INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2020
The six month period to 30 September 2020 represents without doubt the most challenging period in the 213 year history of this business. Shortly before the start of the period, on 20 March 2020, we closed all our pubs, inns and hotels following the directive from the UK Government in response to the COVID-19 pandemic. We then took all possible steps to secure the business, control costs, protect cash flow and take advantage of the support measures put in place by the Government. In particular the Job Retention Scheme has allowed us to protect the jobs of most of our employees with only a small number of initial redundancies.
During the period of closure, we focused on communicating with our staff, tenants, customers and suppliers, whilst also dealing with the challenges of lockdown and closure, including destroying over 250,000 pints of beer. We also spent time and invested considerable resources in developing new operating procedures to allow us to build a safe and comfortable environment for our customers and staff on reopening.
After over three months of closure, we reopened all our pubs, inns and hotels on 4 July, or shortly thereafter and the leisure facilities, swimming pools and spas were reopened towards the end of the month. Trade built steadily from reopening and during the period from 4 July to 30 September sales performance was at 76% of last year.
As a consequence of the three-month lockdown, turnover for the half year was GBP21.8m, which is a 59% reduction compared to turnover last year of GBP53.4m. An operating loss of GBP1.4m compares to an operating profit of GBP9.5m last year.
The economic impact of the pandemic led to an emergency cut in interest rates by the Bank of England, reducing base rates to a historic low of 0.1%. This cut in rates, together with the ongoing economic uncertainty, has resulted in expectations that interest rates will stay low for the foreseeable future and has had a negative impact on the fair value of our interest rate swaps. This has required a further increase in the provision of GBP1.8m at the half year (2019: GBP4.0m increase in the provision due to political and Brexit uncertainties), and this negative movement is shown in our profit and loss account.
Net debt at 30 September 2020 was GBP66.6m (2019: GBP61.6m); an increase of GBP5.0m compared to last year, but an increase of only GBP1.2m in the half year from GBP65.4m at 31 March 2020, which considering the challenges faced is a creditable result. This has been achieved with the help of significant support from the UK Government for the hospitality sector in the form of a business rates holiday, business grants, the Job Retention Scheme, reduction in VAT on accommodation, food and soft drinks to 5% and the Eat Out to Help Out scheme.
PUBS AND INNS
All our tenanted pubs closed on 20 March 2020 and the majority reopened on 4 July or shortly thereafter, although a number of pubs offered basic take away services during lockdown. We took a tailored approach to charging rent during the period. All tied pubs were given a rent-free period for April, and thereafter rents were charged based on the level of business rate grants received by the pubs and the degree to which trading recovered after reopening. Overall, we gave GBP1.3m of rental support to our tenant pubs over this period.
After reopening on 4 July, we saw trade recover steadily in the pubs, with volumes of beer sales in July 28% lower than last year. The Eat Out to Help Out scheme in August accelerated that recovery such that beer volume sales were 13% down on last year in the month. Beer volume sales continued to recover through September to a point where they were 96% of last year. At that point the Government introduced the 10.00pm curfew on 24 September which led to an immediate and substantial reduction in sales of approximately 25%.
Our pub estate benefits from being largely based in community and rural locations with very little town and city centre presence.
We have continued our regular maintenance spending on our pubs over this period but capital expenditure projects have been kept to a minimum to preserve cash.
Our Inns are ideally located in rural and honeypot locations which are very attractive to the consumer in the current environment. Prior to reopening a significant amount of time and effort was put into making our properties Covid safe to make our customers feel comfortable to return, including putting in place an online order and pay solution. All of the inns reopened on 4 July and sales built strongly as customers gained in confidence and felt more at ease with the measures we had put in place. Sales built strongly through July and by August, with the Eat Out to Help Out scheme and the VAT reduction, sales were up 13% on last year, and this performance continued into September. The increased demand for UK leisure breaks led to increased room occupancy and average room rate.
HOTELS & SPAS
In the hotels & spas sales were very slow to pick up after reopening in July, as there was very little corporate business since, encouraged by the Government, most organisations were still working from home. Leisure breaks did not start to recover until the leisure facilities, swimming pools and spas were allowed to reopen on 25 July.
