A smart move

In the words of its chief executive Stephen Goodyear, Young & Co's controversial decision to sell its famous South London brewery site now looks "well timed". No kidding.

While marking the end of an era, the emotive sale of the group's Wandsworth premises in August 2006 and its subsequent brewing joint venture with Bedford's Charles Wells meant the 175-year-old business was able to concentrate more or less fully on being a pub operator - a handy place to be, given the arduous demands of the sector.

One also might ask whether in today's property climate the group would have achieved the near-£70m selling price it got for the site. Timing, as they say, is everything.

To sell or not to sell

Young's' conundrum at the time was one with which many will have been all too familiar. A number of family-owned brewers have in recent years grappled with the thorny issue of whether to rend asunder their retail and production operations. Opposition, often bitterly expressed, has regularly accompanied such deliberations.

It was no less the case when Young's announced it was selling up. Despite well-publicised arguments about the need to re-locate to a bigger site - and avail itself of a whopping great cheque for the potentially lucrative site in a busy London borough - interest groups cried 'foul'.

The Campaign for Real Ale predictably led the charge, describing the move as "very disappointing". Others, notably in the City, believed a sale would inevitably herald Young's becoming the next takeover victim, a message the group's management was predictably keen to rebut.

Whatever the view, the deal went ahead and for the most part the critics have been silenced. Young's still has a hand in making cask ale via its 40 per cent stake in the Bedford-based Wells & Young's Brewing Company. Indeed there are those who, some two years on from the brewery disposal, even dare to whisper that its beers are better now than they had been for the last few years when it was turned out in Wandsworth. And the group's pub estate has certainly benefited from the outcome.

A total of £38.1m was invested, according to Young's, with £26.6m spent on acquiring and developing nine pubs, including a number of former Capital Pub Company properties, and a further £9.4m invested in existing sites.

Speaking privately, many of the group's closest rivals acknowledge that Young's has smartened up its act and that its programme of pub refurbishments, while somewhat fulsome in terms of the amount of money spent, has made it one of the best operators around.

The group itself certainly thinks it is. Last week it announced full-year results that showed overall turnover for the year to March 29, 2008, up 6.6 per cent at £122.1m. Operating profits were up 35.5 per cent at £20.9m, while pre-tax profits were up nearly 24 per cent at £10.8m.

Strong performance

Goodyear described it as a "strong performance in very testing market conditions", with a strong emphasis on style, quality and service. "We are pleased with the effect of premiumisation across the estate," he said. "The pubs we've invested in are in great locations and we now have 13 pubs along the River Thames," he added.

He acknowledged being a London-focused operator "certainly helps, thanks to the concentration of people and the amount of disposable income around". However, he added, "you make your own luck".

The group's 116 managed houses, representing 52 per cent of the total estate, saw turnover up 8.1 per cent at £106.6m, with operating profits up nearly a fifth at £26.8m.

Food sales rose 16 per cent and now account for 25.4 per cent of sales, up 1.8 per cent on last year. Food is important, said Goodyear, but he doesn't want it heading much above 35 per cent of the group's total turnover. "We want to avoid food becoming too big in the business," he said.

"Unlike some other pub companies we still believe that beer has a great future. Liquor is very much at the heart of what we do."

Life for the group's 103 tenants and lessees has been predictably tougher, however, as the smoking ban, poor weather and consumer slowdown have taken their toll.

Turnover was just above being flat, "despite like- for-like declines of two per cent on a same outlet and uninvested basis". Wet sales fell nearly four per cent, although operating profits rose nearly 15 per cent, thanks in part to good Wells & Young's supply terms. Five pubs were transferred to tenancy during the year, the group said.

Retail director Patrick Dardis said the group was doing everything it could to help. "It's a mix of different solutions, including additional products," he said. "We've made a guest beer - Deuchars IPA - available for the first time, for example."

According to Goodyear, recent trading has been "resilient", especially on the managed house side, with sales up 3.4 per cent in the past eight weeks, up 1.6 per cent on a same-outlet like-for-like basis despite tough comparatives, and he remains bullish that his business can make progress in the tough period ahead.

With a corporate will to remain independent, supportive shareholders and funds to acquire and refurbish pubs, his confidence might be well placed.

Young & Co - 2008 numbers at a glance

Turnover £122.1m Up 6.6 per cent

Operating profits (pre-exceptionals) £20.9m Up 35.5 per cent

Pre-tax profit £10.8m Up 23.8 per cent

Basic earnings per share 13.67p Up 32.1 per cent

Dividend per share 12.5p Up 33.8 per cent