As reported by H&C News on 29 April, Spirit reported its Results for the 28 weeks to 7 March 2015, showing good progress for its portfolio of 1,211 Managed and Leased pubs nationwide, with EBITDA up 5%; profit before tax and Earnings per Share both up 12%, and Mike Tye, Chief Executive Officer, commenting:
“We have made good operational and financial progress across both our Managed and Leased divisions, which have outperformed their respective markets and our expectations. Our consistent focus on investing in our estate, our brands and our people gives us a strong platform for future growth.”
So how has that progress been achieved, and what has attracted the takeover by Greene King? Spirit reported in more detail as follows, saying:
Overview
“The trading momentum of our Managed pubs has continued with performance benefitting from good cost control and the addition of the pubs acquired from the Orchid estate in the second half of the prior year. Our Leased estate has now delivered a sixth consecutive quarter of net income growth, with divisional EBITDA increased by 1% despite 5% fewer pubs.
Managed Pubs: Flaming Grill and Golden Oak Inns formats
“Total revenue from our Managed pubs was up 5% as a result of both like for like sales growth of 1.5% and the benefit of pubs acquired from the Orchid estate towards the end of the prior year. Like for like drink sales were up 0.9% and like for like food sales up 2.8% with the growth in food being driven by our strategy to convert our locals estate to our Flaming Grill and Golden Oak Inns formats.
“The sales growth, together with a relatively benign cost environment and strong cost control, has enabled us to grow divisional EBITDA by 6% to £59.8m and to deliver a further improvement in EBITDAR margin of 60 basis points.
“Our investment programme continues to deliver returns in excess of our hurdle rate of 25% with the proportion of our estate invested and branded now at 90%. During the year to date, we have completed 111 refurbishments, including the conversion of 22 former Orchid pubs. As well as the investment and integration of these Orchid pubs, our focus has been on converting our locals and John Barras pubs into our Flaming Grill and Golden Oak Inns formats which have a greater food mix.
“A further 14 pubs have been converted to Flaming Grill using our new lower cost format and we had increased the number of Golden Oak Inns from seven at August 2014 to 39 at March 2015. Our continued focus on disciplined capital spend has resulted in an average investment spend to date (excluding investment spend on acquisitions) of £136,000 per pub. We have also continued our planned refresh programme with focus primarily on our Chef & Brewer estate and we are pleased with the returns that we are achieving on this spend.
Leased Pubs: improving the quality of the estate“Our high quality estate of Leased pubs has continued to perform well with like for like net income up 2.3%.
“Whilst like for like turnover for the Leased pubs was down (0.3)% in the period, the prior year performance benefitted from changes in the supply network ordering process which occurred over the first weekend in March, and in order to minimise disruption to our Lessees some March sales were brought forward into February 2014. Without this prior year impact, like for like net turnover would have grown 0.2% in the 28 weeks to March 2015 and like for like net income would have grown by 2.7%.
“Total EBITDA for the Leased business was slightly up year on year at £17.4m despite a 5% reduction in pub numbers, with average EBITDA per pub up 5% at £77,000.
“We have continued to improve the quality of the estate through investment, innovation and selective disposals. During the period, £4m was invested in 27 Leased pubs, with returns in excess of our 25% hurdle. The proportion of the Leased estate invested is now at 69%. We sold 13 pubs, raising proceeds of £5m, ahead of book value, for a disposal multiple of c. seven times EBITDA.
“At March 2015, 19 of our pubs were on bespoke turnover-based rent agreements as we have continued to innovate our lease agreements.
“The increase in average annual net income per pub from £104,000 at August 2014 to £108,000 at March 2015, emphasises the improving quality of our Leased estate with 91% of the estate on substantive agreements at the period end.
Capital Expenditure accelerated
“Following the successful trials of our Golden Oak Inns format, we have accelerated our investment plan in the first half of the year, with capital expenditure of £30m invested in our Managed estate.
“We have acquired a further seven properties since August 2014 of which six are leasehold properties from the former Orchid estate. At March 2015, three of these sites had been invested and branded, and were open for trading under our Fayre and Square format, whilst the remaining four were closed for investment. Since the period end three of these have opened for trading under our Fayre and Square and Flaming Grill formats.”
For the full Interim results click here
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