M&C Report takes a closer look at the full-year results from Young’s, the London-based pub operator and brewer: Pubs for sale Chief executive Stephen Goodyear revealed that Young’s has appointed Sapient Corporate Finance to look for buyers for the 30-odd tenanted pubs that it wants to sell. However, there’s “no specific timetable” for the sale, and the company may even decide not to sell them. “If the right offer comes in we will be tempted to sell. We are not in any rush, it’s just good estate management.” Goodyear said the company offered tenants at the pub first choice for buying the freeholds and around half a dozen have shown an interest. Future acquisitions Goodyear said the company is "very much in the market" for new pubs but there are no acquisition numbers in mind. ‘Franchise’ deals Young’s could begin trials of the kind of franchise-style agreements that have been developed by a number of other tenanted operators over the past year, Goodyear said. These typically involve the company buying the products and having a greater control over the retail offer, while the licensees is paid a proportion of the turnover. Goodyear said franchise-style deals are nothing new in the pub trade - he remembers them from about 30 years ago. But he added: “We may try it in two-three months. We are pretty flexible at Young’s and if there are offers that work we would be mad not to [try them], frankly.” Tenanted arm: stability Goodyear said: “We are finding we don’t have a problem with tenancy recruitment. We don’t have a single pub without a tenant.” The company said all its 97 tenanted pubs are open for business, and it emphasised the support packages that it has in place. “Wells & Young’s continues to provide an excellent range of beer brands complemented by a broader selection of guest ales. The wine range has been extended and has driven volume improvements. The training courses we provide centrally have also proved popular with tenants,” Young’s said. Goodyear added: “We’ve put in some good packages in the pubs we work closely with our tenants.” He said any concessions have been through discounts rather than rent reductions. Tenanted arm: recruitment Young’s invested £1.5m on “a number” of its existing pubs and £0.8 on one new acquisition, the White Hart in Witley. This year’s developments included the Abercorn Arms in Teddington, Queen’s Arms in Kilburn and the Grand Union pub in Wandsworth. “Each has made a promising start post investment.” In addition, two sites were also transferred to the managed estate. Geronimo pubs Goodyear said a “handful” of pubs could be transferred from the Geronimo business to the Young’s managed division, and vice versa. “There may well be a few,” he said. “We’ve got a couple that we are looking at. We bought Geronimo because they are wonderful pubs and it’s perfectly within our strategy of central London managed pubs.” Goodyear said the Geronimo outlets and Young’s managed pubs are “very similar” in how they trade. He added: “From the consumers’ point of view, the Young’s and Geronimo pubs will be run separately, but there are clear benefits from shared ways of working, purchasing and people development and combining the relative strengths of online marketing and brand support. The focus will be on developing sites to their full potential, whether as a Young’s or Geronimo pub, and ensuring those pubs in close geographical proximity have a clear point of difference.” Estate Along with the 26-strong Geronimo acquisition, Young’s opened two new pubs (the Dial Arch in Woolwich Arsenal and the Surprise in Chelsea), bought a further three (the Lass O’Richmond Hill in Richmond, the White Hart in Witley and the Lion and Unicorn in Kentish Town) and made four disposals (the Parrot in Canterbury, in Cock Inn at Boughton Monchelsea, the Shakespeare in Richmond and the Wheatsheaf in Wandsworth). It left the estate at 246 pubs, up 27 on the previous year. Managed arm: trading Same outlet like-for-like revenue was up 1.9%, with operating profit 4.6% ahead of last year at £27.6m and ebitda up 3.8% to £34.4m. Average ebitda before rents per same outlet managed house was £302,000. While drink and food sales were both up, the biggest growth was in the hotel business. Better occupancy and room rates increased revenue per available room by 14.2% to £44.11, while accommodation revenue was up 15.2%. “The rewards from our hotel rebranding, recent investments in room upgrades, websites, online booking and revenue management systems are now evident,” Young’s said. Managed arm: investment In total, the company invested £12.6m in the managed estate. Of this £3.6m was invested in its two new managed pubs and £5.5m existing ones, with the major investments at the Alexandra in Wimbledon, the Dolphin in Betchworth, the Bishop out of Residence in Kingston, the Coach and Horses in Isleworth and finishing the Cooper’s Arms in Chelsea. In addition, £3.5m was invested in its hotels, including major work at the Alma, its boutique hotel in Wandsworth that opened in December, plus the Alexander Pope in