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Tue 7th Jun 2016 - Daniel Thwaites – 2016 will be year of ‘consolidation and investment’ to lay foundations for growth, operating profit increases 19.8%
Daniel Thwaites – 2016 will be year of ‘consolidation and investment’ to lay foundations for growth, operating profit increases 19.8%: North west brewer and retailer Daniel Thwaites has said 2016 will be a year of “consolidation and investment” as it lays the foundations for growth following the publication of its annual financial report. The company reported operating profit increased 19.8% to £11.5m for the year ending 31 March 2016. It saw turnover fall to £86.4m, compared with £137.6m the year before due to the sale of its beer company to Marston’s in 2015. Pre-tax profit fell slightly to £4.8m, compared with £5m the year before. It sold 20 pubs in the year and is also set to submit plans for a new brewery at Mellor Brook by this summer. In June, the company restructured its head office functions to reflect the simplified nature of the company following the sale of the beer company, which meant a number of redundancies, but said it was now appropriate to support its plans for the future. The company stated: “We have also reviewed how the simplification of the business is reflected through our branding and customer messaging and have arrived at a new brand hierarchy and website which will be launched towards the end of 2016. Our strategy remains focused on the existing four key parts of the business and we have plans to continue to invest in them to underpin our future growth.” Chairman Ann Yerburgh said: “During the year we have continued our strategy of investing in our core pub estate, inns and hotels, whilst continuing to sell poorer quality properties. As a result of that and the receipt of the proceeds from the sale of our beer company of £29.0m, net debt decreased in the year from £60.5m at 31 March 2015 to £34.1m at 31 March 2016. The sale of the beer company in the past year and subsequent restructuring has slimmed down the company to a core of high quality businesses that meet this objective, whilst providing funds to develop and acquire new properties to provide growth for the future. The financial year has begun with some headwinds, with difficult trading over the important Easter period. Easter fell early this year, and was accompanied by poor weather, which then persisted for several weeks. Fortunately the regional hotel market continues to grow steadily and our pubs, inns and hotels are benefiting from sustained investment over the past five years. This will be a year of consolidation and investment. This will be important in laying the foundations for profitable growth in the following year. We expect to start work on the new Lodge at the Solent in July, and on our investments in the Inns after the summer. We have the strongest pipeline of investment opportunities that we have had for a number of years and our recent investment experience gives us confidence in these. We are working hard to uncover additional new opportunities to acquire new properties and are excited about some of the prospects that we are currently assessing. After a number of years of disruptive change, the company is in a strong financial position to enter a period of consolidation, investment and growth. As a result I am optimistic about its future and confident that we are in a position to make the most of any opportunities that arise.”

Pubs: The company stated: “We own a freehold estate of approximately 275 pubs, operated almost exclusively on a traditional tenancy basis. Our pub estate encompasses community locals to destination food led pubs in both rural and town centre locations, ranging geographically from Cumbria to the Midlands, and from North Wales to Yorkshire. Our strategy has been consistent in recent years, focusing on the quality pubs within the estate, investing in them alongside proven operators to expand and improve the premises with a focus on establishing good quality food offerings and where possible the development and refurbishment of bedrooms. Our investments over the past few years have seen a transformation in the scale and penetration of food sales within the estate, and have created sustainable, growth businesses with diversified income streams. Despite trading fewer pubs over the course of the year than last year Thwaites Pubs turnover increased by 3% and operating profit increased by 5%. Our trading pattern has been one of steady progress through the year, with sales building to a good finish in the final quarter, with a particularly strong performance in March. One of the key metrics that we use to monitor the performance of the pubs is average Ebitda per unit, it was pleasing to see that on a like for like basis this increased during the year by 12%. During the year we completed a further 23 development projects at a cost of £1.7m, making returns well ahead of our hurdle rate of 20%. Major projects in the year have been completed at The Hare and Hounds, Todmorden, The Jacobs Well, Honley and The Crofters, Barrow in Furness. The sustained investments made over recent years have ensured that the fabric of our pub estate is in good order and the emphasis of our investments have positioned the pubs towards a mixed food and drinks offering that place them in better stead for the future. As referenced last year, we have seen acceleration in the change in drinks mix in our pubs driven by the market, our customers and our investments, with significant growth in wines, spirits and soft drinks. This has continued this year and growth of our wines, spirits and soft drinks sales has been 13%, against 7% last year. In contrast our beer volumes have declined marginally, a consistent trend over the past few years. We have continued to focus on adding good quality letting bedrooms to a number of our pubs, the most recent being 11 new bedrooms at The Crofters in Barrow in Furness. We believe that this strategy is a positive one, which provides a further income stream for our publicans, and creates more sustainable long-term businesses. One of the key planks to the success of our tenanted pub business over the past few years has been our ability to attract determined and talented entrepreneurs to run our pubs. There are a number of critical factors that contribute to this success, the key ones being the values of our organisation, the quality of our properties, their locations and the support that we provide to our customers to make their businesses a success, both by way of investment and business advice. We have been extremely successful in managing our tenanted pub estate to minimise churn and customer turnover. Our core measure of success in how good we are at recruiting and retaining great operators into our pubs is how many pubs need new operators at any point in time. I am pleased to be able to say that by the end of March 2016 we had reduced the number of pubs requiring new operators to nine properties, which equates to 3% of the pub estate. We have continued to address the bottom end of our pub estate during the year, selling 20 poorer quality pubs at a net loss of £0.2m after disposal costs. In addition during the year we acquired three pubs: The Royal, Heysham, The Boot and Shoe, Lancaster and The Crown, Pooley Bridge – all of these properties are welcome additions to the estate and have traded in line with our expectations. They will see significant investments in the coming year. We continue to look to acquire further good quality tenanted pubs with balanced income streams. The combined effect of continued investment in our core properties, disposing of pubs in the tail of our estate and acquiring good quality tenanted pubs will underpin our high quality, sustainable pub business.”

