The challenges keep coming for Stephen Thomas. On Friday the chief executive of Luminar – Britain’s biggest nightclub company – admitted that the past three weeks had been “truly horrendous”.
The shares tumbled a third in one day after Luminar posted like-for-like sales down 4.5% for the half-year to August 27 and down 10% in September, as admissions weakened over the key weekend clubbing nights. The group said the rising number of unemployed in its key 18-24-year-old target audience was taking its toll.
The echoing of similar warnings from Mitchells & Butlers and fashion retailer JD Sports came as official statistics showed that the number of unemployed in the 16-24 age group had risen by 60,000 to 947,000 in the three months to July, the biggest jump since 1992.
The news from Luminar amounted to a profits warning, with the group outlining a “significant risk” that it would not meet forecasts for the full year, with Christmas trading crucial. Altium cut its pre-tax profit forecast more than 25%, from £16.4m to £12m. Numis lowered its forecast from £17.5m to £12.8m.
The timing of the trading slump, and the impact on its share price, could not have come at a worse time – just after the company raised £37.5m from shareholders. At 95p, the new shares were issued at a deep discount to the prevailing share price of 141p, and investors are thought to be suitably perturbed that the shares have now dipped below the offer price.
Added to which, Luminar was forced to give warning on two associated companies, Eminence Leisure and 3D Entertainment (3DE).
Luminar said that Eminence, a supplier of DJs and other forms of entertainment to nightclubs and bars in which it has a 20% stake, was considering a company voluntary arrangement.
It might also have to write down the 49% stake it has in 3DE, which operates Chicago Rock Café and Jumpin’ Jaks, and it may stop accruing interest from the company (it has loan notes with 3DE). 3DE, which was spun out of Luminar, has undertaken cost cutting exercises in the past 12 months and is said to be taking advice over a restructuring of its debts.
It may seem fanciful, but given Thomas’s stated desire to increase the amount of business his company does with older customers – the so-called “divorced, single and dumped” market, what odds for Luminar to come riding to 3DE’s rescue, in some way?
Enterprising move
The move to sell seven freeholds at auction by Enterprise Inns is a fascinating dipping of the toe by chief executive Ted Tuppen.
Enterprise, one of the countries two dominant operators of leased pub estates, is holding out for some eye-watering prices, with a plan to lease back the properties on 35-year deals. It is looking for yields of as low as 6% (a profit multiple of 16.6x), although in reality 8-10% is more realistic.
In many cases the annual rent it is prepared to pay is way above the dry rent it is charging to tenants – in effect it is rentalising the money it makes from selling beer to these pubs.
Some say trying to extract this much from these properties is fairly sharp practice, hankering back to the good old days at the height of the pub auction market. Others suggest it’s a great way of maximising value, and will allow Enterprise to pay down debt. Opposing views make a market.
If successful, Tuppen will raise about £15m from the sale and says Enterprise could sell up to 100 in this way.
Shelving the code
The prospect of a scrapping of the proposed mandatory code on alcohol retailing is a potentially a rare piece of good news for pubs and the drinks industry.
Business leaders have not too often come to associate the words “pro business” with New Labour and although it is too early to celebrate, the move would represent a welcome departure from an increasingly indifferent approach to business by this government.
Of course the leak to The Times newspaper maybe a classic piece of flag-flying. Having planted the story, they can now measure the reaction from all stakeholders and decide how to proceed.
But it may just be that Lord Mandelson and his colleagues have realised the full weight of opposition to this part of the new police and crime bill – and not just from those people engaged commercially in the pub sector. For what has emerged both before the consultation process and during it is an unholy alliance between pub operators, councillors and local police forces – not exactly the easiest of bedfellows.
This strength of feeling seems to have struck a cord with the business secretary and there now appears to be an opportunity to kill the retailing code once and for all.
A brushing under the carpet of this latest bureaucratic nightmare would be a welcome tonic for a sector that is enduring a particularly challenging – for some crushingly so – trading era. Estimates suggest it would cost the industry £58m to implement with on-going annual costs of almost £40m – costs that may tip marginal pubs over the edge. The BII says a suspension of the code would save thousands of pubs.
But the health lobby and home office will not go down without a fight. And it’s worth remembering that, whatever happens, health and public order remain the key battlegrounds now and for the foreseeable future.
Also, those expecting a likely change of government next year to bring perhaps a lighter legislative touch should brace themselves.
A leading figure has warned the pub and bar industry of the prospect of wholesale changes to Britain’s licensing laws under a new government. Writing in the next issue of M&C Report, Jon Collins – chairman of Noctis and chief executive of CGA Strategy – said the industry should prepare itself for significant changes in 2010, under a Conservative government, led by David Cameron.
The warning came after the Conservatives criticised so-called “24-hour drinking laws” as “fundamentally flawed” and said that they plan to repeal the regulation if they got into power.
He said it was important for the industry to collectively recognise the threat and to start planning a unified lobbying campaign.
