Downing Pub EIS. Half-Yearly Report for the six months ended 31 March 2015

Transcription

1 Downing Pub EIS Half-Yearly Report for the six months ended 31 March 2015

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3 About the Service Downing Pub EIS launched in March 2012 to provide investors with access to investments in UK trading companies focused on owning and operating public houses, and attractive EIS reliefs, including 30% income tax relief. Key features of the Service Access to businesses owning and operating public houses with a focus on those that are freehold or long leasehold to help manage risk. Minimum subscription: 15,000 Target exit for Tranche 1: from April 2017 Target exit for Tranche 2: from summer 2019 Seeking to manage risk All EIS investments should be considered as high risk. Within the restrictions of the EIS rules, Downing seeks to manage risk through: 1. Tangible assets: as each Pub EIS Company owns property this may reduce the risk compared to some other EIS opportunities with few tangible assets. 2. Diversification: we believe that an EIS service provides the potential for greater diversification than a single company EIS offer. To date the Service has invested in six pub companies that own a total of 25 pubs. These companies are being managed by four different operators each with a different business model and geographical focus. 3. Downing consents: we negotiate with operators on behalf of the investors and place various restrictions on the businesses in order to protect our investors, including limiting debt and our consent being required for major expenditure. 4. Backing established operators: the pubs are identified, refurbished and operated by established operators with proven track records of developing successful public houses. In addition, where possible, we seek significant financial contributions from the operators managing the pubs. These contributions are only repaid once you have received a minimum return in excess of the amount invested. EIS tax reliefs ff30% income tax relief on the amount subscribed, subject to 3 year holding period ffiht-free after 2 years (from date of share issue) ffcgt deferral relief ffloss relief against income or capital This is only a brief summary of the EIS tax reliefs and we recommend that you take personal tax advice on the reliefs available to you. Upside potential Investments are made into genuine pub businesses. Whilst each company has its own strategy, each one is designed to deliver capital growth. As well as selecting the best operators to work with, we will seek the best possible price on exit. Our interests are aligned with investors because we receive a performance fee based on cash proceeds paid to investors in excess of the initial 100p invested (20% of proceeds between 100p-110p and 30% above). Key risks Your capital is at risk. Rates of tax, tax benefits and allowances may change and depend on personal circumstances. There is no access to capital until exit, which is targeted from April 2017 for Tranche 1, and from summer 2019 for Tranche 2. Investments made through Downing Pub EIS are in unquoted companies that are considered to be higher risk than securities traded on the London Stock Exchange. Past performance is not a guide to future performance. The value of investments may go down as well as up and you may not get back the full amount invested. Changes to legislation and economic conditions may reduce the revenue streams of the EIS Companies and, therefore, the returns you receive. Downing Pub EIS 3

4 Tranche 1 4 Downing Pub EIS

5 Tranche 1 overview Tranche 1 has raised and invested nearly 19 million across three businesses: Pabulum Pubs Limited, Autumn Pubs Limited and Augusta Pubs Limited. The companies own 19 pubs, all located in London and the East Midlands. Progress The companies that form Tranche 1 continue to trade well. Sales across the three companies increased by 23% in the six months to March 2015 when compared to the same period in the prior year. Just over one third of this increase is the result of new openings, with the balance being driven by refurbishments and strong strategic/ operational oversight. Profitability has also increased significantly with EBITDA (the measure most commonly used to value pub investments) having increased by 63%. Whilst much of this increase has come from higher sales, almost 30% of the uplift has come from underlying improvements in margins, staff and cost control. Valuation Following an external review by independent professional valuers covering all pubs in Tranche 1, the largest of the three companies, Pabulum Pubs, has been written up in value to 1.08 per share whilst the remaining two companies are held at cost. Amounts raised by investee company 8.5m Autumn 6.0m Augusta 4.3m Pabulum Number of pubs by investee company Total 18.8m 6 pubs Autumn 10 pubs Augusta 3 pubs Pabulum Total 19 pubs Outlook With the exception of Autumn Pubs, which is in negotiations over a number of new sites to add to its estate, the companies in Tranche 1 have completed their acquisitions. Pabulum and Augusta are now focused on developing those pubs which are yet to open, further improving premises where possible and continuing to drive underlying business performance in order to help maximise returns. Downing Pub EIS 5

