TIDMTHW
DANIEL THWAITES PLC
RESULTS FOR YEARED 31 MARCH 2023
CHAIRMAN'S STATEMENT
This last year was our 216th year in business, and one in which the Company
delivered a strong set of results against a backdrop of a disruptive war in
Ukraine and higher inflation than we have seen for some time.
After a strong start in the first half of the year, the environment became
significantly more difficult in the second half. Despite reasonably strong
increases in top line sales, increased utility costs and rising prices across a
broad spectrum of goods, together with a very poor Christmas, meant that it was
a struggle to convert sales to profit during the quieter months.
In recent years the business has become more orientated towards the summer
months and more weather reliant and last year that certainly played an
important factor. The winter was overall mild, however late winter was
characterised by a prolonged period of colder and wet weather which did not
kick start the traditional spring uplift in business until after Easter.
Results
In challenging conditions, the financial performance has been strong, with
turnover increasing by 13.3% to £108.8m (2022: £96.0m) and an operating profit
of £12.3m (2022: £13.3m). The earnings per share was 21.9p (2022: 20.6p).
Net Debt at 31 March 2022 was £66.7m (2022: £61.6m), which is an increase since
our interim results at 30 September 2022 as a result of investment in our
properties.
The Bank of England has continued to respond to higher inflation by raising
interest rates at an accelerated pace to 4.5%, their highest level since 2008.
As I have detailed before, increases in interest rates and the discount rate
used to value the Company's pension scheme and swap liabilities have a positive
impact on their mark to market valuations. As a result, we have seen a decrease
of £6.6m in our swap liabilities and a decrease in our pension liabilities of £
21.1m. Once more the pension scheme is in an actuarial surplus, now evaluated
to be £32.2m and as a result the Company has for the time being ceased paying
contributions.
The profits retained for the year together with these mark to market gains
provided a net asset value per share at the year-end of £4.12 (2022: £3.62).
Acquisitions, Developments and Disposals
During the year we have not acquired any trading assets, although we have
acquired a small number of houses for staff accommodation, a process that we
believe is complete for the time being.
We have started to make significant investments after pausing during 2020 and
2021, which were disrupted by the pandemic and in the year invested £15.6m
(2022: £13.5m).
The Company has sold four bottom end pubs and two ancillary properties with
total proceeds of £3.1m (2022: £7.5m).
Dividend
The Company reinstated the final dividend last year and was able to pay an
interim dividend at the half year as its profits recovered. The Board has
historically looked to maintain a dividend cover of more than two times
underlying earnings per share, however the Company continues to face
significant uncertainty and headwinds.
Notwithstanding that, we understand that the dividend is important to our
shareholders and as a result the Company recommends a final dividend of 2.4p
(2022: 2.2p).
Board changes
On November 2022, in line with the Yerburgh Family's constitution, Oscar
Yerburgh passed on the role of family non-executive director to his sister Rosy
McKinley. I know that Oscar will continue to take an active interest in the
business, and is hugely supportive of, and engaged in, its future development.
I would like to thank him for his valuable perspective and contribution to our
Board discussions over the past six years.
People
Daniel Thwaites is unbeatable when it harnesses the immense power of a family
of teams working together, collectively we are more than the sum of our parts.
Our Pride of Daniel Thwaites Awards highlight all the outstanding efforts made
by individuals and teams across the Company. This year's Awards were our most
successful yet, with over 700 nominations. All across the business, people
called each other out for the amazing contributions being made by their
colleagues, day in day out - there were many inspirational stories, crucial to
the well-being and motivation of our friends and colleagues.
The last year has been a difficult one for many of our team members and their
families as they have confronted the same inflation challenges that the
business has faced and I would like to thank them all for the resilience and
fortitude with which they have continued to support the Company.
I would also like to thank our shareholders, your support has helped to
stabilise the business and put it on a stronger footing for the future.
Outlook
It seems that inflation should ease this coming year, energy prices are
dropping fast in the spot markets and we are seeing evidence of a plateauing in
food and other costs. We have opportunities to convert price decreases into our
own cost prices and will work hard to grow our sales whilst delivering margin
recovery this year.
