M&C Report takes a closer look at H1 interim results from Young’s, the London-based pub operator. Tenancies: disposals and investments In May, Chief executive Stephen Goodyear told M&C Report that Young’s has appointed Sapient Corporate Finance to look for buyers for the 30-odd tenanted pubs that it wants to sell. He said today: “We have got rid of about seven pubs - there are more to go. Most have gone to property development. We’ve been selling a few of the tail and will continue to do that.” He suggested that an ideal number of tenanted pubs in its estate could be 80; there are currently 93. Goodyear said disposals is “absolutely the right thing to do” because it will allow the company to invest more in its remaining sites; investments over the summer totaled £0.6m, with developments at the Grand Junction in Willesden and the Waggon & Horses in Surbiton. Pubs sold the most recent period include the Bricklayers Arms in Sydenham, the Charlie Butler in Mortlake and Castle in Battersea for a total of £2.5m. Goodyear stressed the company’s long-term commitment to tenancies, stating: “If we ignore tenanted pubs, that would be to our peril.” Franchises Young’s has abandoned plans to look at some kind of franchise-style agreement. He told M&C Report: “It’s something we’ve talked about in looking at the agreements that we’ve got, but we will stick to three year tenancy agreements. I haven’t heard a lot of glittering reports of where this is working. I think we will stick broadly to what we know.” Acquisitions Goodyear said: “We are opportunity driven. That’s why we bought Geronimo - it was a great opportunity and a perfect match with our pubs. We will always keep our eyes and ears open. I don’t think there are many freehold multiple groups around but we will look at single singles and multiples.” Young’s latest acquisition is the King’s Head in Roehampton, a derelict pub that has been bought off the Barclay Group, the commercial real estate company, and is set to open next year. Managed: performance The strength of its Geronimo pubs helped increase average ebitdar per site in its 152-strong managed division by 9.1% to £182,300. Among the strongest performers over the period were the Alexandra in Wimbledon, the Betjeman Arms in St Pancreas and the Northcote in Clapham Junction - the latter two are Geronimo sites. Total managed house revenue was up 37.9% and operating profit was up 23.1%, driven by the Geronimo acquisition and the good performance of the underlying business, said Young’s. Managed house like for like sales, which exclude Geronimo, were up 4.0%. Geronimo like for like sales, which will not form part of its total like for like sales until the next financial year, were up 12.6% compared with the corresponding period which predated its ownership. Managed: transfers Goodyear said the company would have a “flexible” approach to whether pubs, either existing or new sites, would be placed in the Young’s or Geronimo divisions. During the half year, £11.6m was spent on its managed houses. This includes £3.2m acquiring three new sites: the Cow in Westfield Stratford, the Lion & Unicorn in Kentish Town, which both opened under the Geronimo arm, and the Plough in Clapham Junction, added to the Young’s estate. “We have to have a flexible approach to where we think a pub is best suited to sit to get maximum out of it,” said Goodyear. Meanwhile, the Half Moon in Putney, the iconic music pub, was transferred from the tenanted division to the Geronimo arm at the end of the period and it’s set to re-open on 6 December. Managed: food A focus on premiumising its food offer, coupled with the Geronimo acquisition, has increased food sales as a proportion of revenue in the sector by 2.5 percentage points to 28.5%. “Our strategy remains focused on capturing this growth by providing restaurant quality food in a relaxed pub environment, prizing individuality, authenticity and quality,” said Goodyear. Hotels Young’s said that a combination of rebranding and a new booking system increased revenue by 21.9% across its 16 hotels, while RevPAR (revenue per available room) was up by 14.3% to £52.79. Trading conditions and predictions for 2012 “Trading in London is good. I’ve been pleasantly surprised,” said Goodyear. “I do think we’ve got great pubs and we do have to provide good environments for people to go into, and great offerings. When we give people what they want they will come. Trading bas been remarkably resilient. Times are very troubled, but when one looks at next year, I’m not that gloomy. We’ve got the Queen’s Diamond Jubilee in the early part of June. There’s going to be a lot of fever about the Olympic Games as well, I think.” Debts Young’s said that finance costs were £2.9m, up £1.6m over last year as a result of the extra debt taken on to fund last December’s acquisition of Geronimo. “Nonetheless, interest cover at 5.2 times remains strong. Total net debt at the period end was £124.5m of which £100m has been effectively fixed at just below 5.0%, with none needing to be refinanced until December 2015.” The company added: “Longer term interest rates have fallen since the year end. As a result we are enjoying lower rates on our variable debt, but where we have taken the decision to fix interest rates there has been a £9m adverse movement in our interest rate swap liability.” Analysts Peel Hunt riased its target price for Young’s, from 765p to 858p and issued a Buy recommendation. “In its first full reporting period since acquiring Geronimo, Young’s shows the quality of the brand starting to contribute handsomely both to growth and to its asset value. Young’s well-invested estate positions it centre stage for the Olympics,” the note said.