Dorset-based Hall & Woodhouse sold its soft drinks brands at the start of the year. The move means it can focus on expanding its tenanted division, in particular. The PMA Team reports.
The past six months have been very difficult, admits Andrew Younger, who runs Hall & Woodhouse's tenanted division. Family brewers hate making staff redundant.
And the sale of Hall & Woodhouse's Panda and Popzone brands to Nicholls for £5.5m in January meant the Blandford, Dorset, headquarters head count being trimmed by more than a third. Says Younger: 'Losing 175 staff is a lot for us. But we would have needed to have invested large amounts of money, some £25m, upgrading the soft drinks factory, while the fundamental problem of our location for distribution to national customers remained. He adds: 'We are hopeful that the vast majority of people who have been made redundant have found new jobs and we have bent over backwards to help people.
Focusing on the core business
There's no doubting the trauma involved for Hall & Woodhouse and its staff in closing a sizeable factory in a town as modestly-sized as Blandford. But there's also no doubting the opportunity this has provided to focus on the core parts of its business. 'The sale of Panda frees up funds to invest in growing our beer brands and our pubs, says David Woodhouse, group managing director.
For Younger's tenanted division, there's the cash available to fund an expansionary growth spurt. The coming year will see his division burst through the 200-pub mark; it currently has 192 tenanted pubs compared to 177 a year ago.
Although growth has been aided by the transfer of 10 pubs from the managed arm, the Hall & Woodhouse chequebook is definitely out. Nine pubs five already bought, four in the pipeline have been added in the past eight months or so. And there's a whopping, in regional brewing terms, £8m available to buy more pubs in the next 12 months. Says Younger, 'This year we are determined to invest wisely in our pub business. There's no reason why we shouldn't have a further £8m to spend on buying pubs next year. The business is going to be lighter on its feet and is going to produce better cash flow.
Pubs bought below asking price
Younger reports that the company's ability to move quickly means that vendors have been selling at a discount. 'It's difficult to find pubs that offer good value. But all the pubs we've bought we've secured at less than their asking price, partly because we're pretty agile.
Every pub acquired in the open market or brought across from managed has to have the capability to take at least £5,000 a week (all 10 managed tranferees were taking at least £8,000 a week). 'The main criterion for acquisitions is that we are getting a sustainable pub for the long-term, says Younger. 'Most of them have a good food business. We will buy a pub that is producing a return of slightly less than 12% on capital if it has sustainability. If a pub is not going to make a good living for the tenant we don't want to buy it.
The Hall & Woodhouse tenanted estate profile has a distinct tilt towards food houses. There are a few high-street drinkers' pubs and around 30 community houses, but 'rural, destination pubs with a big food trade 40% to 50% of sales predominate. 'The majority of the new tenants we are looking for tend to be able to do some sort of reasonably good food offer. We get quite a few applicants who have been chefs in London. The average quality of food has improved dramatically in the last few years. It's not that many more of our pubs can be called gastro pubs, it's more that a lot of our village pubs are much better at cooking.
Prior to arriving at Hall & Woodhouse, Younger held directorships with Punch, Bass and Nomura. His curriculum vitae makes him a slightly surprising advocate for the old-fashioned three and six-year rolling tenancy and the family brewer attitude to investment and tenant relations.
He says: 'We don't have one single lease. We prefer to run a tenancy business where we spend the money and do the repairs. It's important that we're seen as a friendly partner. Our investment and rent review process is based around the principle of a genuine offer. Where we invest, there must be a genuine return for us and for licensees; maybe some of the larger pubcos just have an eye on the rent and ignore everything else. And we're always aware that if a tenant begins to get into trouble, we've got to find out why and sit down with them and review the rent or whatever.
Refurbishing the estate
Alongside the newly-vigorous acquisitions programme, the past two years have seen a rolling investment in pub refurbishments. This year, around £3.7m is ear-marked for capital expenditure schemes.
Says Younger: 'I think two years ago we had a lovely estate but it was a little tired. Within the next two or three years, the vast majority of our pubs will have been invested in, changed around or repaired and will be the envy of many in the industry. I believe that businesses like ours can compete, grow and develop and will be around in 200 or 300 years if we carry on like this.