Thwaites reports decline in full year sales

Group turnover decreased by 0.6% to £136.4m. Turnover across its Beer Company and Pubs fell by 1.5% to £97.1m, due primarily to a decline in sales in the pub estate, whilst turnover in across its Hotels and Inns increased by 1.8%.
Pre-tax profit before exceptional items stood at £6m down from £6.7m the previous year. Operating profit, before exceptional items, decreased by 15.3% to £10.5m.

The company, which operates c.330 pubs, said that its seasonal pubs in seaside and tourist locations suffered from reductions in visitor numbers and that the “constant rain led to many beer gardens remaining empty”. As a result, beer volumes reduced by 6%, and the group had to provide financial support to those tenants suffering from the reduced summer trade.

Thwaites said it continued the development and growth of its free trade business, with total volumes increasing by 3% year on year.

The company said: “This growth rate is lower than in previous years, as whilst we have increased our customer base, the impact of the poor summer weather particularly reduced supply to sporting clubs, with many cricket, golf and other sporting fixtures cancelled last summer. We offer high levels of service together with an expanding range of cask ales, but we operate in a marketplace that is extremely competitive as brewers seek to expand their free trade businesses in response to falling on trade volumes in their existing business; consequently margins are under severe pressure.”

During the year, the group sold 14 pubs for a total of £2.6m generating a loss against book value, after disposal costs, of £200k. It also sold a rental office property in London for £6.2m, realising a profit of £2.4m. The company acquired three pubs and an inn at a cost of £5.5m. 

In line with its accounting policy, 20% of the group’s properties were subject to a formal revaluation during the year, and an impairment review was carried out on the rest of the property estate. This resulted in a reduction in the total value of its property portfolio of £4.5m of which £2.9m was a reduction in the revaluation reserve and £1.6m was charged to the profit and loss account. 

Exceptional items amounted to £8.4m before tax, and comprise a provision for restructuring costs of £1m, a property impairment charge of £1.6m, a pension past service credit of £700k, an exceptional profit on sale of properties of £2.4m and a provision for the settlement of fixed interest rate swaps of £8.9m. 

It said that its brewery was now running at capacity and the group delivered an increase in sales volumes of 15% year on year. This growth continues to be led by Wainwright, with volumes 31% up on the previous year.

However, the company's plans to move to a new brewery remain held up by an issue over the sale of its existing plant, which it agreed to sell to Sainsbury’s in 2011. It said that Blackburn with Darwen Council was not currently prepared to support the scheme as proposed and that it continued to work with Sainsbury's and them to explore development options and plan the redevelopment of its existing town centre  site.

It said: “At the same time, we are actively searching for and performing feasibility studies on potential new sites. At the outset, we expected this project to take up to four years and whilst we remain committed to resolving our path forward within that timeframe, a deliverable development plan requires resolution.”

Chair Ann Yerburgh said: “It has been yet another challenging year for the economy and in particular for the sectors in which we operate. The impact of the wettest summer for over 100 years and the consumer environment, particularly in the North West, has had a detrimental effect on the performance of our pub estate and beer company.
“We have taken decisive action to deal with the issues that face us, in order to put us in a better position for the future. We remain cautious but optimistic about our future prospects and hope to be able to announce progress with our new brewery project over the coming year.

“The announcement of our intention to relocate our brewery operations to a new site together with new entrants into the market have impacted on contract volumes, and therefore we have taken steps to restructure our brewing and packaging operations to exit the vast majority of contract work and ensure that we have an appropriate cost base for our on-going production volumes. This restructuring process has resulted in an exceptional provision for redundancy costs of £1m.

“The last few years have been very difficult ones and the beer market continues to be a very competitive place due to the continuing decline in national beer consumption, which is showing no signs of abating. In order to meet the demands of the difficult trading and economic environment we have taken decisive action to address costs, restructure the business, manage cash flow and position ourselves where we are best placed to increase our profits and future returns.

“We remain positive about our prospects over the medium term and believe that we are taking the appropriate actions and decisions to underpin them. However, the continuing economic uncertainty and lack of consumer confidence is likely to ensure that the trading environment will remain challenging in the coming year.”

At 31 March 2012, the company made a provision of £11.9m to settle up to £50m of interest rate swap contracts on which it was committed to paying the  difference between LIBOR and the fixed rates for periods of up to 22 years.

During the year it settled £40m of these swaps, at a cost of £9m. Since March 2012, LIBOR has fallen even further, increasing the termination value of the remaining £55m of swaps to £17.6m.

The group said: “We have also undertaken a review of our longer term funding requirements, including the costs of the new brewery. We have therefore made an additional provision of £8.9m for a further £25m of the remaining £45m unprovided swaps as they are not highly likely to be used against future borrowings. In summary, of the £95m of swaps that were in place at 31 March 2012, £40m have been settled in cash, £35m have been provided against and may be settled in cash in the future and £20m remain matched to the level of bank debt expected in the short to medium term."

The group’s net borrowing increased by £11.8m, from £45m at 31 March 2012 to £56.8m at 31 March 2013 primarily as a result of the settlement of interest rate swaps and the purchase and cancellation of shares.

The company renewed its bank facilities of £30m during the year, which in addition to £45m of long term debt means the total facilities are £75m. It said that these total facilities should be sufficient to meet its short-term needs.

An interim dividend of 1.10p has been paid and the group’s boardoard recommends a final dividend of 3.36p, which will make a total of 4.46p for 2013 (2012: 4.46p).

The group currently owns and manage six `Inns of Character', with another three properties currently under conversion. In November 2012, it completed the acquisition of The Judges Lodgings, York.  The property is currently undergoing a substantial refurbishment, after which it will join the `Inns of Character' portfolio. The company has also transferred a further two properties from its pub estate, which will join the Inns of Character in due course.

It said it continued to seek “high quality properties in outstanding locations to develop into our inns portfolio”.

Overall sales for its six hotels increased by 3% last year on a like-for-like basis. Whilst occupancy rates are increasing, it said that its customers were “exercising tight cost control putting constant downward pressure on room rates”.

The group also expressed its disappointment that the government was now consulting on a proposal to impose a Statutory Code of Conduct on the tenanted pub industry.

It said: “Over the past four years we have committed to and developed our own voluntary code of conduct, like many in the industry, the latest version of which has been in place since March 2012. Our experience of this code is that it has formalised many of the behaviours that were already embedded within our tenanted pub business and it has been welcomed by the customers taking tenancies with us.”