Thwaites (Daniel) Plc - Half Year Report

Results

The company has had an excellent first half of the year. Sales growth was very strong in the first few months, but slowed in the pubs towards the end of August and through September with very poor, wet weather providing a marked contrast to last year.

These strong results have been achieved despite that poor summer weather as well as having to absorb significant cost pressures from increases in the National Living Wage, business rates and high levels of food cost inflation.

Turnover for the period of GBP48.0m (2016: GBP44.0m) represents a 9% increase. Operating profit of GBP7.7m (2016: GBP7.4m) represents an increase of 4%. The successful investments made in our properties last year, in particular the Lister Barn at Malham, and the Boot and Shoe at Lancaster, together with the acquisition of Middletons Hotel in York and Langdale Chase, Windermere has helped to underpin this performance.

The expectation that the bank base rate may increase in the short term has had a positive impact on the fair value of our interest rate swaps, leading to a reduction in the provision of GBP1.4m at the half year, which is shown in our profit and loss account.

Net debt at 30th September 2017 was GBP60.9m (2016: GBP34.9m), which has increased due to the acquisition of Middletons Hotel and Langdale Chase together with the number of investment projects that have either been completed or are currently underway. The timing of our investments means that the returns are now beginning to feed into the business and we have a further GBP14m of capex committed and under way.

The construction of our new offices, brewery and stables is progressing well and we expect to move in next summer.

Pubs

In the pubs, the investments in our properties, together with disposing of poorer quality pubs, continues to improve the quality of our estate and raise the average contribution per pub. Our focus continues to be on improving the scale of food sales within the estate, adding letting bedrooms where possible and attracting the very best individuals to partner with. Sales growth has been 1% in the first half of the year, with operating profits in line year on year.

We have sold six poor quality pubs for GBP0.9m, at valuations that were broadly in line with their net book values.

We have spent GBP2.7m on pub investment projects in the first half year, including the completion of The Royal, a characterful property in the old village of Heysham on the Lancashire coast, which has been fully refurbished to include 11 letting bedrooms and a large outdoor trading area with bar, pizza oven and grill. The property opened in May and traded very strongly over the summer, exceeding our expectations.

We were delighted to hear that the Eagle and Child in Ramsbottom, which was extended and refurbished in March, was recently awarded the John Smith’s Great British Pub of the Year.

Major refurbishment schemes have been carried out at the Lindley Tap in Lindley near Huddersfield, the Black Dog in Oswaldtwistle and The Cock and Bottle in Tarleton.

Inns

In the inns, sales have increased by 18% compared to last year, aided by a number of major refurbishment schemes. Operating profits have increased by 12%, but have been held back by the increase in the National Living Wage from 1st April 2017, as well as increases in business rates and food cost inflation.

The Lister Arms at Malham has continued to go from strength to strength following the completion of ‘The Lister Barn’ in November 2016, which provides eight letting bedrooms, a communal area for families and large groups, and some staff accommodation.

The development of The Crown Inn, Pooley Bridge, was completed in April and opened just before the Easter holiday. It has 17 letting bedrooms, a riverside dining room and a roof terrace overlooking Ullswater, and the strength of sales over the summer since opening has been very reassuring.

We have also carried out a major refurbishment of The Fleece at Cirencester, where we have incorporated the adjacent Starbucks into the main dining and bar area. At the Toll House in Lancaster and the Royal Oak in Keswick we have recently finished the refurbishment of all of the bedrooms.

Work is well underway on the complete renovation of the Beverley Arms, Beverley, which we expect to open in the spring of 2018, when finished this will have 38 bedrooms and a large bar and restaurant.

Hotels & Spas

In the hotels & spas sales for the first half of the year have grown by 14%, which includes the benefit of the acquisitions we have made and major development projects we have carried out. Operating profits have increased by 16% year on year.

In March 2017 we acquired Middleton’s Hotel in York, a 56 bedroom property close to the city centre. It has been successfully integrated into our business and has traded very well over the half year. We have plans to invest in the hotel and are in the process of developing these so that we are in a position to upgrade some of the rooms in 2018.

In April 2017 we acquired Langdale Chase, a 29 bedroom hotel on the shores of Lake Windermere. We were delighted to learn that after three months of ownership and starting to put our stamp on the hotel we were awarded AA 4 star hotel status and that the restaurant had achieved 2 AA rosettes.

Whilst we have begun the process of putting together development plans for this site, due to the size of the site and potential development options, together with the planning requirements within the National Park it may be some time before works start.

Our new 54 bedroom lodge, which is on part of the site at the Solent Hotel & Spa, Fareham, was completed in July 2017 and opened in August. The design and light modern feel of the property has been well received by our guests. We also fully refurbished the adjacent ‘Parson’s Collar Pub’, which opened at the same time as the lodge.

Elsewhere in the hotels we have continued with our ongoing refurbishment programmes and have spent GBP2.8m in the half year.

Earnings per Share

The basic earnings per share for the period was 9.0p per share (2016: loss per share of 0.5p). This movement is largely due to the significant year on year movement in the fair value of our interest rate swaps, which in 2016 was adversely impacted following the reduction in bank base rates due to the decision to leave the European Union.

Dividend

The Board recommends an interim dividend of 1.10p (2016: 1.10p) to be paid on 2 January 2018 to shareholders on the register on 1 December 2017.

Summary

The groundwork has been laid over the past few years to deliver this good set of half year results and we are hopeful that this success will carry through into the second half of the year. A number of investment projects were completed in the first half, which will contribute to continued growth.

There continues to be uncertainty in the market, with consumer spending slowing in areas and some initial signs of distress in parts of the casual dining market. We are vigilant to these trends, however, we have a well invested business that is in a strong position to weather any economic or political storms and take advantage of further opportunities as they arise.

Mrs A J M Yerburgh

Chairman