Wolves gets its fair share
Strong half-year results have sent W&DB shares soaring. Mark Stretton takes a look at the company's recent performance.
There was more than one headline performance from Wolverhampton last week. While the football club thumped Sheffield United 3-0 to claim the last available spot in next season's Premiership, a strong half-year performance from the brewer and pub operator sent its shares rocketing.
Wolverhampton & Dudley Breweries (W&DB) saw shares climb 32p, or more than five per cent, on the back of improved sales in both the company's managed and tenanted pub estates.
Appearances can be deceptive - overall profits and sales fell during the six months so, at first glance, the results may have looked tame - but all other key performance indicators were positive.
Sales dropped after the company closed two breweries, sold 12 pubs and transferred a raft of houses to tenancy or lease. Last year Wolves sold 73 pubs.
But most importantly, the company's profit margins - the percentage of every pound of turnover that it converts to profit - rose to 20 per cent.
Wolves was last month named as the possible suitor for Eldridge Pope, the troubled West Country pub operator that put itself up for sale in April.
Directors refused to confirm or deny the speculation, but did say the company was keeping its eyes open to acquisitions. "I think the things that are happening in the pub market are quite well documented," said Ralph Findlay, chief executive of W&DB. "We will monitor opportunities but won't be attracted to paying too much for pubs." Wolves has immediate access to £70m.
The company is also growing organically, building pubs from scratch on greenfield sites in the Midlands. These sites will be unveiled as either Bostin' Locals, quality wet-led houses, or Service That Suits, premium destination food pubs.
Despite fierce criticism in the past, W&DB has stuck with the operating structure of brewing beer, running managed houses and letting pubs. Mr Findlay said the market was now seeing the benefits of the much-maligned vertical model: "The ability to churn the estate is pretty critical," he said. "It is a tough market, it is a competitive market. These are the right sorts of assets for this market."
Last September the company converted 104 pubs from managed to tenancy, a symptom of the "increasingly higher burden of legislation".
"We are in a period of rising costs," said Mr Findlay. He said more transfers would follow as the running costs of managed houses continued to escalate.
The company recently signed its 100th Open House lease. Union Pub Company (UPC), Wolves' leased and tenanted business, introduced the 21-year agreement last year. "We now have 110 fully signed up, a further 117 in the hands of solicitors and about another 100 in the pipeline," said UPC managing director Stephen Oliver.
Operating profits in the beer brands division rose from £8.9m to £9m despite turnover falling to £60m from £65.2m last year. The company has kick-started a period of new product launches with the introduction of Marston's Old Empire India Pale Ale (IPA). The beer is a traditional IPA, brewed at high gravity, and will hit pubs in cask form next month.
The company will shortly unveil a new Banks's variant, produced specifically for the Birmingham market. Wolves will also spend £1m upgrading the countermounts for its Banks's brand and will convert more accounts to hand-pull.
It plans to spend about £6.5m in total marketing its beer brands, which are led by Marston's Pedigree.
The company bought back £4m of shares during the six months. Operating cashflow increased by 5.4 per cent to £55m.
Half-year results at a glance
- Pre-tax profits of £30.1m (2002: £31.3m)
- Turnover of £239.2m (2002: £250m)
- Pathfinder Pubs like-for-like sales up 3.1 per cent
- Union Pub Company like-for-like sales up two per cent
- Interim dividend raised to 10.9p per share, up 10.1 per cent
- £4m returned to shareholders through share buy-backs
- Operating margin improved from 19.3 per cent to 20.
Pictured: Union Pub Company's managing director Stephen Oliver (left) and business development manager John Bartle celebrate the 100th Open House lease with Forest Tavern lessee Elaine Tomblin. The company now has 110 signed up to the 21-year lease, which offers £50 discount from the first barrel.