The factors that have shaken consumer confidence are going into reverse; for
the moment recession has been avoided and employment numbers are strong. Our
properties are well invested and better staffed than they have been for some
time and the corporate and short break domestic leisure markets are showing
good bookings for the summer. We are seeing strong performances in some of our
pubs and as a result we look to the coming year with cautious but increasing
confidence.
R A J Bailey
Chairman
20 June 2023
OPERATING REVIEW
Overview
There was much to be positive about in a year that was overshadowed by the war
in Ukraine and a lot of media hype and fear about the cost of living crisis and
potential recession. This had the potential to dampen customer demand for the
pubs, hotels and inns, and whilst there was undoubtably an impact, it was
pleasing that total sales moved forward by more than 13%.
Staffing of the teams across the whole business continued to be a challenge,
with higher than inflation labour cost increases from the national minimum wage
and shortages in some locations and certain roles. The measures that we have
put in place over the past 18 months, including buying more staff
accommodation, increasing the use of our sponsorship licence for foreign
nationals, retention bonuses in some of the seasonal businesses and increasing
our pay and benefits particularly for younger people helped to fill the
majority of our vacancies.
A decline in other income, relating to furlough and government grants last year
which ended in April, was reinforced by increases in our input costs,
particularly on food, and later in the year on utilities. The joint effect of
these cost increases was a particular challenge and we were unable to recoup
all of the increases through our selling prices, consequently our margins have
been eroded, at least in the short term. Pitching prices at the right level to
be competitive, whilst setting at a level to address the rising cost base,
required several different rounds of price adjustments over the course of the
year.
We initiated a comprehensive review of our energy usage with the objective of
reducing it by 20%, partly through investment and partly through better
operating practices. We have invested in solar panels, although securing panels
has been challenging, we have invested locally in more low voltage lighting,
looked at voltage optimisation, re-examined older boilers, installed log
burning fires in the pubs, installed EndoTherm - an energy saving heating
system additive, addressed our property Building Management Systems to
harmonise best practice as well a number of other localised initiatives. Energy
usage has been a major focus and this will serve us well for the future,
notwithstanding reductions in energy prices.
In addition, we are focused on minimising food wastage, and weigh and report
the amount of food wastage in each of our managed properties on a daily basis.
We are rolling out the learnings to our tenanted pubs.
This has been a very challenging year which has seen lower operating profits.
However, the actions that we have taken, together with the decline in the oil
and gas prices, means that as inflationary pressure ease we are well placed to
move forward.
Financial results
Turnover for the year was £108.8m, (2022: £96.0m), an increase of 13.3%. The
operating profit for the year was £12.3m, (2022: £13.3m). The profit before
tax, which benefited from a mark to market gain on interest rate swaps was £
15.1m (2022: £12.7m). Net debt increased to £66.7m, (2022: £61.6m) an increase
of £5.1m. At the year end the company had banking facilities of £82m, giving
headroom to its debt facilities of £15.3m.
Last year's results benefited from government support in the form of business
rate concessions, lower rates of VAT and grants. This support was withdrawn
from 1 April 2022 with the exception of the 2022/23 Retail, Hospitality and
Leisure Business Rates Relief (RHL) scheme which provides eligible, occupied,
retail, hospitality, and leisure properties with a 50% relief, up to a cash cap
limit of £110,000 per business from 1 April 2022 to 31 March 2023. This was of
benefit to our tenanted pubs but our managed properties did not qualify.
Pubs and Inns
Understanding our Pubs
Our freehold estate of tenanted pubs numbers approximately 210 properties. We
continue to recycle capital into new, more attractive tenanted and managed pub
opportunities, where there is the potential to invest and add value and so we
continue to dispose of pubs that we do not believe have a long-term future with
us.
Our pub estate encompasses community locals to destination food led pubs in
both rural and town centre locations, ranging geographically from Cumbria to
the Midlands, and from North Wales to Yorkshire. In the trading environment
during the pandemic the geographic diversity of the pub estate and the lack of
exposure to major city centres has provided some resilience.
