Charles Wells has reported a year of “steady progress” as it grew pre-tax profits from £6.5m to £6.7m and reduced net debt by £18.8m to £44.7m, due to the sale of its distribution depo and its Kestrel Super Strength brand, M&C Report has learnt.
The Bedford-based brewer and pub operator - which also revealed to M&C Report that it has secured its 11th pub in France - said results for the 12 months to 28 September are ahead of forecast from last year’s AGM. However, income fell £7.9m to £181.6m and pre-exceptional operating profit was £400k lower at £6.2m.
It cited loss of third-party brewing contracts and the Kestrel sale - Kestrel contributed sales of £8.7m in the previous year.
Adjusted EBITDA fell 20% to £13.9m and profit after tax was up 8%.
Sales at Charles Wells Pub Company fell 3.5% as the size of the trading estate fell by 4.6% to 203 houses on average - 18 “smaller and unviable sites” were sold. EBIDTA per pub grew 3.4% in the year, when £3m was spent on refurbishments.
The company said its intention is to “purchase good pubs”.
Net profit at its John Bull managed estate in France grew 13.5% with EBITDA close to breaking through the €1m mark
Gross profit growth at Cockburn & Campbell, its wines and spirits business, grew 12%. Turnover reached £17m. The company said wine volumes grew 6% in an on-trade wine market down 1%.
Chairman Paul Wells said: “We can report a year of steady progress with financial results being better than forecast at last year’s Annual General Meeting. Net profit before tax for the year grew slightly and overall trading has been better than expected, with good summer weather, new initiatives and new markets all key features in growing sales.
“Whilst exceptional items such as restructuring following the loss of brewing contracts and the sale of Kestrel have impacted on the headline figures, we have worked hard to mitigate these losses and have some further exciting new initiatives planned for 2014. Careful control of costs, including a 17% reduction in administration overheads by Charles Wells Pub Company, has helped protect our financial position and reduction of debt ensures we’re well positioned to grow the business.
“Our tax obligation remains high, with the percentage of tax paid in relation to turnover rising to 44%. However, the cancellation of the duty escalator and cut in duty of 1p per pint helps to ensure that we will continue to invest in high quality pubs in the UK.
“Our brand portfolio includes an unrivalled mixture of traditional and imaginative beers and we look forward to strengthening our reputation by bringing interesting new beers to market in 2014.”
Recommended total dividend for the year remained unchanged at £3.30.
M&C Report takes a closer look at the full-year results and talks to Paul Wells:
Managed pub plans
Last week M&C Report revealed that Charles Wells is moving back into the managed pub sector for the first time since 2007 with the launch of a new pilot site in Cambridge under the umbrella Seadog Inns. Wells explained the decision to return to managed: “Having established our managed house credentials again in France [through John Bull Pub Company], it seemed very straight forward to bring back the systems we’re already using - everything is contracted out, we use a lot of web-enabled back of house stuff. So compared to where we used to be, which is with a lot of head office people and not enough sites, it’s now possible to be much more independent in running a managed house operation.” He said the operation at the first site, the Salisbury Arms, is being decided at the moment. But Wells suggested that some of the thinking behind its John Bull pubs, which have a strong link to the brewery in decor and pictures, could be employed. ”It’s about looking towards reconnecting some of those themes between our long established brewery and the outlet.”
Pub Company: performance
Rental income fell 3%, with Peter Wells, managing director of Charles Wells Pub Company, highlighting the concessions that it granted to some licensees. EBITDA fell 1.5% on the previous year and gross profit was down 3.4%. On a more positive note, he said: “While we have reduced the number of pubs we own, the potential of those remaining is reflected in the quality of earnings, with total income and EBITDA per pub increasing 2.6% and 3.4% respectively year on year.” Administration overhead costs in the division also fell 17%.
Pub Company: disposals and acquisitions
Paul Wells said the company probably has a couple of sites to dispose of, “then it’s all over”. “203 [pubs] is exactly what we have now and they’re all capable of a good future.” Regarding acquisitons, he said: “It’s all about the availability. I don’t see the same pattern that we’ve seen in previous years. I’d be surprised if we saw those big parcels coming out of the major tenanted pub groups again. I’m sure they’re there, but they’re not ones regional brewers would easily leap at.”