6 Pabulum Pubs Limited Overview Pabulum s strategy is to either: a) purchase pubs which are in need of refurbishment/repositioning in order to appeal to a changing local demographic; or b) to purchase non-pub assets for which planning and licencing consent has been obtained to convert into pubs. This strategy is designed to avoid paying goodwill on existing successful pub sites. Pabulum has purchased six freehold sites to date. Four of these sites are open and trading as pubs, whilst the latest two (Knowles of Norwood - West Norwood and John the Unicorn - Peckham Rye) are in development. Performance Sales and EBITDA (at the four operational sites) have increased by 14% and 88% respectively in the six months to March 2015 when compared to the same period in the previous year. These sites have been open for more than 12 months and the increase in sales therefore represents real underlying like for like sales growth. Half of the increase in profitability is a result of this sales growth with the remainder being the result of operational changes which have led to material improvements in margins and labour efficiency. Outlook Whilst no new acquisitions are planned, proposals to increase the trading area and sales potential of the Royal Albert and Hagen & Hyde are being finalised. Further growth is also expected from the opening of Knowles of Norwood and John the Unicorn which are both well located in strong trading positions. Amount subscribed 8.5 million Valuation 9.4 million ( 1.08 per share) Target exit date From April 2017 Location across London Tax certificates EIS3 certificates have been sent to investors for all investments Pabulum is managed by Antic London, an experienced operator with over 40 sites, the majority of which are located in up and coming areas of London popular with young professionals. Tax relief/year 30% income tax relief available in either 2011/12, 2012/13, 2013/14 or 2014/15, depending on the date your EIS shares were issued (Relief may be carried back to the tax year prior to the one in which your shares were issued) 6 Downing Pub EIS

7 Pabulum s sites Location map Earl Haig Royal Albert Effra Social John the Unicorn Hagen & Hyde Knowles of Norwood Map data 2015 Google Effra Social Hagen & Hyde Royal Albert Downing Pub EIS 7

8 Autumn Pubs Limited Overview Autumn s strategy is to build a portfolio of well managed and maintained pubs across the East Midlands. When purchased, the sites are typically tired and in need of refurbishment to bring them up to standard. The sites are identified, refurbished and managed by Pub People. Autumn currently owns and operates ten freehold pubs, all of which are now open and trading. Performance Sales and EBITDA have increased by 51% and 47% respectively in the six months to March 2015 when compared to the same period in the previous year. Autumn has opened two sites since the last update: ffthe Nags Head, a small cask ale focused pub in the Newbold suburb of Chesterfield; and ffthe Three Legged Stool, a medium sized pub on a main road through Worksop which has been refurbished and rebranded under the Fresh and Local brand a family-friendly food led concept that has proven successful at other sites owned by the company. Sales at these sites are in line with expectations and contributed 38% of the total sales increase. The remaining growth has come from the purchase of the Thorn Tree, Ripley (June 2014) and from like for like sales growth achieved in the other seven pubs across the estate. It is this latter growth which has driven the increase in profitability, with the newest sites incurring marginal losses as operations bed in. Excluding the new sites, EBITDA has increased by 59%. Outlook Autumn has a pipeline of new sites, two of which are at an advanced stage of negotiations. These purchases, along with organic growth, are expected to drive further improvements in sales and profitability. Amount subscribed 6 million Valuation 6 million ( 1.00 per share) Target exit date From April 2017 Location East Midlands Tax certificates EIS3 certificates have been sent to investors for all investments Tax relief/year Autumn is managed by Pub People, who operate over 40 sites in similar locations. 30% income tax relief available in either 2011/12, 2012/13, 2013/14 or 2014/15, depending on the date your EIS shares were issued (Relief may be carried back to the tax year prior to the one in which your shares were issued) 8 Downing Pub EIS

9 Autumn s sites Location map Great Northern Marr Lodge Plug & Feathers The Three Legged Stool The Nags Head Dukeries Lodge Plug & Feathers Thorn Tree Steampacket Thorn Tree Great Northern Queens Head Royal Oak Map data 2015 Google Downing Pub EIS 9

