Monday, February 24, 2014

Pubco's got their noses in the trough

This article appears in the current edition of Wetherspoon News

...  "The main additional reason for pub distress is the high level of debt assumed by some pub companies in the years running up to the credit crunch.

Two of the main architects of the debt-fuelled pub boom were Guy Hands, formerly of Japanese bank Nomura, and Hugh Osmond, a financier who has been involved in substantial debt-raising exercises in respect of public companies. In essence, Hands and Osmond bought the large tenanted pub estates of the major brewers, using borrowed money, and then hiked up the rents and the beer prices paid by the tenants. As a result of the increased income which they generated, they were able, in effect, to remortgage the pubs, extracting tens of millions of pounds of ‘profit’ for themselves.

The problem, in my opinion, is that the so-called ‘business model’ which they helped to pioneer was unsustainable – and thousands of tenants have gone to the wall – and thousands of pubs have closed. Not all pub closures were formerly tenancies, but very many were. After Hands, Osmond and their acolytes and imitators sold out, the majority of the pubs in the tenanted estates ended up with public companies called Enterprise Inns and Punch Taverns. They continued to buy pubs and increase debt (as well as continuing to increase rents and beer prices for tenants) right up until the credit crunch hit.

When the individual licensees/tenants started to suffer between the hammer of high rents and beer prices and the anvil of the tax-subsidised supermarkets, unprecedented numbers of publicans went bankrupt – and the Enterprise and Punch shares plummeted on the stock market to a fraction of their former value."

Tim Martin is chairman and founder of JD Wetherspoon.

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