Trading improved during August with the leisure facilities open again, and assisted by the Eat Out to Help Out scheme together with the reduction in VAT, sales increased such that they were 16% below last year. Performance fell back slightly in September as demand for leisure breaks subsided as schools reopened and corporate activity continued to be at a low level. The ongoing restrictions banning significant group gatherings for weddings, conferences and events continues to have a negative impact on the level of business in the hotels.
EARNINGS PER SHARE
Due to the losses incurred when the business was closed during lockdown, the loss per share was 8.2p (2019: earning per share of 2.7p).
The Board does not recommend the payment of an interim dividend (2019: 1.10p) as the preservation of cash continues to be an absolute priority due to the ongoing restrictions and economic uncertainty. Future dividend policy will be reviewed in line with the recovery of the business. The Board does not envisage paying a dividend whilst the business is making losses.
CASH FLOW & FINANCING
The Company has recently increased its total borrowing facilities to GBP90m, which is made up of the long-term loan of GBP45m, revolving credit facilities of GBP43m and overdraft facilities of GBP2m. When compared to net debt of GBP66.6m at 30 September 2020, this gives head room of GBP23.4m, which should be more than sufficient to take us through the challenges of the winter months and beyond the end of this crisis.
The Company received covenant waivers or relaxed covenant tests from its lenders at 30 September 2020 and has recently put in place a revised set of covenant tests through to March 2023, to deal with the current restrictions on trading and support the recovery of the business once these restrictions are lifted.
SUMMARY AND OUTLOOK
It is difficult to describe adequately the uncertainty and anxiety that has gripped the business over the past nine months. All I can say, once again, is that without the terrific can-do attitude of our teams within the business, and their ability to look forward and be positive, then things would have been even bleaker. I would like to thank every one of them for their fortitude and belief that we can prevail – it is that which will carry us to the other side of this pandemic. I would also like to thank our tenanted pub operators for their incredible tenacity and our customers, suppliers and shareholders for their steadfast support over this very difficult period.
What has become clear over the past few months is that the pub is deeply misunderstood by those in the seat of power. Far from being the drinking dens of 50 years ago, community pubs are the biggest community outreach programme that this country has, provided free of charge by landlords and landladies the length and breadth of the country. The employment and social cohesion that the pub provides are the glue that hold our local communities together. It is therefore hugely distressing to see that as we exit the second lockdown pubs have been targeted for special measures in the reshaped tier system which will lead to the inevitable failure of some of these precious community assets.
These are unchartered waters that we are navigating, and it has been difficult for the Government to pick their way through them. Earlier in the year they were hugely supportive of the industry, which they chose to close for long periods in response to the pandemic and that support was invaluable. I fear that now that interest in supporting the sector has been superseded by other political distractions and has weakened significantly. Without further financial support from Government, our industry will face irrecoverable damage over the rest of this winter and I hope that the Prime Minister will intervene to avert that and ensure that the investment he has made so far is not squandered. It will be repaid many times over on the other side of this, in particular the extension of a lower rate of VAT and the Business Rates holiday for a further 12 months would help pubs and hospitality claw their way back to pay their way once more.
Our country is in a terrible economic state; it has supported interference in the minutiae of people’s lives at the expense of liberty and the freedom to exercise common sense and self-awareness. I hope that once those at risk from Covid are protected by a vaccine the Government will step back and allow the innate creativity and cultural ingenuity of our great nation, its businesses and its pubs to come to the fore to save the day.
23 December 2020
Profit and Loss Account for the six months ended 30 September 2020
12 months ended
Operating (loss) profit before property disposals
Operating (loss) profit
Finance charge on pension liability
(Loss) profit on ordinary activities
Balance Sheet as at 30 September 2020
30 September 2020
30 September 2019
Trade and other debtors
Cash at bank and in hand
Creditors due within one year
Trade and other creditors
Total assets less current liabilities
Creditors due after one year
Net assets including pension liability
Capital and reserves
Called up share capital
Profit and loss account
Equity shareholders’ funds
1. Basis of preparation
The interim accounts, which have not been audited, have been prepared on the basis of the accounting policies set out in the Annual Report and Accounts for the year ended 31 March 2020.
The taxation charge is based on the estimated tax rate for the year.