10 Augusta Pubs Limited Overview Augusta s strategy is to purchase a mixture of successful and underperforming freehold pubs in London. The intention is to trade the successful pubs and to use the strong cash flows to support the underperforming pubs whilst they build trade following extensive refurbishments. Augusta owns two trading sites: Balham Bowls Club, which was trading successfully when purchased; and Railway Tavern, closed when purchased but now refurbished. A third site has also been purchased since the last update. This site was closed when purchased and has not yet been refurbished or given a trading name. The site is well located on a busy high street in Crystal Palace, an area which has become increasingly popular with young professionals and families. Performance Sales and EBITDA have increased 5% and 16% respectively in the six months to March 2015 when compared to the same period in the previous year. Whilst these increases are lower than seen in the other companies in Tranche 1, they are representative of the size and mature nature of the Balham Bowls Club. A number of operational changes were made during the period which led to material improvements in margins and labour efficiency which would have increased EBITDA by 22%, were it not for a number of one off expenses. Outlook Augusta is drawing up plans to refurbish and reopen the latest addition in Crystal Palace. Further growth is also expected from the Railway Tavern which has shown consistent growth since it opened in September Amount subscribed 4.3 million Valuation 4.3 million ( 1.00 per share) Target exit date From April 2017 Location across London Tax certificates EIS3 certificates have been sent to investors for all investments Tax relief/year As with Pabulum Pubs, the company is managed by Antic London. 30% income tax relief available in either 2012/13, 2013/14 or 2014/15, depending on the date your EIS shares were issued (Relief may be carried back to the tax year prior to the one in which your shares were issued) 10 Downing Pub EIS

11 Augusta s sites Location map The Forest Tavern Balham Bowls Club Latest site Map data 2015 Google Balham Bowls Club The Forest Tavern Downing Pub EIS 11

12 Tranche 2 12 Downing Pub EIS

13 Tranche 2 overview Tranche 2 has raised and invested over 10 million across three businesses: Downoak Limited, Sheridan Pubs Limited and Craft Beer Pub Company Limited. The companies currently own six pubs, located across England. Progress All three companies are trading. Downoak has completed its acquisition and initial refurbishment strategy and is exploring ways to maximise value from its estate (in the same way as companies in Tranche 1 have). Sheridan Pubs has purchased one site (which is in development) and is in advanced negotiations on a number of others. Craft Beer has purchased one site to date, and future options are being explored with management. Valuation Since the assets purchased by the companies in this tranche have been held for less than a year, with the exception of Craft Beer Pub Company they have been held at cost. Craft Beer, which represents approximately 6% of the tranche, has not performed in line with expectations. As a precaution, the carrying value of the investment has therefore been written down to 0.70 per share. Amounts raised by investee company 5.0m Sheridan 5.0m Craft Beer 0.66m Downoak Number of pubs by investee company Total 10.66m 4 pubs Sheridan 1 pub Craft Beer 1 pub Downoak Total 6 pubs Outlook Once the companies in Tranche 2 have completed their acquisition strategies, further upside is expected through property improvements, continued sales growth and operational improvements. Additional growth is also expected from the planned acquisitions in Sheridan. We are also in the process of carrying out due diligence on a number of other operators and have a pipeline of opportunities into which to make new investments as additional funds are raised. Downing Pub EIS 13

14 Downoak Limited Overview Downoak s strategy is to own and operate high quality freehold pubs located in and around affluent towns in South and Central England. The sites will be fitted out to a high standard and will be focused on good quality food and excellent service standards. The company is managed by Oakman Inns, a highly regarded, multiple award winning operator with significant local knowledge and experience. Recent accolades include Sunday Times Top 100 Companies to Work For 2015 and three awards at the prestigious Publican Awards The first site is a destination venue situated on the busy A41 between Aylesbury and Bicester. The site was purchased as The Cook and Fillet in September 2014 and was relaunched as The Akeman Inn in October 2014 following a significant refurbishment. The site opened on time and is trading ahead of expectations. A second phase of works which saw the creation of an impressive outside trading area and an enlarged car park was completed in May Following the success of the first site a further three sites were purchased in March 2015: The Akeman in Tring, The Crown & Thistle in Abingdon, and The Blue Boar in Witney. All three sites were purchased as successful, profitable businesses in need of little or no refurbishment. The sites are all well located in affluent market towns, and have the ability to trade all day and appeal to a wide range of customers. The Crown & Thistle and The Blue Boar also have letting rooms which support trade, although this is not a significant part of the overall business. Oakman Inns has made a significant financial contribution to the company. Performance The Akeman Inn has been a great success with sales ahead of preinvestment expectations and twice that being achieved prior to the relaunch. Costs are being controlled well and the site is delivering profits ahead of budget. We are also pleased to announce that, despite their more mature nature, the latest additions are performing well and are ahead of budget. Outlook Whilst no major capital projects have been committed to, management is exploring options to extend a number of the sites and they are also working on operational improvement initiatives which are expected to improve profitability. Amount subscribed 5 million Valuation 5 million ( 1.00 per share) Target exit date From summer 2019 Location South and Central England Tax certificates EIS3 certificates have been sent to investors for all investments Tax relief/year 30% income tax relief in 2013/14 (via carryback) or 2014/15 The company has purchased four high quality freehold sites. 14 Downing Pub EIS