We have been operating tenanted pubs for a long time, and we have a strong
reputation for our well-established approach. We strongly value our reputation
as a partner of choice, acting with integrity, and focusing on investing
alongside proven operators to expand and improve the premises with a focus on
establishing good quality food offerings. Where the property has the scope, and
we believe the demand exists, we support the development of letting bedrooms.
We have an estate of high quality, sustainable businesses with multiple income
streams that have the ability to generate attractive cashflows.
Our tenanted pubs are a mature business, looking to deliver returns at least in
line with inflation. They tend to be heavily influenced by weather and so are
subject to the vagaries of the British summer.
Pubs performance
The turnover of our tenanted pubs increased year on year by 10%, with EBITDA
and operating profit declining marginally in real terms.
This performance was achieved despite significant disruption in the estate from
closed pubs and pubs that needed to be re-let, which numbered between 20-25
pubs throughout the year, higher than our historic average. We are continuing
to receive high numbers of enquiries from new customers and are taking care to
make sure that we match candidates to pubs that we believe will be successful
for both parties.
In addition, we have an increasing number of pubs on our Way-Inn Franchise
Agreement, which helps to keep pubs open when an operator leaves and we do not
have an operator ready to take the pub on with a traditional brewery tenancy,
these have increased to 15 pubs at the year end.
Beer volumes increased by 1% year on year with wines and spirits up by 4% and
soft drinks 2% ahead. These results reflected an improving trend in the
performance of the pubs as people rediscovered the pub over the year after the
disruption in the previous two years. Our gross margin improved by 2%,
reflecting an ongoing and well-established move towards more premium, higher
margin products across all categories. Machine income was a highlight with good
growth in the year as a result of an ongoing movement to more attractive
digital machines.
The media coverage of the cost of living crisis, labour shortages and supply
chain inflation, in addition to the well publicised increase in utility prices
have all contributed to a general squeeze on the profitability from running a
pub. Financial support was extended to smaller pubs by the government on
business rates and also through the Energy Bill Relief Scheme. Despite this
scheme, independent operators have suffered from dysfunctionality in the
utility market and many have been trapped in high price contracts, as they were
forced to contract for periods of up to a year by the utility companies at the
very worst time in the last year's utility price spike. Wherever possible we
have stepped in to provide further financial support to good, proactive and
talented tenants who have been asked to bear extremely high risk premiums on
utility rates for the hospitality industry as well as the host of other
pressures caused by inflation.
The investments that we have made to improve pub gardens and outdoor trading
spaces over the past few years, have been very successful in maximising the
opportunities when the weather permits. We have continued to invest in our
pubs, although in the current environment the appetite to increase risk from
pub tenants is reduced and so large investment schemes are more difficult to
deliver. We have completed major schemes in the year at The Observatory,
Blackburn, The Highlands, Blackpool and The Stamford Arms, Stalybridge.
Brewery
Our craft brewery continues to go from strength to strength. It has won awards
for the quality of its ales and the customer feedback on the beers is very
positive, although the cask market has been challenged by changing habits. We
have received new design awards for our beer range during the year, including
our Majestic Imperial IPA at the Craft Brewers Conference in Nashville.
We are in the final stages of developing and launching a new craft keg range
which we believe will support the future of our brewery. Cask beers have
struggled to maintain their appeal over recent years, as trend have shifted to
world lagers and craft keg products. The ability to deliver a high quality cask
range will continue to underpin our beer range and brewery for the future.
Understanding our Inns
We own and manage a growing portfolio of inns and we will continue to look to
expand this segment of our business in the future through the acquisition of
high quality properties in outstanding locations.
Our Inns are positioned at the premium end of the market, they have a busy bar
at their core, a home cooked food offering and high quality, comfortable
accommodation - they focus on providing outstanding hospitality and offer an
attractive and more personal alternative to the mid-market hotel chains.
This segment of the market has performed strongly over the past few years and
is positioned for continued growth as customers look for something special that
is authentic and honest, delivered by operators who can provide a quality
experience consistently.
Inns performance
The turnover in the inns increased by 11% on the previous year, which was a
creditable performance given that in the previous year we had benefitted from
lower rates of VAT. Despite this increase being at about the headline rate of
inflation it was not sufficient to offset major increases in our labour and
food costs and, later in the year, utilities. The combination of these factors
meant that earnings dropped significantly year on year, a factor that we hope
will reverse in the coming year.
