Wolverhampton& Dudley Breweries PLC
25 September 2000
THE WOLVERHAMPTON & DUDLEY BREWERIES, PLC
* Good progress in second half, with Retail margins restored
* Integration of Marston's and Mansfield acquisitions substantially
complete and on track to deliver £32m forecast cost savings next year
* Increased management focus through new divisional structure
* Stephen Oliver appointed Managing Director, The Union Pub Company, and
Martin Womack appointed Managing Director, Brands
* 'I am confident that our new business structure will assist us in
fulfilling our key objectives of improving performance, maximising the
value of our existing assets, generating cash and driving innovation.
Our aim is to realise the maximum benefits from last year's acquisitions
in order to deliver real value to our shareholders.'
- Ralph Findlay, Chief Executive Designate
The Wolverhampton & Dudley Breweries, PLC
David Thompson, Managing Director and Deputy Chairman
Ralph Findlay, Finance Director and Chief Executive Designate
Tel: 020 7796 4133 on 25 September 2000; 01902 711811 thereafter
Keith Hann / Andrew Hayes
Tel: 020 7796 4133
We have made good progress in our second half. We have succeeded in improving
operating margins in our Retail business, disposing of under-performing non-
core assets and reducing debt. We have also substantially completed the
integration of the Marston's and Mansfield acquisitions, which are on track to
deliver total forecast cost savings of £32m next year.
Group turnover in the 47 weeks ended 26 August 2000 was £535m, 38% ahead of
the comparable period last year, including £116m as a result of the
acquisition of the Mansfield Brewery on 22 December 1999. We have achieved
our objective of restoring margins in our Retail business.
Retail: Total like for like sales across our enlarged managed pub business
were maintained in line with last year, and increased by 1.2% in August. The
community estate has performed well, being 0.8% ahead of last year in the 47
weeks to 26 August. Town centre pubs, which experienced tough trading
conditions in the first half, have stabilised.
After a disappointing first half, margins have been restored to more
satisfactory levels. This improvement has been achieved through robust
pricing, more effective management of promotions, tighter cost control, and
the disposal of 31 ex-Marston's and Mansfield pubs, many of which had
inherently high costs. Performance is also benefiting from the increasing
stability of the business, following some inevitable disruption during the
integration of our acquisitions.
The Union Pub Company, which manages our tenanted pubs, continues to make good
progress. Average turnover per pub was 4.5% ahead of last year, which
reflects the improved quality of the estate through the transfer of 80 managed
houses to tenancy, the disposal of 435 pubs and the success of the Business
Builder Agreement 2000.
Brands: The performance of our brands has been encouraging. Banks's and
Pedigree have both increased their market shares: overall, our share of the
draught ale market in our main trading area has risen by 0.6% to 24.6%. Good
progress in our take home and national accounts businesses has contributed to
a total like for like increase in brewed volumes of 6.5%. Free trade sales
have been restrained by the planned reduction of our loan book, with margins
in this area remaining under competitive pressure. The return on capital of
the division has improved.
Business structure and management
We announced in May 2000 that Ralph Findlay had been invited to review the
management structure of the business, prior to taking up his new position as
Chief Executive in January 2001. The Board has accepted his proposal that the
business should in future be managed as three distinct trading divisions:
Retail, The Union Pub Company, and Brands. Each division will be managed by a
Divisional Managing Director: Derek Andrew as Managing Director, Retail;
Stephen Oliver as Managing Director of The Union Pub Company; and Martin
Womack as Managing Director, Brands.
Derek Andrew and Stephen Oliver already have operational responsibility for
the retail and tenanted businesses respectively, while Martin Womack currently
manages our national accounts and take home trade business, having joined us
from Whitbread Inns in 1998.
We are currently recruiting a finance director externally.
Ralph Findlay explains the reasons for these changes as follows:
'The strategy we have followed in the last three years recognises the maturity
of the market, intense competition, and the importance of strong cash flow.
As a business, we have consistently increased underlying cash flow. The
acquisitions of Marston's and Mansfield are on track to deliver cost savings
of £32m per annum next year, and will further improve cash flow. We have
reduced risk by exposure to wider markets, and have demonstrated through
rising market share that our beer brands have tremendous regional strength.
Community pubs, the core of the business, have consistently demonstrated
resilience in their like for like sales.
Our future performance will depend upon our ability to put before consumers
clear and distinctive propositions in a fast-changing market place. To do
that effectively, we are putting in place a structure that recognises that
each of our businesses will be measured against different competitive
benchmarks. This reorganisation presents a challenge to the management of
each division to sharpen its focus on market opportunities, and to develop the
strong businesses and brands we have built up.
These changes will be accompanied by a move to adjust internal transfer
pricing from the Brands Division to reflect a revised market rate of discount
to wholesale price. The purpose of this is to demonstrate clearly the
economic performance and value added by each of our divisions. We will
provide additional analysis of the effect on divisional performance in our
announcement of results for the full year, which is scheduled for 29 November
I am confident that our new business structure will assist us in fulfilling
our key objectives of improving performance, maximising the value of our
existing assets, generating cash and driving innovation so as to identify new
opportunities for profitable growth in the future.'
We have generated £74m of cash this year through disposals, and a further £17m
from our free trade loan book. Disposals included 435 tenanted pubs and the
Via Vita and Lloyds No 1 chains of managed pubs, and realised a net profit
over book value of £4.1m. Net debt at 26 August was £584m, £51m lower than at
the end of the first half and significantly below our budget.
We have incurred exceptional costs in the period ended 26 August of
approximately £12m, mainly associated with the acquisitions of Mansfield and
Ralph Findlay, Chief Executive Designate, comments:
'Strategically, the Group has positioned itself to take advantage of its
regional strength by exploiting strong brands. Our objectives have been to
improve return on capital, and to focus on cash generation. I believe that
this is the right strategy and that we can and will generate value by
concentrating on raising the performance of our existing operations.
This means that we will continue to be cautious about new site development.
Our capital expenditure plans next year of £35m reflect a concentration upon
maintenance capital, consistent with our objective to improve returns from
existing assets. If assets can command a greater value through disposal than
development then they will be sold.
In Retail, we will prioritise like for like sales generation, and management
of margin and costs. The community estate has performed well in this respect,
and we are targeting improvements in our branded concepts: Pitcher & Piano,
Varsity, Merchant Stores and Tavern Table.
The Union Pub Company has performed well during a period of very significant
change, including the completing the disposal programme and bedding in managed
house transfers, of which there will be more next year. The priorities are to
manage these transfers well and to extend the franchise of the Business
Builder Agreement 2000.
As far as our beer brands are concerned, we have established strong positions
for our Banks's and Pedigree ales. These are the core of the Brands Division,
and next year we will seek to improve margins through a combination of lower
costs driven by our brewing review, increasing the proportion of our business
represented by core brands, and management of discounts. Our emphasis will be
upon service and brand strength rather than price.
The integration of Marston's and Mansfield is now effectively complete, with
the exception of the planned reorganisation of our brewing activities next
year. We believe that our new structure and focus will assist us in realising
the full benefits of our acquisitions, with the aim of delivering the
increased shareholder value that is our prime objective.'
The Board believes that the actions taken to improve margins, the progress
made in completing the integration of Marston's and Mansfield, and the
management changes have significantly strengthened the Group. We expect
further benefits from the brewing review due to be announced with the year-end
results. Our objective in pursuing a strategy which maximises the value of
existing assets is to increase shareholder value, and we will ensure that the
strategic options for the business are kept under review with that objective