Young & Co's Brew. - Half-year Report

WELL-INVESTED ESTATE DRIVES FURTHER MARKET OUTPERFORMANCE

 

2018 

2017 

%

 

£m

£m

change

 

 

 

 

Revenue

156.8 

144.1 

+8.8 

 

 

 

 

Adjusted operating profit(1)

28.6 

27.8 

+2.9 

 

 

 

 

Operating profit

28.9 

25.0 

+15.6 

 

 

 

 

Adjusted profit before tax(1)

26.1 

24.9 

+4.8 

 

 

 

 

Profit before tax

26.4 

22.1 

+19.5 

 

 

 

 

Adjusted basic earnings per share(1)

42.11p

41.15p

+2.3 

 

 

 

 

Basic earnings per share

42.52p

35.62p

+19.4 

 

 

 

 

Interim dividend per share

9.97p

9.41p

+6.0 

All of the results above are from continuing operations.

(1) Reference to an "adjusted" item means that item has been adjusted to exclude exceptional items (see note 3).

PERFORMANCE HIGHLIGHTS

·      Another period of strong performance, with total revenue up 8.8% to £156.8 million along with a 4.7% increase in adjusted EBITDA to a half-year record of £40.4 million

·      Combination of a well-invested, premium estate and the hottest English summer on record delivered 5.2% like-for-like sales increase in managed houses

·      Continued trend of exceptional summer results - average like-for-like sales growth of 5.6% over the past seven years

·      Ram Pub Company (tenanted division) delivered an equally strong performance with like-for-like sales up 4.8% despite the hot summer having less impact due to a smaller proportion of outdoor space

·      Investment of £13.5 million during the period, a slight decrease on 2017 due to fewer acquisitions, with one new managed pub. Increased spend on the existing estate through nine major refurbishment projects within the managed estate and four within the Ram Pub Company

·      Healthy cash generation reduced net debt by £15.1 million to £125.4 million - strong balance sheet with gearing of only 22.1% provides the financial capacity for further investment

·      22nd consecutive year-on-year interim dividend increase with a 6.0% rise to 9.97 pence

·      Strong trading in the first six weeks of the second half, with managed house revenue up 7.2% and up 3.9% on a like-for-like basis.

Patrick Dardis, Chief Executive of Young's, commented:

"I am very pleased to report another strong period of trading, driven by our well-invested managed house estate which has once again outperformed the wider market. 

"Propelled by the hottest English summer on record, our beautiful riverside locations, stunning gardens and growing number of roof terraces helped to deliver 5.2% like-for-like sales growth in our managed houses, continuing our trend of exceptional summer performances with average like-for-like sales growth of 5.6% over the past seven years.

"Drink sales enjoyed a particularly strong summer with double digit growth of just over 10% in total and 7.4% on a like-for-like basis while recent investment in our hotel business saw accommodation sales rise by just over 18% during the period. 

"Despite severe cost headwinds and ongoing political uncertainty, our expectations for the full year remain unchanged and, thanks to one of the lowest levels of gearing in the sector, we have significant financial capacity for future investment with a strong pipeline of acquisition opportunities."

CURRENT TRADING AND OUTLOOK

After a memorable summer, we've started the second half of the year well; total sales in the past six weeks are up 7.2% and up 3.9% on a like-for-like basis. 

In the second half of the year, we will see further benefit from 'SMITHS' of Smithfield (Smithfield Market) and the Candlemaker (Cannon Street) as they continue to ramp up following their refurbishments although this will be partly offset by the closure of the Park (Teddington) and the Bridge (Chertsey) due to their planned redevelopments. We will soon be on site at Kidbrooke Village, where we will be opening a brand-new pub next spring, and we recently exchanged contracts on another freehold, the People's Park Tavern (Victoria Park). Acquisitions remain an integral part of our strategy and our pipeline remains strong.

Economic and political uncertainty remains unhelpful and recent statements from the Government have been contradictory in declaring support for businesses but at the same time promising to impose restrictions on immigration. Being based in London and Southern England, it is more than our cocktails that are cosmopolitan; 38% of our workforce are EU nationals and we will remain an inclusive business. Exceptional customer service is not something people are born with; it takes hundreds of hours of training and dedication, so I would never consider any of our employees to be "low-skilled".    

The decision to freeze duty on beer, cider and spirits in the Chancellor's recent budget announcement has been a timely relief to support our industry and our customers. Although we acknowledge the first positive steps taken by the Chancellor in modernising the business rates mechanism, our hope was for a complete overhaul. These are challenging times for the hospitality sector and the 3.2 million people employed within it. Our sector and the wider retail industry merit a rebalancing of the uneven playing field which sees property-based companies paying business rates which represent an additional tax burden not faced by the global online tech giants.  The minor reduction in business rates for smaller operators and the proposed introduction of a digital services tax do not go far enough to redress the imbalance in the burden of taxation.

In summary, we believe in long-term growth and the ability to deliver sustainable superior investor returns. We have a winning strategy of running a high-quality managed house estate with a small and profitable tenanted division, and we will continue to ensure that our offer taps in to current and future consumer trends.

Therefore, despite severe cost headwinds and ongoing political uncertainty, our expectations for the full year remain unchanged.

Patrick Dardis

Chief Executive

14 November 2018