We continue to believe that the market for our inns is an attractive one, and
when the conditions are right, they trade very well. The biggest scheme of the
year was an upgrade of eleven bedrooms at the Manor House at The Red Lion,
Burnsall. We acquired staff accommodation in Beverley and Settle, which will be
of a significant benefit this coming year in helping us to recruit full teams.
Our sponsorship licence has been invaluable if assisting to build our teams by
sponsoring foreign workers to join us. We have recruited people into both our
kitchen and front of house teams for roles that we could not fill from within
the United Kingdom.
We have applied for planning permission to convert Lendal House in York, which
we acquired in October 2021, into bedrooms to complement The Judge's Lodging
and we hope to be able to make progress on this project in the coming year.
Understanding our Hotels & Spas
We own and operate ten hotels which are spread across England. Our hotels are
positioned towards the premium end of the market and most have leisure and spa
facilities. In recent years we have invested in them to amplify the individual
character of each hotel in its local area, supported by a great food and drink
offering with local nuances. Our vision, similar to our inns, is to create a
collection of interesting, characterful contemporary hotels, that are the best
in their local area.
Hotels & Spas performance
Turnover increased by 16%, with spa and health and beauty treatments performing
extremely well, up 28% on the previous year. In addition, our corporate
business rebounded strongly as the demand for meeting rooms, conferences and
events increased by 56% compared to 2022. As elsewhere in the business our
sales were not able to keep up with the increases in the cost base and overall
profits declined by 11% year on year.
In September 2022 we closed Langdale Chase for a major refurbishment and
repositioning of the offer and have high expectations for its future. This is a
major undertaking and the project is currently on budget and on time, with a
planned reopening date for November 2023.
Despite a tough trading year we have continued to invest in our guest offer and
experience, refurbishing rooms at Middletons Hotel, North Lakes Hotel and Spa
and Kettering Hotel and Spa and feedback on our new bedrooms has been very
positive. We also rolled out our second Fyr Restaurant at the Solent Hotel and
Spa, after its success at the North Lakes, and have invested in the restaurant
terrace at Thorpe Park Hotel and Spa.
Summary and future developments
The escalation of the war in Ukraine and the knock on impact to utilities and
food prices, when taken with double digit increases in the minimum wage, made
the past year a challenge, with the pub and hospitality industry particularly
badly affected. Wherever possible we have sought to protect our profitability
through efficiency gains and price rises, although we have worked had to
mitigate these wherever possible.
On a like for like basis once the withdrawal of £1.7m of government support in
the previous year has been taken into account the Company has held the line and
placed itself in a strong position to rebuild profits over the next few years.
The redevelopment of Langdale Chase is an important and strategic development
which we expect will make a worthwhile contribution in the coming years.
Elsewhere, we continue to underpin the quality of our offering through
continued innovation and investment.
We are seeing significant falls in utility prices, back towards their historic
norms, and there is hope that this will now feed through in terms of lower
price inflation or price decreases. It seems that much of the fear over the
cost of living crisis should recede in the coming months and as it does we
would expect consumer confidence to increase and our customers to spend more
freely. The Company is in a good position to take advantage of this and its
well invested property portfolio and premium positioning gives it the scope to
be able to grow its margins and profits.
We are very positive about the prospects for our properties and are now focused
on regaining the growth and momentum we had prior to the pandemic and growing
our business and profits.
Financial Review
Results
Turnover for the year ended 31 March 2023 increased by 13% to £108.8m (2022: £
96.0m), whilst operating profit was 8% lower at £12.3m (2022: £13.3m)
The measurement of the interest rate swaps at fair value resulted in a credit
to the profit and loss account of £6.6m (2022: £3.8m).
Profit before taxation for the year was £15.1m (2022: £12.7m).
