Work out of a 100+ pub estate and brewery
Background
As with many Licensed Solutions projects, this began with an investigation into the performance of a 100+ unit estate. The business operated from a brewery site and managed 100 pubs right across the north of England. The Directors had acquired over 90 pubs and via a reverse transaction with an AIM listed PLC Company and had absorbed these into their existing business.
Although the incoming pub chain had been built up as a successful family business over many years family, it had considerable debt from previous acquisitions. The new business took over these liabilities. After only a few months of trading, the bank became nervous about its exposure. The sites, which were largely traditional community pubs, had suffered, among other things, from the smoking ban legislation, which took effect about the time of the transaction.
Licensed Solutions were asked by the bank to prepare a report on the performance of the pub estate. Regrettably, few of the recommendations were embraced by management in the subsequent months. The expansion of the Company’s beer was a key synergy but many of the tenants and pub managers were nervous that the brand was not strong enough in areas beyond the Company’s immediate home. Nevertheless management insisted that all their pubs should stock the brand and be “badged” accordingly. This proved to be as unpopular with consumers as it was with publicans and sales suffered. Working capital became tight and HMRC issued a winding up petition for beer duty, VAT and PAYE liabilities.
Sadly, the business subsequently went into administration and Licensed Solutions was retained by the Administrators to run the brewery and pub estate until buyers could be found.
Phase One:
In the early days of Administration, the role of Licensed Solutions was to:
- Re-establish supplies with national brewers and distributors.
- Advise on the day to day management of the brewery production and distribution.
- Manage the five area managers and three stock takers.
- Organise the handovers of leased sites back to the landlords, most of which were loss-making. During the first two months of the project, approximately 60 sites were handed back to landlords including two of the larger UK pub companies. All handovers included stock counts, staff redundancies and a range of property issues.
- Buyers were found for the 22 freehold sites. Former management bid for the brewery and ten leasehold sites, which they had operated prior to administration. The freeholds of these sites were held by a family investment vehicle.
- In the third month, the Administrators accepted 2 offers; one for the brewery and 10 pubs from management (as above) and one for all but one of the freeholds. However during the following quarter (and beyond), the UK experienced an unprecedented banking crisis and credit markets dried up. The buyers for all the freehold sites were unable to complete on the offers they had made because of the shortage of credit.
Phase Two:
Following the collapse of the sale of the freeholds and the buy back of the brewery the Administration changed. Firstly, the Administrators’ staff and LS had to be relocated to temporary offices because the brewery site had been sold. Secondly, site performance and cash control became much more important. A temporary management accountant was hired by PWC to report on the performance of the sites. Monthly budgets were prepared and performance was measured against budget every month. Throughout the period, performance was close to budget.
The Administrators and LS held weekly team meetings at which cash control, sales revenues, costs, all regulatory issues and operational issues were discussed. Repairs and maintenance projects were also authorised. During this period the pubs were able to switch brands to improve performance and many chose to move away from the original Company brands. Suppliers were asked to provide promotional materials to facilitate the introduction of these new products.
Result:
The remaining sites were successfully sold nine months after the start of the project. It made large demands on LS resources as it was committed to having a presence at the administration offices on a daily basis. LS hired an industry senior manager to control the project and supplemented that expertise with part time area management and other staff for the handovers/closedowns.
LS demonstrated that it can confidently and professionally manage a large pub group, whether in a short term situation – such as Administration -- or over a longer period.