15 Downoak s sites Location map The Akeman Inn The Blue Boar The Akeman The Crown & Thistle Map data 2015 Google The Akeman Inn The Blue Boar The Crown & Thistle Downing Pub EIS 15

16 Sheridan Pubs Limited Overview Sheridan s strategy is to identify, refurbish and operate freehold public houses in and around London. The focus will be on identifying pubs in areas where the food and beverage offerings do not meet the needs of the changing local consumer base. As with a number of companies in the portfolio, the sites will be managed by Antic London; an operator with a proven track record of repositioning pubs in this way. Performance The first freehold site purchased by Sheridan is located on Sutton High Street. The site is well located but in need of redevelopment in order to reposition itself from a drink led, late night focused bar to a more accessible food and drink led neighbourhood pub which has the ability to trade throughout the day. Planning has recently been granted to significantly extend the building which should enhance the trading space and value. Works are due to begin later in the year and it is hoped the site will reopen by the end of Outlook Sheridan is in advanced negotiations on another two freehold sites which would see the majority of the funds raised utilised. The company is also actively looking for further opportunities in other locations. Amount subscribed 5 million Valuation 5 million ( 1.00 per share) Target exit date From summer 2019 Location London Tax certificates EIS3 certificates have been sent to investors for all investments Tax relief/year Planning permission has been granted to extend the first site. 30% income tax relief available in either 2014/15 or 2015/16, depending on the date your EIS shares were issued (Relief may be carried back to the tax year prior to the one in which your shares were issued) 16 Downing Pub EIS

17 Sheridan s site Location map 67 Sutton High Street 67 Sutton High Street Map data 2015 Google Downing Pub EIS 17

18 Craft Beer Pub Company Limited Overview Craft Beer s strategy is to build a portfolio of freehold pubs in the South of England. It was expected that the majority of the pubs acquired would require refurbishment in order to reposition their offer. The first site purchased by Craft Beer was The Pensioners Arms in Southampton. This was refurbished and reopened in April 2014 and now trades as The Tap Room. Performance Whilst the site has been well received locally and costs are being controlled well, sales at the site have been below projections. As a result of the weaker than expected performance, the carrying value of the investment has been written down to 0.70 per share. Outlook Since the company s first site has not performed as well as expected, no further acquisitions are currently planned with the present operating partner. We are working closely with management to explore future options. Amount subscribed 0.66 million Valuation 0.46 million ( 0.70 per share) Target exit date From summer 2019 Location Southampton Tax certificates The company focuses on craft beers and an accessible food offering. EIS3 certificates have been sent to investors for all investments Tax relief/year 30% income tax relief in 2013/14 (via carryback) or 2014/15 18 Downing Pub EIS

19 Craft Beer s site Location map The Tap Room Map data 2015 Google The Tap Room Downing Pub EIS 19

20 The Pub Investment Team All members of our investment team are available to transact and manage pub investments. In particular, the seven members listed below focus on the sector. Investments are only made after rigorous due diligence is carried out and they have been approved by our Investment Committee. Steven Kenee Steven is a Partner of Downing LLP and heads up the licensed trade team. He qualified as a chartered accountant in 2004 with Baker Tilly, where he worked for over six years in corporate finance, corporate restructuring and audit with a specific focus on small and medium sized businesses. He joined Downing in January 2008 and has since led a number of VCT, EIS and IHT investments across a variety of sectors. He currently manages a significant portfolio which is focused on the late night and licensed trade where he sits on a number of boards. 20 Downing Pub EIS