Pub Company: summer lift
Over an eight-week period last summer, average sales per pub grew by £1,500 against the comparative period in 2012. Peter Wells cited the good weather combined with Charles Wells’ actions to reduce the number of pubs and refine the trading styles.
Pub Company: lettings
Peter Wells said the licensee recruitment process “goes from strength to strength”. “The number of pubs to let is at one of its lowest levels for many years and this is testament not only to our robust recruitment strategy but also the support provided which aids retention.”
Pub Company: property
Overall expenditure on property was £3m, including 30 “trade-enhancing projects” at a cost of £1.8m. “These have ranged from major refurbishments through to more modest refreshes, all designed to give those pubs a more competitive trading environment by providing a safe and enjoyable environment.” Paul Wells said be “really surprised” if investment in 2014 wasn’t between £3.5m and £4m.
In 2013 Charles Wells added a property repairs manager to “plan our maintenance and improvement programme rather than simply reacting to the most urgent repairs that are needed”.
Peter Wells highlighted the redevelopment project at the Gorringe Park in Tooting, south London, as one that has proved “highly successful”. The pub, which is leased to Yummy Pub Company, has become one of its top performing sites, he said.
Pub Company: licensee forums
Peter Wells said: “Through our licensee forums, we continue to listen to customer feedback, wishes and suggestions. The meetings, which draw together a group of like-minded licensees to discuss their businesses and our support for them, have directly influenced our operations in areas such as the seasonal ale range, deliveries and promotional opportunities. Feedback also prompted a review of our maintenance contractors and processes, leading to a more practical approach of our property repairs systems.”
Pub Company: food support
Peter Wells said it has developed a basic menu option for those pubs that find it difficult to serve food, offering a “simple solution at minimal cost that is accessible to all.” “Initial indications are promising and we believe this will be an increasingly valuable addition to our support in 2014.”
Pub Company: marketing support
A total of 983 promotional kits were sent out in the year, covering events such as Christmas, summer and Cask Ale Week, along with the pubs’ own wine-tasting evening or beer festival. Peter Wells said: “The number of pubs engaged in our marketing activity has significantly improved this year and we had an excellent response to the direct marketing campaigns we’ve run for our seasonal ales. Hummingbird and DNA proved to be strong, which highlights our drive to grow sales of our own-brewed beer.”
Pub Company: mystery visits
Charles Wells has updated its Eagle Eyes mystery visitor programme. “The questionnaire has been made more straightforward and specific, encouraging completion and providing more valuable responses. With 262 agents, the scheme is open to staff, their family and friends and shareholders of Charles Wells and has also been opened up to members of the public in outlying parts of our operating area where our representation is limited.”
Wells & Young’s: performance
Excluding Kestrel, Wells & Young’s grew net sales and net margin. A year-on-year volume decline of 0.6% for its brands was a “creditable performance in comparison to industry figures”, said the division’s managing director Justin Phillimore. There had been “great strides” in the free trade, with volumes in this category up 23%.
Wells & Young’s: brands
Phillimore said the McEwan’s and Younger’s brands, bought in October 2011, “continue to perform ahead of our expectations”. In 2013 it launched a new McEwan’s brand, Red, with two more bottled ales launched in the summer. Young’s ales received a new look. Volume growth of Estrella Damm, which is imported from Spain, was 63% year-on-year. A version of Kirin served colder, called Kirin Frozen, was trialled in the year and sales of Erdinger grew 20%. Phillimore promised some “new and exciting beers” in 2014.
Wells & Young’s: international
The company rationalised its range for the American market to concentrate on core brands that “capture the attention”, such as Wells Banana Bread Beer and Young’s Double Chocolate Stout. There was a new advertising campaign for the US and McEwan’s Scotch was relaunched in the US and Canada. Volumes in Canada grew 10%, led by Bombardier (+86%) and Banana Bread Beer (+83%). Volume growth in Russian and France was 11% and 19% respectively, with China up 25%. It also increased its footprint in South Korea, Taiwan, Thailand and Singapore.
