CHAIRMAN’S STATEMENT
Results
The company has benefitted from some excellent summer weather and a good football world cup run in the first half of the year. However, headwinds in the form of increasing costs and weakening corporate and consumer confidence linked to the political landscape have presented challenges as the year has progressed.
Turnover for the period of GBP49.9m (2017: GBP48.0m) represents a 4% increase. Operating profit of GBP8.0m (2017: GBP7.7m) also represents an increase of 4%.
The expectation that the bank base rate may increase in the short to medium term has again had a positive impact on the fair value of our interest rate swaps, leading to a reduction in the provision of GBP0.6m at the half year (2017: GBP1.4m) and this positive movement is shown in our profit and loss account.
Net debt at 30 September 2018 was GBP70.2m (2017: GBP60.9m); increased as a result of the investments that we have made at the Beverley Arms and our new brewery, offices and stables.
The construction of our new brewery, offices and stables is now finished and we were very pleased to move there in September. We have awarded the demolition contract for our old brewery site, which will take just over a year to complete.
Pubs and Inns
Our tenanted pubs have had an excellent first half to the year – they are benefitting from sustained investment over a number of years and so were well positioned to take advantage of the heatwave experienced over the summer and the football world cup.
Once again our average earnings per pub has risen, by 14%, with like for like turnover up by 5% and operating profit up by 7%. We have completed 12 investment schemes in the first half of the year, investing GBP1.7m and continue to make good returns on our investments.
Major refurbishment schemes have been carried out at The Red Lion, Wybunbury, The Millstone, Darwen, The Holcombe Tap, Ramsbottom and The Queen Anne in Bury.
Our Inns have also had a good summer, with turnover up by 27% and operating profit up by 25%. They too are benefitting from investment and their premium positioning and are in fairly robust health. The major investments made last year at The Royal, Heysham; The Crown, Pooley Bridge; The Lister Barn, Malham; The Fleece, Cirencester and The Royal Oak, Keswick have all contributed to this strong performance.
We opened The Beverley Arms in July, later than we would have hoped, but just in time to capture the latter part of the summer trading period. The property has 38 bedrooms, a bar and restaurant area, as well as a large outside trading space.
I am pleased to report strong trading since opening, ahead of expectations and to positive local reviews.
We have sold five poor quality pubs for GBP1.6m, generating a profit of GBP0.2m.
Hotels & Spas
In the hotels & spas sales for the first half of the year have grown by 1%, although on a like for like basis they have declined by 2% due to a softening in corporate demand.
We have had to absorb some significant increases in government imposed costs; continued increases to the living wage, auto enrolment pension costs, business rates and renewable energy levies – these are outside our control and we have been unable to grow sales at a sufficient rate to absorb them. Inflation caused by the decline in the value of sterling has led to food and utility increases. Consequently, operating profits have decreased by 12% year on year.
We have completed the reorganisation of our hotel management structure in the period to make efficiency gains and re-focus our operations teams. This will significantly shorten the span of control in our hotel teams which we believe will enhance our sales function and more importantly enrich the customer experience.
We have continued our ongoing refurbishment programme and have spent GBP2.8m in the half year. The current refurbishment programme in our hotels is now largely complete.
Brand Review
During the period we undertook a review of the marketing of our inns and hotels, particularly to review how we encourage people to re-visit us across a number of different property types.
As a result we have relaunched our properties under a new collective, which we have called The House of Daniel Thwaites. The purpose of this was not to build another hotel collection in a crowded market but to celebrate our family of highly individual, characterful properties, in a way that preserves their identity.
Our ethos is to offer guests in our managed properties rich experiences and build on our reputation for high quality places to eat, drink and relax where people can feel genuinely at home.
An important part of this transition was to build new websites for each of our managed properties, which were completed and launched in July. We are pleased with the results and believe that it will allow us to market our properties in a new and different manner, helping us to appeal to a niche but discerning audience.
Funny Girls
When we sold our Free Trade business to Marston’s in 2015 we retained our investment in one large free trade account in Blackpool. Over a number of years, we had advanced loans to the business, secured over its freehold assets. Funny Girls comprises a popular cabaret venue, a nightclub and several bars based in the historic art deco Odeon cinema in the heart of the town; it is an iconic part of Blackpool’s nightlife.
In September administrators were appointed to the business, which is now being marketed for sale. Since administration we have been operating the business under license, which may or may not become a longer term arrangement depending on the outcome of the sale process.
Whilst it is our preference that a new owner be found to take the business forward, equally we are ready do so under our own stewardship should that be required. We expect that the position will be clearer by the end of the financial year.
Change of Auditor
The Board has conducted a review of the Group’s audit arrangements and, following a tendering process, has decided to appoint BDO LLP to replace KPMG LLP for the financial year ending 31 March 2019.
Earnings per Share
The basic earnings per share for the period was 8.5p per share (2017: 9.0p). This movement is largely due to the year on year movement in the fair value of our interest rate swaps, which whilst again positive this year, is less so than last.
Dividend
The Board recommends an interim dividend of 1.10p (2017: 1.10p) to be paid on 3 January 2019 to shareholders on the register on 7 December 2018.
Board Changes
John Barnes has decided to step down as a non-executive director on 31 December 2018. I would like to thank John for his valuable contribution over the past 4 years. His experience in many different hospitality and restaurant businesses has been invaluable to us as we have grown our managed operations.
