NewRiver aims for £2.8m spend on pub projects

24-May-2019 - Last updated on 24-May-2019 at 07:48 GMT

Eventful year: NewRiver’s Mark Davies (left) and Hawthorn Leisure’s Gerry Carroll remain opportunistic about new acquisitions

Following what NewRiver’s CFO Mark Davies described as a “pretty eventful” year – both he and Hawthorn Leisure’s CEO Gerry Carroll believe that the company’s pub business is well placed to develop further.

As reported by The Morning Advertiser, NewRiver’s pub net property income rose by £9.2m from £12.7m to £21.9m despite the FTSE 250 company’s overall loss of £36.9m after tax, according to its latest financial results.

Over the course of past 12 months, NewRiver acquired more than 300 pubs through the purchase of Hawthorn Leisure and its stable of 298 pubs as well as 76 sites from Star Pubs & Bars.

Bigger pub numbers

"It's been a pretty eventful year in our pub business because we've acquired around 400 assets – the Hawthorn acquisition literally 12 months ago and then we bought a smaller portfolio from Heineken back in December,” Davies explained.

“On 27 January, we completed the integration of our entire pub portfolio. Our income in our pub business is up over 70%, which reflects the investment activity during the past 12 months.”

As a result of activity over the past 12 months, Davies explains that he feels NewRiver’s estate of pubs is in a strong position.

“It's a profitable part of our business that's having a meaningful impact on the financial performance of the group,” he added.

“As a FTSE 250 company, we’re always under pressure to deliver growth to the top line and the bottom line.

We've got a great balance sheet and access to capital on our balance sheet and also off balance sheet with joint venture partners.

“In a sector that has got quite a few sellers of assets over the next five years, we think we’re in a good place to potentially scale up the business further and take it from 670-odd pubs today to a bigger number.”

Focused pub brand and ethos

According to Carroll, the grouping of all NewRiver’s pubs under one banner has been an important development over the past year. "The great thing is that we have all the pubs operating now from one platform,” he explained.

“We’ve invested more money into that platform – we’ve got more people and we’ve invested in our systems.

“I set Hawthorn up five years ago and the NewRiver team saw the value in the brand so we’ve retained that within the group as the pub operating platform.

“We’re proud of the reputation we’ve built of being a business that thinks and does things differently and that has a built really strong relationships with partners.

“Now, we have all of the pubs under one roof with a really focused ethos about building profit in each individual pub, investing in those pubs and our partners, and growing the overall business.

“It’s all about long-term sustainable deals – that’s how you grow a pub business."

Hopeful of doubling pub investment

Davies explains that while he hopes to continue adding sites to its growing pub business, increasing NewRiver’s spend on its existing portfolio is also essential to the business’s growth.

“We invested £2.8m in capital in 75 pub projects for a return of around 14% – so a good return.

We want to put more money into this portfolio, if we could do twice what we did last year over the next 12 months, we'd be really pleased.

We’ve obviously got the infrastructure, the resource, the people and the money to do that.

“In terms of more portfolio, it’s well known that there are further portfolios and packages coming to the market – not just in the next 12 months but in the next three to five years.

“The listed pub companies and brewers that have too much debt need to sell and there aren’t too many buyers.

“We’re one of a handful of credible buyers and anybody who does want to sell assets will no doubt make sure that we are one of the first phone calls that they make.”

Opportunistic acquisitions

Davies adds that while NewRiver will be looking at new sites over the next year in order to grow its portfolio further, anything it looks at must complement the group’s existing strategy.

“We’ve done four sizeable deals in the sector – one with Marston’s, one with Punch, the Hawthorn deal last year bought from private equity and the Heineken portfolio in December – so in terms of parties we will transact with, we’re quite open minded.

“We like wet-led community pubs, we can generate good value and growth from that part of the market but we’ll remain opportunistic.

“If there are other types of portfolio that become available that will deliver value for our shareholders then we'll look at a range of opportunities.”

Flexible operating models

Carroll explains: “Ideally, we would both invest in our core business and acquire other pubs next year.

“The big thrust for us has always been about wet-led community pubs. We always talk about the granularity of having a plan for each individual pub and that’s the way we build it up.

“We go into each pub, look at the opportunity within the marketplace. We look at our investment opportunities and make sure we have the right person running the pub.

"We structure long-term sustainable deals with our partners – we want to make sure they’re making money and want to make sure we have a great relationship with those guys.

“We also have a few different operating models that we use – we have leased and tenanted pubs as well as operator managed, they’re the two main ones.

"Having the flexibility of being able to move businesses between operations is great – we’ve found that moving pubs from leased and tenanted into operator managed can make us more profit and sometimes we’ve done it the other way round and that’s made us more profit so just having that flexibility is really good.”