Twickenham, the Bridge in Greenford, the Windmill on Clapham Common and the Red Lion in Radlett. A further £3.4m was spent on Geronimo pubs after the acquisition. This included acquiring the Lion and Unicorn, a freehold in Kentish Town, and developing the Surprise, a leasehold in Chelsea. Young’s also bought the freehold of the Crown, a leasehold property Geronimo operated on the edge of Victoria Park in Bow. Developments undertaken in the year to March 2010, which have now completed their first full year post development, generated a 26.9% return on investment, based on an increase in ebitda. Managed arm: food mix Food sales grew 4% in the managed division - it now accounts for around 30% of the sales mix. The proportion is slightly lower, around 27%, in the Young’s pubs, and slightly higher in Geronimo. The level is higher still, around 40%, at the three Geronimo pubs at Heathrow Airport. Goodyear said the 30% figure is “about the right territory” for a pub estate such as Young’s. Managed arm: on-line strategy Young’s now has more than 470,000 registered customers on-line. “All of our pubs are easily accessed online through www.youngs.co.uk, www.geronimo-inns.co.uk or through individual pub sites. With two out of every three people using social media platforms, Facebook and Twitter are proving another successful means to attract and retain customers,” said Goodyear. “Social media is also fuelling a new generation’s interest in cask ale as more advertising campaigns use these platforms to engage drinkers.” In December, the company launched its new hotels website, www.youngshotels.co.uk, which it says offers a simple facility to engage with the hotels, book rooms and choose additional services online. “This will be increasingly important to ensure that Young’s takes full advantage of the tourist market as we enter an important period for London with the Queen’s Diamond Jubilee and the Olympic Games, both in the summer of 2012.” Managed arm: staff More than 40% of its managers were promoted from within the company, Young’s said, thanks to its Passport to Management scheme that focuses on training staff members to management standard. Easter and bank holiday trading The decent spring weather and the double bank holiday helped Young’s report “very good” trading so far this financial year. Like-for-like sales in Young’s managed pubs for the seven weeks from 4 April were up 8.8%, with the Geronimo estate up 13.8%. Overall sales in the managed division were up 34.2%, with comparatives boosted significantly by the Geronimo acquisition. Exceptional costs Young’s adjusted its profit for £5m of exceptional costs, £4.9m in Young’s and £0.1m in Wells & Young’s. These included: £2m acquisition costs of £2m, including include legal fees and stamp duty, for the purchases of Geronimo and three stand alone three; £1.1m integration costs for Geronimo and Young’s; £0.2m project fees for hotels where planning permission wasn’t given; £0.2m capital gains tax provision for the shares held in the Employee Share Ownership Scheme; plus a non-cash £1.9 million impairment in pub values and a £0.5m profit on sales of its four disposed pubs. Wells & Young’s: exceptional items The drinks business had an “unusually high number of breakages” due to “faulty bottles” that were recalled and destroyed. Young’s share of the insurance excess cost for these is £113,000. There was also a £52,000 cost to Young’s associated with the termination of Wells & Young’s Corona distribution contract. Reorganisation costs, mainly in IT-related redundancy payments, totalled £22,000 (2010: £121,000). However, Young’s received a £23,000 credit due to movements in the foreign exchange market; these incurred a loss of £564,000 and in 2010. Pensions and debt Young’s said that as a result of deficit reduction contributions from the company, good investment performance and favourable membership movements, its pension deficit improved during the course of the year by £6.5m. At the year end, the deficit was £7.6m (2010: £14.1m). The Geronimo purchase increased net debt by £60m to £122.6m. Banking facility Young’s gave more details of its £100m, five-year banking facility with the Royal Bank of Scotland that enabled the company to buy Geronimo. These new facilities comprise a £50m term loan and a £50 million revolving credit facility that replaces its existing £40 million one. “These new facilities sit alongside our existing longer dated £50 million term loan,” Young’s said. The firm has also entered into some additional interest rate swaps, which effectively fix its interest rates at just below 5% on £100m of its debt. “With gearing of 67.6% and our interest costs covered 5.2 times by our operating profit before exceptional items and with our net debt equal to 3.6 times our ebitda, Young’s has a robust balance sheet following the acquisition and a sound long term financing package in place,” the company added. Dividend Young’s recommended a 2% increase in the final dividend to 6.9p per share, resulting in a total dividend for the year of 13.26p (2010: 13p).

Topics