Orchid reports modest underlying growth
The group, which earlier this year appointed advisers to review its funding options, saw turnover decline slightly during the year from £179.6m to £178.8m, while EBITDA stood at £29.3m versus £32.2m in 2011 in the wake of selective disposals that saw 10 pubs sold during the period.
The company expects EBITDA to materially grow in the current year and on a current run-rate basis, it is above £30m.
At the same time, average net sales per pub increased from £13,900 to £14,100 per week. Food now accounts for more than 40% of the group’s sales mix, up from 28% in 2006, which it said reflected its focus on informal food and drink occasions, and “recognising changing customer trends”.
EBITDAR was £38m versus £40.6m in the previous year.
The company said that in line with its budget, and refinancing plan, profits for the year were slightly lower due to the impact of short-term pub closures associated with the capital investment programme, plus widespread cost inflation – notably in food purchasing and utilities – as well as pub disposals.
It said that despite the aforementioned cost inflation headwinds, and margin pressure from the alcohol duty escalator during the period, it was able to defend gross margins, which were flat against the previous year.
Chief executive Rufus Hall said: “Our central overhead costs, including the Orchid support centre in St Albans, were £8.6m, which at £35k per pub, compares favourably with our peer group and means that we are one of the lowest cost producers in the UK managed pub arena.”
Hall said that during the period the business performed ahead of budget and ahead of the plan agreed at the time of its refinancing with now sole backer Deutsche Bank last year.
He said that the refinancing had placed Orchid on a much firmer footing: “Banking facilities are now in place to January 2015 and with the new financial structure in place, a clear plan, our customer propositions and strong teams, the directors of Orchid are confident the business will deliver sustainable growth.”
The successful refinancing of the business paved the way for the group’s current £20m capital investment programme. It commenced the investment programme in the fourth quarter of 2012, completing 12 investments in the year.
Hall said: “Given the early success of investments, we were able to accelerate the programme and have to date now completed a total of 43 investment schemes, with current levels of return on investment (ROI) running at between 25% and 30%.”
He called the modest growth in underlying sales as “a significant achievement given that the positive effects of the capital investment programme upon sales did not materially impact revenues in this financial year, and also in the face of significant macro-economic pressures which suppressed consumer demand, plus the wettest British summer in a generation in 2012”.
Hall said: “Notwithstanding the 12 investments that were completed by the year-end, Orchid has operated in a capital constrained environment for four years. In that period average core capital investment spend across our business was just £7,500 per pub per annum. Nevertheless, like-for-like sales during the same four-year period were flat. This strong performance reflects our continued investment in people, the resilience of our offers and the quality of our teams.
“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 two-pronged strategy of developing great people and great pubs, supported by a perpetual focus on better ways of working, cost reduction and a capital investment programme delivering very encouraging results.”
