Fuller’s, the London-based brewer and pub operator, has reported “very positive” results for the year to 31 March, with pre-tax profit up 3% to £30.3m on revenues up 5% to £253m.
Every business division was in growth, with like-for-likes in the managed estate up 4.2%, the tenanted arm up 4%, and the Beer Company up 2%. EBITDA increased 3% to £47.8m, adjusted earnings per share rose 7% to 39.82p and final dividend increased 8% to 7.6p.
However, the company said it experienced “the most volatile and weather-dependent start to a year that we can remember”, with like-for-like sales in the managed arm down 2.3% in the eight weeks to 26 May, despite 7.2% sales growth overall in the division.
Revenues in its managed arm grew 6% to £155.7m. The 13 pubs and hotels acquired in the year added 4% and the one week shorter reporting period reducing the figure by 2%. Operating profits before exceptionals increased at a lower rate of 1% to £18.3m, resulting from a reduced operating margin. EBITDA grew 1% to £26.9m.
The like-for-like sales growth in the year was predominantly due to increasing the number of covers rather than price, Fuller’s said. Margins improved through holding supplier increases below general food inflation and “enhancing kitchen efficiency”.
Fuller’s attributed the fall in operating margin in the division to three main factors: first, lower margins on drinks as it could not pass on the full 7% duty increase in March 2011 by raising prices further; second, one-off head office investments made to enhance food development teams, scheduling systems and digital presence; and the short-term impact of acquisitions that required closures for refurbishment and, in the case of the development sites, were loss-making prior to their transformations.
Significant investments were made in 18 sites in the year, totalling £4.2m. They are “already showing good returns”, Fuller’s said.
Fuller’s said cask ale growth outperformed growth in lager in the managed arm this year, “indicating both a shift in consumers’ tastes, with craft beer the order of the day, and interesting developments in our range”.
At the year end Fuller’s had 620 bedroom across 28 sites, up 28% on last year, due to acquisitions and investments. Like-for-like accommodation sales were up 7.4%, largely driven by an increase in average room rate achieved of 3%.
Fuller’s said 78% of hotel bookings are now made on-line and today (31 May) the firm is to launch its new pubs and hotels website, with more focus on promoting events and helping customers make bookings on-line.
Revenue in the tenanted arm grew 2% to £27.5m, driven partly by acquisitions, with 17 added to the division in then year (there were four disposals).
Average EBITDA per pub increased by 4%. Operating profits before exceptional items in the division increased 4% to £10.3m and like for like profits were up 2%.
Fuller’s said it trained “more tenants than ever” in the year and continued to invest in the estate, investing £0.6m last year across 26 pubs. Nearly 50% of its pubs have been upgraded in the past two years.
Revenues in Fuller’s Beer Company increased 5% to £109.1m, with operating profit up 2% to £9m as operating costs increased 5%. “Operating margin has been diluted due to both the changing sales mix and the impact of beer duty rises,” Fuller’s said.
On a comparable 52 week basis, total beer volumes increased by 2% and own beer volumes were 1% higher than last year, driven by volumes of own beer sold in Fuller’s pubs growing 3% and export volumes up 22% in the year.
“Exports continue to grow strongly and now account for one in six barrels of own beer sold. For the first time we sold more than 10m pints to our overseas customers,” Fuller’s said.
Brewery investment in the year totalled £4.5m and added 30,000 barrels of conditioning capacity. “The tanks are now in operation and we have the ability to increase capacity further at a lower incremental cost in the future.”
Net debt rose almost £50m to £138.2m following capital expenditure, mainly due to acquisitions, of £75m. “After the arrangement of £60m of additional bank facilities in the year, our total bank facilities now stand at £150m,” said Fuller’s. “The facilities all run until May 2015 and at 31 March 2012 we had £34m of undrawn committed funds.”
The pro forma ratio of net debt to EBITDA remains “low”, the firm said, at 2.7 times (2011: 1.9 times), “allowing us continued flexibility to invest in future opportunities”.
Net exceptional losses before tax of £1.5 million comprised £3m of acquisition costs, a net £0.9m onerous lease charge and £0.2m of non-cash losses in relation to financial instruments not effective for hedge accounting purposes, offset by a profit on the disposal of properties of £0.6m and a net reversal of property impairment charges of £2m.
Michael Turner, chairman of Fuller’s, said: “I am pleased to announce a very positive performance in a year where we have laid strong foundations for future growth following capital investment of £75m across the business, which included the acquisition of 30 carefully selected pubs.
“As the summer sun chases away the economic gloom, we now look ahead to what promises to be a historic time for the country. This coming weekend we have the Queen’s Diamond Jubilee, followed by the European Football Championships and then the Olympic games. With our pub estate based in London and the south east and London Pride as our flagship beer, we aim to give our customers a wonderful summer to remember.”
Douglas Jack at Numis said Fuller’s held forecasts for Fuller’s and said the firm was “slightly ahead” of expectations.
“We are holding our forecasts, although the acquisition of 30 pubs and hotels in 2012 (many of which re-opened after refurbishment work towards the end of the year) and a strong sporting calendar leave forecast risk on the upside, in our view.
“We are holding our forecasts, which assume managed pub LFL sales rise 2%, tenanted pub LFL profits rise 1% and brewing volumes rise 1% in 2013E. Recent managed pub LFL sales are down 2.3% (against a comparative of 6.7%) due to April’s poor weather, but LFL trading should now recover.
“Net debt/EBITDA has increased to 2.7x proforma, but we forecast it to fall back to 2.3x in 2013E during which Fullers should receive £5m for selling the Gales Brewery site. Growth should now accelerate; low leverage, a low (4.2%) cost of debt and strong cash flow should enable expansion to maintain momentum in to 2014E.”