Business Review
The key issues facing the Group are covered in the Chairman's Statement and
Strategic Report. The KPIs used by the Group to monitor its overall financial
position can be summarised as follows:
2023 2022
Group £m £m
Turnover 108.8 96.0
EBITDA 19.1 20.1
Depreciation 6.8 6.8
Operating profit 12.3 13.3
Profit before tax 15.1 12.7
Net debt 66.7 61.6
Earnings per share (pence) 21.9 20.6
Pubs and Inns £m £m
Turnover 57.7 52.1
EBITDA 17.6 18.8
Depreciation 3.2 3.2
Operating profit (before Group central charges) 14.4 15.6
Average number
Tenanted 211 219
Managed 14 14
Hotels & Spas £m £m
Turnover 51.1 43.9
EBITDA 9.3 10.1
Depreciation 3.1 3.1
Operating profit (before Group central charges) 6.2 7.0
Average number 10 10
The principal non-financial indicators monitored by management are:
Pubs and Inns
Utility consumption, health and safety incidents, beer volumes, customer
ratings and tenant recruitment.
Hotels
Utility consumption, room occupancy rates, customer ratings, health and safety
incidents, spa memberships and wedding and event numbers.
Interest rate swaps measured at fair value
During the year the £10m of interest rate swaps were settled at a cost of £
0.2m, leaving £45m of interest rate swaps at 31 March 2023, which are
recognised as a financial liability. The recent increases in interest rates
and expectations of further increases led to a reduction in the fair value of
these interest rate swaps, which resulted in a credit to the profit and loss
account for the year ended 31 March 2023 of £6.6m (2022: £3.8m). See note 18 to
the financial statements for further details.
Interest payable
Net interest payable increased slightly to £4.1m (2022: £4.0m) despite the
increase in bank base rate during the year, as £45m of the debt is long term
loans at fixed interest rates.
Taxation
There is a tax charge of £2.2m on the profit for the year, an effective rate of
14.6%.
Earnings per share
Earnings per share of 21.9p (2022: 20.6p).
Dividend
An interim dividend of 0.75p has been paid and the Board recommends a final
dividend of 2.4p per share, which will make a total of 3.15p for 2023 (2022:
2.2p), an increase of 43%.
Cash ?ow and ?nancing
The Group's net borrowing increased by £5.1m, from £61.6m at 31 March 2022 to £
66.7m at 31 March 2023 due to capital expenditure.
The Group has £45m of long-term debt, £22m of bank loans, £1.7m of overdrafts
and cash balances of £2.0m at 31 March 2023. The Group has three-year revolving
credit bank facilities which were renewed in the first quarter of 2023.
Pensions
The Group made contributions to the defined benefit pension schemes of £0.8m
(2022: £1.3m). Whilst these schemes were closed in August 2009, the Group is
committed to the long-term funding of the schemes. At the 31 March 2023 the
schemes had a combined surplus, before tax, of £32.2m which was an increase of
£22.1m from £10.1m, before tax, at 31 March 2022. Due to this surplus, the
Group agreed with the Trustees to suspend paying contributions to the scheme
from December 2022.
The increase in the surplus was due a significant fall in liabilities due to
increases in bond yields during the year.
Property
During the year we sold four pubs and two ancillary properties for a total of £
3.1m generating a profit against book value, after disposal costs, of £1.4m.
In line with our accounting policy, 20% of our properties were subject to a
formal revaluation, and additionally an impairment review was carried out on
the rest of our property estate. This resulted in an increase in the total
value of our property portfolio of £2.0m, of which £2.4m was added to the
revaluation reserve and £0.4m deducted from cost and charged to the profit and
loss account.
Treasury policy and ?nancial risk management
Treasury policies are subject to Board approval. All borrowings are in sterling
and comprise a mixture of fixed interest loans and facilities carrying SONIA
related floating rates. The Group has interest rate swaps for £45m where it is
committed to pay the difference between SONIA and fixed interest rates. At 31
March 2023 a financial liability of £3.6m has been recognised in respect of
these interest rate swap contracts.
Going Concern
At 31 March 2023 the Company had total borrowing facilities of £82m, which were
made up of the long-term loan of £45m, revolving credit facilities of £35m, and
overdraft facilities of £2m. When compared to net debt of £66.7m at 31 March
2023, this gave headroom of £15.3m.