I am delighted to confirm that he will be replaced by Andrew Stothert who will join us from 1 January 2019. Andrew is the Chief Executive of Brand Vista, and one of its founding partners.
Andrew has been an integral part in building Brand Vista into a highly regarded consumer brand consultancy and is passionate about helping his clients build genuinely differentiated brands that deliver a customer experience that becomes “irresistible”. I am sure that his disciplined approach to what matters to the customer will help us remain focused and encourage us to evolve in a fast moving market.
After 18 years as Chairman, I also intend to step down from that role at the end of the current financial year. I will be replaced by Rick Bailey, our Chief Executive, who, with the support of the rest of the board and our family shareholders, will become Executive Chairman.
Summary
The Company is in good shape following a prolonged period of investment and our financial results have moved forward in a challenging market. Our pubs, inns and hotels are now in a strong position to weather any further changes in the market.
We have opened an exciting new property in Beverley, together with our new small and artisan brewery. We have a differentiated approach to the beer and pub market that is shaped around our ability to offer our own award winning beers for sale exclusively in our own properties.
We have delivered on our goal to move from Blackburn town centre after over 200 years to our new home at Mellor Brook. This is a momentous change that should not be understated in our ambition to evolve our business for the future leaving behind our industrial past, whilst not failing to acknowledge its’ place in our heritage.
These past six months have cemented the delivery of a longer term plan and there is much to celebrate. However, there is no doubt that the second half of this year will be a challenge, particularly in our hotels business, which is having to absorb cost increases that we are struggling to recoup through sales growth.
Whilst I firmly believe that our business is in a strong position to move forward into the future, we face challenges to our trade, which are almost exclusively politically induced. For the time being our focus must move to making the most of our assets and tightening our operational performance. We expect continued volatility and uncertainty in the negotiations around Brexit, so we maintain a cautious outlook and will be watchful.
Mrs A J M Yerburgh
Chairman
13 November 2018
Profit and Loss Account for the six months ended 30 September 2018
| Unaudited | Unaudited | Audited | |
| |
6 months ended 30 September 2018 GBP’m
|
6 months ended 30 September 2017 GBP’m |
12 months ended 31 March 2018 GBP’m |
| Turnover | 49.9 | 48.0 | 92.2 |
| Operating profit | 8.0 | 7.7 | 12.9 |
| Property disposals | 0.2 ______ |
– ______ |
0.1 ______ |
| Profit before interest Net interest payable Gain on interest rate swaps measured at fair value |
8.2
(1.9) 0.6 |
7.7
(1.8) 1.4 |
13.0
(3.5) 1.3 |
| Finance charge on pension liability | (0.5) | (0.5) | (1.0) |
| ______ | ______ | ______ | |
| Profit on ordinary activities before taxation |
6.4 | 6.8 | 9.8 |
| Taxation (Note 2) | (1.4) | (1.5) | (1.7) |
| ______ | ______ | ______ | |
| Profit on ordinary activities after taxation | 5.0 | 5.3 | 8.1 |
| ______ | ______ | ______ | |
|
Earnings per share |
8.5p |
9.0p |
13.8p |
Balance Sheet as at 30 September 2018
| Unaudited | Unaudited | Audited | |
| |
30 September 2018 GBP’m |
30 September 2017 GBP’m |
31 March 2018 GBP’m |
| Fixed assets Tangible assets Investments |
297.2 3.2 ______ |
287.7 3.0 ______ |
289.5 3.1 ______ |
| 300.4 | 290.7 | 292.6 | |
| Current assets | |||
| Stocks | 0.6 | 0.6 | 0.6 |
| Trade and other debtors | 12.8 | 12.6 | 12.6 |
| Cash at bank and in hand | 2.3 | 2.6 | 2.8 |
| ______ | ______ | ______ | |
| 15.7 | 15.8 | 16.0 | |
| Creditors due within one year | |||
| Trade and other creditors | (15.5) | (15.6) | (14.7) |
| ______ | ______ | ______ | |
| Net current assets | 0.2 | 0.2 | 1.3 |
| ______ | ______ | ______ | |
| Total assets less current liabilities | 300.6 | 290.9 | 293.9 |
| Creditors due after one year | (89.2) | (82.8) | (84.8) |
| ______ | ______ | ______ | |
| Net assets excluding pension liability | 211.4 | 208.1 | 209.1 |
| Pension liability | (34.2) | (38.5) | (34.9) |
| ______ | ______ | ______ | |
| Net assets including pension liability | 177.2 | 169.6 | 174.2 |
| ______ | ______ | ______ | |
| Capital and reserves | |||
| Called up share capital Capital redemption reserve |
14.7 1.1 |
14.7 1.1 |
14.7 1.1 |
| Revaluation reserve | 77.3 | 78.3 | 77.5 |
| Profit and loss account | 84.1 | 75.5 | 80.9 |
| ______ | ______ | ______ | |
| Equity shareholders’ funds | 177.2 | 169.6 | 174.2 |
| ______ | ______ | ______ | |
NOTES:-
1. Basis of preparation
The interim accounts, which have not been audited, have been prepared on the basis of the accounting policies set out in the Annual Report and Accounts for the year ended 31 March 2018.
2. Taxation
The taxation charge is based on the estimated tax rate for the year.