Barracuda bites back

Heading a company that posted a near-£19m loss in its latest financial year might upset the equilibrium of many a chief executive.

But Barracuda Group's chief executive Mark McQuater is at pains to stress that despite this setback his company remains on the front foot.

For the year to September 25, 2010, the managed bar operator which operates the Varsity, Cape and Smith & Jones retail brands, reported an operating profit of £5.1m on turnover of £153.6m.

It had already identified food, coffee and earlier openings as drivers of its business, but the move to ditch what it called "onerous leases", plus impairment charges on its pub and bar assets and interest and other costs associated with its latest refinancing, dented its profit and loss account - albeit in a non-cash way - by more than £23m, leading to the aforementioned loss of £18.6m.

Bullish

However, McQuater is nothing if not bullish about the prospects for the group. "We are a strongly cash-generative business," he says, pointing to earnings before interest, tax, depreciation and amortisation (EBITDA) of £17.2m.

The £17m-plus EBITDA figure is believed to be around five per cent lower than the previous year, which had seen what Barracuda described as a "stack of closures and 60 refurbishments".

Trading has been tough for the sector and Barracuda, which last year celebrated its 10th anniversary, has been no exception.

Contending with the economic downturn has seen the group shift its focus in the past year away from the late-night sector and, more poignantly, the student market, once a major pillar of its activities through its Varsity student bar brand.

McQuater says the group remains intent on re-aligning itself and is earmarking a third of its Varsity sites to be transformed into its Smith & Jones brand or sold off altogether.

Of the 22 sites designated for disposal last year, McQuater says the group has so far formally exited from three, adding that the majority of the remaining sites are "under offer".

"We're aiming for our estate to be 80 per cent Smith & Jones, with the balance made up of Varsity and Cape bars," he says.

"We no longer want to be in the late-night market, students have proved to be less than recession-proof," he adds. "Smith & Jones will be a more relaxed, all-day offer, appealing to the female market. We've put Costa coffee into a number of bars and earlier openings are helping sales."

Meanwhile, the £18.6m loss is 'history', McQuater implies, noting that current trading is on the up.

"Like-for-like sales in January were eight per cent up on the same month last year," says the Scot, echoing the experience of a number of operators which have reported a better-than-expected start to 2011, boosted, it has to be acknowledged, by softer comparables, including milder weather.

"Our like-for-like profits are strongly up, period-on-period," he adds.

Investing in the estate

Since making the decision to get out of the late-night market and reduce its exposure to cash-strapped students, Barracuda has been ploughing money into its core estate. Up to £10m has already been spent, with funds going towards converting a number of Varsity bars into Smith & Jones, while a number of existing S&J sites have had the refurbishment treatment.

The coming year will see a further £6m spent on bar investments, with around 50 sites due for an overhaul, and McQuater says the group's backers are fully behind the spending programme.

Strategically, Barracuda's move away from the young person's sector to the over-25 and 'grey' markets is perhaps understandable in the current climate.

Similarly, the creation of a seven-strong team to deal with pre-booked events, such as parties, echoes moves by others to guarantee a steady income stream.

While Barracuda's expansionary zeal may have suffered a set-back, McQuater argues that its earnings in the current financial year will be "significantly higher" than was the case in 2010.

"We've had some one-offs due to re-aligning the business and we're now pointing in a new direction," he says. "We're investing in the estate and tailoring what we do for the markets we want to be in. We're in a good place."

And hopefully write-downs like those seen in 2010 will be a thing of the past…