Wells & Young’s: production and packaging developments
Phillimore said Wells & Young’s has been implementing “global best practice” improvements to its brewery in the year, with the help of Kirin and Grupo Damm. Changes have included adding a manual repack operation for international market multipacks and rolling out a Laboratory Information Management System to improve quality assurance. It plans to undertake a rolling programme of refurbishments and upgrades and during 2013 it replaced the roof of the boiler house and clearer the area that formerly housed the old cask line. Cellar technical services were contracted out to Three Nations.
Wells & Young’s: KNDL strike
Employees of the company’s distribution partner KNDL undertook strike action last summer and Phillimore said: “The distribution and customer care teams worked hard to ensure this was kept to a minimum and staff from across the business pulled together to help overcome these difficulties. Out of adversity came exceptional teamwork to uphold our commitment to providing the best customer service we can.”
John Bull Pub Company: performance
House net profit grew 13.5% and EBITDA was close to breaking through the €1m mark. Total sales were in line with budget at more than €6.1m, up €950k on last year.
Managing director Anthony Wallis said some sites made “significant progress” in 2013 and are posting weekly sales figures that “would have been hard to imagine a year ago”.
“The Robin Hood, The Shakespeare and The King Arthur have all made significant progress in 2013 and are posting weekly sales figures that would have been hard to imagine a year ago. The Robin Hood has increased sales by over €100k compared to the previous financial year and The King Arthur has increased weekly sales by over 25% in the same period, making a profit in only its fourth month of trade. For the last six months of the year, with a new manager in place, The Shakespeare reported profits of three times its performance over the same time the previous year.”
He said sales of its beers through John Bull are fast approaching 5,000 hectolitres and overall sales would have exceeded budget but were impacted by a four-month delay in opening its new pub in Lyon, the Elephant & Castle, because of planning permission complications.
Wallis pointed out that growth came despite the French Government increasing beer duty by 160% in January 2013.
John Bull: new site
Paul Wells told M&C Report that an 11th site has been secured in France, with an opening planned for the spring. The site, the company’s third in Bordeaux to be called The Starfish, is in a “beautiful, historic, stone-slated building, which is already a cafe restaurant. It has a huge cellar so we think there’s opportunity for events and music, that sort of thing.” Meanwhile, a 12th site is “with the lawyers”
John Bull: expansion
Paul Wells said: “By 2015 we’d like to try and have a dozen or more. We’re running at around two a year, so that’s relatively on track. We had a great year consolidating and building up a team - that’s given us a great impetus to stretch on and do some more.” He added: “It’s harder than it was even a few years ago to find the right sites. Despite France’s economy, there are a lot of new things going on. The competition for sites is no easier than it is in the UK.”
John Bull: initiatives
A bilingual beer menu has been introduced to all nine John Bull pubs. Guinness has been removed from the pubs and replaced with Young’s London Stout, meaning all draught ales at the pubs now come from its own brewery.
Regular tutoured beer tastings are taking place at the Elephant & Castle, where a promotion called “I Love Cask Beer” has been added to educate consumers about the category.
A loyalty card is being developed and will be trialled at the Bombardier.
John Bull: appointments and people
Appointments were made to new roles in the year: Ed Robinson (communication and marketing manager); Valerie Mathieu (commercial manager); Ariane Lapegue and John Dowding (“co-gerant”, similar to a UK company secretary). Anthony Fryer has replaced Justin Phillimore as the UK co-gerant.
Wallis said: “As the company has grown, it has become necessary to establish a Committee d’Enterprise (similar to an employee consultative group in the UK). This helps ensure the welfare of our workers via a forum of elected employees, who are given a level of influence over the company’s financial decision making, and the implementation of social and cultural benefits for employees and their families. It is expected this will help improve employee motivation and involvement as well as provide an invaluable channel of two-way discussion and feedback.”
Training has been “enhanced” to provide an “improved programme of practical courses” covering first aid, electrical safety, “handling difficult customers” and food hygiene.