21 Chris Allner Chris is a Partner of Downing LLP and heads up the Investment Team. Chris has 30 years of venture capital and private equity experience, most recently as Head of Private Equity at Octopus Investments. Prior to this, he was a Director at Beringea and Bridgepoint with previous experience at 3i and Charterhouse. Chris has transacted over 50 investments and has sat on the boards of a number of unquoted and quoted portfolio companies. Chris joined Downing in March Jonathan Boss Jonathan joined Downing LLP in 2008 and holds the position of Partner. After qualifying as a chartered accountant, Jonathan worked in corporate finance and corporate development. He has 20 years experience and has led over 100 transactions, comprising growth investments, management buy-outs, acquisitions, company sales and refinancings. Sitting on the boards of many of the companies in which he invests, Jonathan builds relationships with management teams based on agreeing shared goals and working hard together to achieve them. Michael Hughes Michael is a Partner of Downing LLP. He qualified as a chartered accountant in 2001 and spent seven years at Close Investments Limited where he was a director within the property and tax division. He joined Downing in May 2009 and has cross-sector investment experience with special focus on renewable energy and licensed trade investments. Mark Gross Mark is an Investment Director responsible for originating, transacting and managing investments made from the various Downing Funds. Mark has over 10 years private equity experience having written and managed over 400m of debt and equity capital across a range of industry sectors. Mark joined Downing in June 2014 from the UK mid-market private equity portfolio, Caird Capital LLP. Fergus O Sullivan Fergus joined Downing in 2013 as an Investment Manager. After graduating from Oxford University he joined PwC, qualifying as a chartered accountant in During his five years at PwC he worked on mid-cap private equity and corporate deals across a variety of sectors, as well as a number of IPOs and capital markets transactions. Fergus is a business mentor for the Prince s Trust. David Martin Smith David joined Downing in 2014 from Smith & Williamson where he qualified as a chartered accountant. His focus was on M&A, advising owner managed businesses across a range of sectors including healthcare, speciality manufacturing and business support services. David is an Investment Manager responsible for investment appraisal and execution. Downing Pub EIS 21

22 Guide to Claiming EIS Income Tax Relief Claiming income tax relief Once you have received your EIS3 certificates, you should enter the amount invested on your tax return for the year you are entitled to claim the income tax relief. If you have already submitted your tax return, then the claim section of the EIS3 certificate should be completed and sent to your tax office. Please note that you will receive one EIS3 certificate per EIS Company (i.e. you do not receive one certificate for your entire investment through the Service), and these are likely to arrive separately. If your shares were issued in the current tax year and you pay tax under PAYE, you can apply to claim relief for that year now. Fill in the claim certificate on page 3 of the EIS3, then tear off and send that page to your HMRC office. Remember that if you are sent a tax return after the end of the year, you will also have to enter details of the claim on that return. Claiming capital gains tax deferral relief If your chargeable gain accrues in the current tax year and the shares were issued either in the current tax year, or in a previous year, fill in the EIS 3 Certificate and send it with your tax return to your HMRC office after the end of the tax year. If your chargeable gain accrued in a previous tax year, fill in the EIS3 certificate and send it to your HMRC office with your tax return if not already submitted. In both circumstances, you will need to enter the chargeable gain(s) details on the appropriate capital gains summary page. For further details on how to claim your tax relief, please contact HMRC directly on If you want to claim relief for a previous tax year for which you either did not receive a tax return, or you received a return and you have already sent it in, fill in the claim certificate on page 3 of the EIS3, then tear off and send that page to your HMRC office. If the claim is made in time it will be treated as amending the tax return. Please keep your EIS3 certificates safe as it can take time to source replacements from HMRC. 22 Downing Pub EIS

23 About Downing Structure of the Service Downing is owned by its partners, has over 75 staff, and its main office is in Westminster, London. We have specialised in tax efficient investments for over 25 years and have raised in excess of 1.3 billion from over 30,000 UK investors. The Service is a discretionary managed portfolio of EIS Companies, where each investor will own, through a nominee, a beneficial holding in each EIS Company. The Service is not an unregulated collective investment scheme. We are experienced in providing equity finance to pub businesses that qualify for attractive tax reliefs, having invested over 66 million in more than 60 pubs (source: Downing). The Financial Services Compensation Scheme, which provides compensation to eligible investors in the event that an FCA authorised and regulated party (Downing, a custodian or retail bank) fails to meet its liabilities, will apply to the Service. Important notice This document has been prepared for investors and their advisers by Downing LLP ( Downing ). It is for information only and does not constitute an offer or invitation to apply for shares in the Service and no reliance should be placed on it. Any subscription to the Service should be made solely on the basis of the Product Literature relating to the Service and investors should note that their investments may be illiquid, high risk and are long term in nature. Past performance is not a guide to future performance. Downing LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference No ). Registered in England No OC Registered Office: Ergon House, Horseferry Road, London SW1P 2AL. Downing Pub EIS 23

24 Ergon House Horseferry Road London SW1P 2AL This document has been printed on 100% recycled paper Downing LLP is authorised and regulated by the Financial Conduct Authority