Fuller’s After setting out the full thinking behind the group’s rebuttal of the two takeover approaches from Fuller’s in this morning’s full-year trading update, the company’s bullish chief executive Clive Watson, was determined not to dwell any further on the issue. He said: “We have set out our position on this and are not going to be distracted any further on this issue, we have not received any further approaches. For us it is business as usual and continuing forward to our goal of operating an estate of 45/50 pubs in London by the middle of 2013. Whilst we have a short-term objective of 45/50 pubs we believe the group has the management capability and expertise to build a considerably larger estate. “We are very close to being in the position where we want to be, which is a position of strength. By the middle of 2013 we will have a stronger hand and will be a major player in the London pub sector, which will give us a platform to maintain the quality of the estate and to make further strategic additions.” Estate The 34-strong company opened a number of pubs following complete refurbishments during the period: The Victoria (formerly the Wishing Well, freehold acquired in November 2009) was re-opened in June 2010 and trading has “increased five-fold since acquisition”. – The Actress (formerly the Uplands, lease acquired in January 2010 with an option to acquire the freehold) re-opened in September 2010, including the introduction of a pizza offer and trade here has been “very strong since the re-opening”. – New Cross House (formerly Goldsmiths, lease acquired in February 2011 with an option to acquire the freehold) opened in May 2011. The first five weeks trading have been particularly encouraging. – The Mansion (West Dulwich, SE27 - freehold acquired in March 2011) this will reopen September 2011 after extensive refurbishment works Watson said that the acquisitions highlighted the group's “unique ability to buy under-performing pubs at discounted prices and turn these around achieving returns on capital often in excess of 20%”. As well as turnaround acquisitions the group continues to add bolt-on acquisitions to the estate. Since the start of the last financial year Capital acquired the freehold of the Black Swan in Cobham, Surrey, where sales are currently in excess of 15% ahead of last year; the freehold of the Morgan Arms in Bow, where are currently in excess of 10% ahead of last year; and the freehold of the Rye in Peckham Rye. Watson said that the group intends to increase the trading area of this site and it hopes to have this completed by November. In June the group has also exchanged contracts on the Priory in Clerkenwell, for £160,000. The Priory is a free of tie leasehold pub and the group intends to also reposition this pub by improving the offer. The acquisition will complete next month. Watson indicated that the company was close to adding a further site, probably in south London, to its estate over the summer. He said: “From my 21 years experience in the London market there will continue to be further opportunities for us to grow our estate over the coming 18 months through freehold and free-of-tie acquisitions.” In May last year, the company disposed of the freehold of the Marquis of Granby for £3.49m. It retains the leasehold interest. The group will surrender its lease in July on The Hog in the Pound, W1, and will receive in excess of £1m in compensation. Trading The company reported adjusted Ebitda for the year of £6.83m, which included an exceptional operating charge of £388,000, that Nick Collins, finance director, said was due to costs from the restructuring of the company last year, new openings and the growth of its head office team. The company, which said that full year like-for-like sales increased by over 7%, did not give a like-for-like sales figure for the last 10 weeks, in which total sales slowed from a 24% rise for the year to a 20% increase over the most recent period. Banking At the year end the group's borrowings were approximately £21m and gearing around 50%. Net debt was reduced by £7.1m during the year and correspondingly gearing has dropped to around 50%. The net debt to EBITDA ratio had fallen to approximately three times and consequently Capital now considers itself “conservatively financed”. Watson said: “The group has favourable bank facilities, which extend until 2017 and has modest annual capital repayments of around £1.2m per annum. This allows free cash flow of the business to be invested in new acquisitions. We have agreed in principle with our bankers to increase borrowings by a further £5m. When suitable acquisitions are identified the group will draw down these extended facilities.” Olympics Watson believes that the Olympics will provide a great opportunity for the business to grow sales further. He said: “The Royal Wedding was a huge success and we don’t see any reason to believe that the Olympics will be any different. They will provide a morale booster for the country and a great opportunity for businesses in the capital. We believe London will remain a buoyant market in which to trade and will benefit even further from the influx of both local and international visitors for the London Olympics in 2012. We are well, positioned to take advantage of this future opportunity. Team Alex Derrick was appointed operations director in March, assuming the day-to-day responsibilities previously undertaken by Watson, which has allowed the chief executive to focus more of his time on acquisitions and on driving the future expansion of the business. Watson said the company “continues to build the infrastructure for future growth and expansion of the estate”. He said: “During the year we recruited a training manager, seconded an online editor and social media specialist and retained the services of an in-house property consultant to advise on refurbishments, smaller developments and the ongoing maintenance of the estate.” Watson said that the group would look to add a further full-time member of staff to its operations team over the next six months. Watson said: “Over 50 key employees now have shares and/or share options in the business they work in and we intend to grow this number believing that a competitive advantage is gained through employees owning a stake in the business.” Food and drink The group has continued its successful strategy of focusing predominantly on wet-led pubs, with high margin wet-led business accounting for 75% of total sales. Watson said: “We continue to achieve sector-leading operating margins reflecting the liquor-led nature of the estate, our purchasing and managed house controls.” Watson said that the group would continue to focus on the wet-led model but had taken steps to improve the food offer across its estate, especially with the acquisition of the Black Swan in Cobham, where two-thirds of turnover is generated by food sales. He said: “Evolving our food offer does provide the group with an opportunity to grow sales. However for those people looking to spend £10 to £15 during a night out on having a few drinks and watching sport or a live band, then wet-led London pubs still offer good value for money.” Watson said the company continued to garner good publicity from its housing of burger operation Meateasy, at its sites. The popular pop up concept, which was previously housed above the company’s Goldsmiths Tavern, is currently operating at the Rye in Peckham Rye, as the site undergoes a refurbishment. Watson said: “Meateasy put the Goldsmiths Tavern on the map in terms of social media followers and food bloggers and it is doing the same with the Rye, generating great publicity for the pub and area. It is something we will look at doing at further acquired sites during their period of refurbishment.” Challenges Watson said that taxation and pressure to change the company’s strategy remained the greatest challenges for the group. He said: “We have become, as an industry, accustomed to increases in taxation but the rise in VAT was unwelcome and not very helpful. As a company our greatest challenge is to stay on course and not to be put under pressure to change our strategy of growing a quality estate.”

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