Orchid Group focuses on food as it reports fall in earnings

27-Sep-2012 - Last updated on 11-Mar-2017 at 19:48 GMT

Orchid Group has reported a 5.4% fall in EBITDAR in 2011, although turnover grew 3.7% to £179.6m, as the firm announced a three-year, £20m capex programme that will see wet-led sites become food-led.

The managed operator, led by Rufus Hall, said underlying gross margin improved 1.9% or £2.3m.

Hall said: “In the three years between 1 January 2009 to 31 December 2011, Orchid operated in a capital constrained environment with an average core capex spend of just £7.5k per pub. Nevertheless, like-for-like sales declined by less than 1% in the same period, and this strong performance reflects our continued investment in people, the resilience of our offers and the quality of our teams.

“EBITDAR was £40.6m, versus £42.9m in the previous year. Group EBITDA in the period – after rents paid on leasehold properties within the pub estate – was £32.2m, at house level. After central overheads including the costs of the Orchid office in St Albans and our support teams, EBITDA was £22.8m. We believe that these central costs of circa £9m – or £35k per pub in 2012 – compares favourably with our peer group and means that we are one of the lowest cost producers in the UK managed pub arena.”

Orchid’s restructuring in February, which saw Deutsche Bank become its sole financial backer, has given the firm resources to undertake to make capital investment and to churn out underperforming pubs.

“As a result of the financial restructuring we have now begun a three year, £20m capital investment programme. On the back of a full and detailed estate review, our investment programme will touch the whole estate through: repositioning investments – moving wet-led pubs to food-led offerings; Shine spends – evolving the retail offer in conjunction with the general manager.

“Food now accounts for 40% of its sales mix, up from 28% in 2006, Orchid said.

Hall said it has “continued to perform ahead of expectations” for the first three quarters of 2012. He added: “The UK continues to be a tough trading environment as customers tighten their belts. Consequently, businesses need to differentiate their offerings and deliver excellent service in order to grow profits. Orchid is well positioned to take advantage of this changing pub market through delivering its simple strategy built around ‘pubs and people’.”

Meanwhile, Hall said he believed that introducing a minimum price for alcohol is a “step in the right direction”. He called for a VAT cut to help the sector and end to the alcohol duty escalator.