Bars, despite its initial struggles as a listed company.
Marks says: “The market is coming back. We now have a number of companies that have cleaned up their balance sheets one way or another, have invested or investing in their products, which hopefully will all help bring people into town centres. We want to see these companies do well, we see them as complimentary rather than competitive. There is an almost a venn diagram overlap of customers. We don’t want to see these businesses fail do to lack of investment or direction.”
In terms of a weekly trading picture, Marks says that Monday to Wednesday, “students are where they have been where they are for a number of years”. He says: “We may see an improvement as we go into a new academic year, but it is too early to say. Fridays are up over 10% in terms of sales, while Saturdays are up 3% to 4%. Our difficult nights are Sunday and Thursdays, and although they may be down in terms of performance they are both small. Therefore they can be down quite a bit in percentage terms, but that would only equate to say a loss of £2,000 or £5,000 in the wider company context.”
When the students are around, the group’s business is made up of 45% Saturday trading, 25% Friday and the remainder spread over the rest of the week. “If Saturday is up only a little, that is great for the whole business,” says Marks. “We track admissions and we are seeing admissions stronger at the weekend, but we still have challenges early week and in the univested estate. Invested weekends are on an upward slope.”
The group will launch its first Bar and Beyond site, complete with small food offer, on the Chicago Leisure site in Chelmsford in late November, as part of plans to develop a late night bar business to run alongside its existing nightclub estate. Marks says: “We will see what we have got with it and iron out any operational wrinkles and then go do our second. We have a shortlist of two or three sites it could be from the ex-Chicago estate. The Bar and Beyond story is at the experimental phase this financial year and hopefully by the second half of next year it will be in the proper roll out stage.”
Marks is keen to stress that unlike his rivals, food is going to play a very small part of the overall Deltic business. He says: “We recognise that if we are going to be able to hold people from early evening for any length of time then food needs to be available.” Marks said that the offer would be based around the concept of “dirty food”, with the likes of sausages, chicken and burgers, sold in sharing platters, for people “who are principly there to drink”.
The company has always said that on acquisitions they would only take place if they were right for the business and fitted its strategy. Marks says: “At the moment we are not in talks on any others, but that might change tomorrow, you never know what might become available. Our focus has always been to fix what we already have and we are still on that journey. We do see that there are other nightclubs that might become part of our estate, but we have always said that acquisitions or expansion would never be the main thrust for us, certainly not for the next couple of years.”
On refinancing, Marks says that the end of 2016/early 2017 will be the likely time for the group to explore a refinancing. He says: The current investors have always said they would stay for five years, now we admit that date may have slipped by six months to a year, because we didn’t realise how long it would take us to start the investment programme, which started 10 months into that first year. There is likely to be a refinancing of the company in late 2016/early 2017, as to what that will be, IPO or private equity, will depend on market conditions. Nothing has changed to take us off that line of thinking.”
At present, Marks is happy to concentrate on his “58 locations with 58 different stories”, while continuing to keep the tracks spinning for the UK’s nightclub scene.