The Company has generated positive operating cashflows over the period, such
that it has invested £15.6m in capital expenditure during the year and has
comfortably met all of its banking covenants. Its financial modelling shows
that it is expected to be cash generative and meet its banking covenants for at
least the next twelve months.
The Directors therefore believe that the Company has the cash flows and
facilities to meet its needs for the foreseeable future.
Kevin Wood
Finance Director
20 June 2023
EXTRACT FROM AUDITED FULL FINANCIAL STATEMENTS FOR THE YEARED
31 MARCH 2023
GROUP PROFIT AND LOSS ACCOUNT
2023 2022
£'m £'m
Turnover 108.8 96.0
Cost of sales (85.2) (72.7)
Gross profit 23.3
23.6
Distribution costs (4.4) (3.3)
Administrative expenses (8.4) (9.4)
Other operating income 0.1 1.7
Operating profit before 10.9 12.3
property disposals
Property disposals 1.4 1.0
Operating profit 12.3 13.3
Net interest payable (4.1) (4.0)
Gain on interest rate swaps
measured at fair value 6.6 3.8
Finance income (charge) on 0.3 (0.4)
pension liability
Profit on ordinary activities 12.7
before taxation 15.1
Taxation on profit for the year (2.2)
(0.6)
Profit on ordinary activities 12.1
after taxation 12.9
Earnings per share 21.9p 20.6p
DANIEL THWAITES PLC
GROUP BALANCE SHEET
At 31 March 2023 2023 2022
£'m £'m
___________________________________________________________________________ _______ _______
Fixed Assets
Tangible assets 302.0 292.9
Investments 0.8 0.6
___________________________________________________________________________ _______ _______
302.8 293.5
Current assets
Stocks 0.9 0.7
Trade and other debtors 5.9 5.5
Cash at bank and in hand 2.0 5.4
___________________________________________________________________________ _______ _______
Creditors due within one year 8.8 11.6
Trade and other creditors (20.0) (20.6)
Loan capital and bank overdraft (22.0)
___________________________________________________________________________ (1.7) _______
_______
(21.7) (42.6)
Net current liabilities (12.9) (31.0)
___________________________________________________________________________ _______ _______
Total assets less current liabilities 289.9 262.5
Creditors due after one year (80.1) (60.0)
___________________________________________________________________________ ______ _______
Net assets excluding pension asset 209.8 202.5
___________________________________________________________________________ _______ _______
Pension asset 32.2 10.1
___________________________________________________________________________ _______ _______
Net assets including pension asset 242.0 212.6
___________________________________________________________________________ _______ _______
Capital and reserves
Called up share capital 14.7 14.7
Capital redemption reserve 1.1 1.1
Revaluation reserve 77.2 75.1
Profit and loss account 149.0 121.7
___________________________________________________________________________ _______ ________
Equity shareholders' funds 242.0 212.6
___________________________________________________________________________ ________ ________
DANIEL THWAITES PLC
GROUP CASH FLOW STATEMENT
For the year ended 31 March 2023
2023 2022
£'m £'m
__________________________________________________________________________ _______ _______
Cash flow from operating activities 16.8 28.2
Tax (paid) received (2.0) 1.4
Cash flow from financing activities (7.2) (17.9)
Cash flow from investing activities (12.7) (6.0)
Equity dividends paid (1.7)
__________________________________________________________________________ _______ -
_______
(Decrease) increase in cash and cash equivalents (5.1) 5.7
Cash and cash equivalents at beginning of year 5.4 (0.3)
__________________________________________________________________________ _______ _______
Cash and cash equivalents at end of year 0.3 5.4
Loan capital (67.0) (67.0)
__________________________________________________________________________ _______ _______
Net debt (66.7) (61.6)
Reconciliation of net cash flow to movement in net debt
(Decrease) increase in cash 5.7
5.1
Cash flow from decrease in debt 11.5
___________________________________________________________________________ - _______
_______
17.2
(5.1)
Net debt at beginning of year (61.6) (78.8)
___________________________________________________________________________ _______ _______
Net debt at end of year (66.7) (61.6)
___________________________________________________________________________ ________ ________
END
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