Beer company: The company stated: “We announced on 31 March 2015 we had agreed terms to sell the major part of the beer company to Marston’s. Due to the legal requirements to consult with those people whose jobs were affected by this decision, we continued to operate the business until 17 April 2015, when this consultation process was completed. During this period we generated a turnover of £3.2m and an operating profit of £0.1m, which is presented in this year’s accounts as a discontinued operation. We continue to operate our small craft brewery in Blackburn. This craft brewery was installed in 2011 and allows us to produce a range of seasonal and craft beers exclusively for sale in our own pubs, inns and hotels. We believe that this gives us a point of difference over other pub owning companies. We will continue to develop our brewery, beers and brands as we plan for the move to our new site at Mellor Brook.”

Inns of Character: The company stated: “We currently own and manage eight Inns of Character and continue to seek high quality properties in outstanding locations to develop our Inns portfolio. These Inns have a busy bar at the hub, a quality food offering and comfortable accommodation – they focus on providing outstanding hospitality and offer an attractive and more personal alternative to the mid-market branded chains in busy locations. The significant investment programme we carried out during 2014 and the early part of 2015 has had a very positive impact on the performance of the inns this year, as we have seen sales increase by 11% compared to 2015, and operating profits increase by 122%. We have carried out further investment programmes during this last year. In November 2015 we closed Penny Street Bridge, Lancaster for a full refurbishment of the ground floor trading areas. It reopened in time for Christmas, renamed as The Toll House Inn, in reference to its historic origins. Since reopening we have seen significant improvements in its sales, which have exceeded our expectations. We also carried out a full refurbishment to the bedrooms at The Lion, Settle, which has had a positive impact on both room occupancy levels and average room rates. We purchased three properties for our inns portfolio during the year. The first, a derelict property close to The Lister Arms, Malham, which we will convert into ‘The Lister Barn’ providing an additional eight letting bedrooms, a communal area for families and large groups, and some additional staff accommodation. The scheme is currently with planners and we expect work to commence in the summer and be completed before the end of the year. In February 2016, we acquired the Beverley Arms, Beverley. This property is currently closed prior to complete renovation. This will be the largest project we have done so far in the inns, and due to the scale of the works involved, we estimate that it will open in the summer of 2017. Lastly, we acquired the Crown Inn, Pooley Bridge, which is currently sitting in our tenanted pub estate. It is our intention to develop this pub during 2016, with the addition of a large dining room and 18 letting bedrooms. We have a well developed pipeline of projects, and expect further acquisitions and new developments in the coming year.”

Shire hotels and spas: The company stated: “We own and operate six full service four star regional hotels, which are geographically spread across the north and south of England. The provincial hotel market has experienced a steady growth over recent years with increasing consumer confidence and an improving economic climate. Sales in our hotels increased by 4% year on year with strong occupancy rates, and increasing average room rates. Whilst sales moved forward year on year, operating profit was more challenging due to an increase in the proportion of rooms sold through online travel agents, where we pay significant commissions. This is an issue faced by the industry as consumer habits change and more and more activity moves on line, we are looking at ways to manage this increasing cost and encourage our customers to book directly with us. We invested £3.5m extending the Cottons Hotel & Spa, Knutsford adding 30 bedrooms, bringing the total rooms at this hotel up to 138. The work was completed in December 2015, and so far occupancy levels and room rates for the new rooms have been in line with our expectations. During the year we carried out a design review for each of our hotels, putting together design templates that will enable us to develop the individual character of each hotel in its local area. This will provide a framework to invest in each of the hotels over the next few years with a design vision to create interesting, characterful contemporary hotels, the best in their local area. Whilst this design review was taking place we refurbished fewer bedrooms that we had originally envisaged, although we completed 65 rooms in the year. We have plans in place to accelerate our refurbishment programme in the coming year. We own and operate Lodge on the Park, which has 36 bedrooms and sits adjacent to the Aztec Hotel & Spa, Bristol. The lodge was built in 2007 and has been very successful in allowing us to provide a wider offering to the residents of the local business park. We have received planning permission to build a similar 54-bedroom lodge adjoining the Parson’s Collar pub, adjacent to the Solent Hotel & Spa, Fareham. We expect to start the build in the summer of 2016 and to be open by Easter 2017.”

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