Downing Pub EIS. Half-Yearly Report for the six months ended 31 March 2016

Transcription

1 Downing Pub EIS Half-Yearly Report for the six months ended 31 March 2016

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3 About the Service Downing Pub EIS seeks 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. 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 backed with fewer tangible assets. 2. Diversification: we believe that an EIS service provides the potential for greater diversification than a single company EIS offer. By 31 March 2016, the Service, through two tranches, had invested in eight pub companies owning a total of 31 pubs. These companies are being managed by six different operators each with their own business model and geographical focus. 3. Downing consents: we negotiate with operators on behalf of 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 experienced 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. Each company has its own strategy, which is designed to deliver capital growth. As well as selecting some of 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 110p). 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 20 million across three businesses: Pabulum Pubs Limited, Autumn Pubs Limited and Augusta Pub Co Limited. Together these companies own twenty pubs (nineteen of which are trading and one of which is being refurbished). All of the sites are located in either London or the East Midlands. Progress Tranche 1 performance continues to improve. When compared to the same period in the prior year, combined sales increased by 16% in the six months to March Approximately half of the increase was driven by the opening of three new sites over the past six months, with the remainder being driven by continued growth of the rest of the estate. This improvement in sales, combined with ongoing improvements in margins and cost control, has resulted in a 26% increase in EBITDA (the measure most commonly used to value pub investments). Valuation Whilst Pabulum continues to be held at 1.08, both Autumn and Augusta have been written up to 1.05 per share. Outlook Autumn Pubs continues to seek new sites to add to its estate, whilst Pabulum and Augusta have completed their acquisition strategies and are focusing on continuing to drive underlying business performance in order to maximise returns. Valuation by investee company 9.9m Autumn 6.4m Augusta 4.8m Pabulum Number of pubs by investee company Total 21.1m 6 pubs Autumn 11 pubs Augusta 3 pubs Pabulum Performance summary Gross Total 20 pubs Net Subscription price 100p 70p Current value of Tranche 1 per 100p invested* 108p * Based on the overall portfolio value. Investors may have different weightings of the three companies depending on the timing of their application and may have a different valuation of their individual portfolio as a result. 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) 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 owns six freehold sites, all of which are now trading. Performance The company continues to trade well with like for like sales for the six months to March 2016 up 6% when compared to the same period in the previous year. In addition to this growth in the top line, operational improvements have seen both gross margins improve and staff costs reduce. As a result, like for like EBITDA for the six months to March 2016 has increased by 18% compared to the same period in the previous year. In addition, two new sites have recently opened. These are Knowles of Norwood in West Norwood and John the Unicorn in Peckham. Both sites have been well received locally and are well located in improving areas of London. As a result of these openings, the company s total sales for the six months to March 2016 have increased by 22% compared to the same period a year earlier. Outlook No further acquisitions are planned for Pabulum, but proposals to increase the trading area and sales potential of the Royal Albert and Hagen & Hyde continue to be explored. Amount subscribed 9.1 million Valuation 9.9 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 Tax relief/year Pabulum s operations are supported 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. 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 (Crouch End) Royal Albert (New Cross) Effra Social (Brixton) John the Unicorn (Peckham Rye) Hagen & Hyde (Balham) Knowles of Norwood (West Norwood) Map data 2016 Google Earl Haig 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 either closed or in need of significant refurbishment to bring them up to standard. Site identification, refurbishment and operations are supported by Pub People Company, a well-regarded regional operator. Autumn currently owns and operates eleven trading freehold pubs. The eleventh and latest site, The Chequers Inn, Ranby, Nottinghamshire, opened in February 2016 under the company s successful Fresh & Local brand. Outlook Whilst Autumn continues to seek new sites to acquire, further improvements in the company s sales and profitability are expected to be driven through further operational improvements and cost control. Amount subscribed 6 million Valuation 6.4 million ( 1.05 per share) Target exit date from April 2017 Performance Sales have increased by 17% in the six months to March 2016, compared to the same period in the previous year. Whilst this growth partly reflects the fact that two new sites opened over the last eighteen months, and two existing sites were refurbished, sales at the seven other sites, which have all been open for more than two years, grew by 4% compared to a year earlier. The sales growth, alongside continued improvement in gross margins and control of overheads, has resulted in the company s EBITDA for the five months to February 2016 increasing by 93% compared to the same period in the prior year. This has allowed us to recognise an uplift in the valuation to 1.05 per share. Autumn is supported by Pub People, who operate over 40 sites in similar locations. Location East Midlands Tax certificates EIS3 certificates have been sent to investors for all investments 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) 8 Downing Pub EIS

9 Autumn s sites Location map Great Northern Marr Lodge (Marr) Plug & Feathers The Three Legged Stool (Worksop) The Chequers Inn (Ranby) The Nags Head (Chesterfield) Dukeries Lodge (Edwinstowe) Plug & Feathers (Glapwell) Thorn Tree Steampacket (Swanwick) Thorn Tree (Ripley) Great Northern (Langley Mill) Queens Head (Heanor) Royal Oak (Burton-on-Trent) Map data 2016 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, using the strong cash flows to support the underperforming pubs whilst they build trade following extensive refurbishments. Augusta owns three sites: The Forest Tavern, Forest Gate, and the Balham Bowls Club, Balham, have been trading for some time, whilst the third site, in Crystal Palace, is undergoing substantial refurbishment before it begins trading later this year. Performance Performance was broadly in line with the previous year. Despite this relatively flat trading performance, the structure of the investment has allowed us to recognise an uplift in the valuation to 1.05 per share. Outlook The company s third site remains in development and is expected to open in summer Amount subscribed 4.4 million Valuation 4.8 million ( 1.05 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 s operations are supported 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 (Forest Gate) Balham Bowls Club (Balham) Latest site (Crystal Palace) Map data 2016 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 18 million across five businesses: Downoak Limited, Sheridan Pubs Limited, OEK Pubs Limited, Ormsborough Limited and Craft Beer Pub Company Limited. The companies currently own eleven pubs, located across England. Progress All five companies are trading. Downoak and OEK have completed their acquisitions and are trading in line with expectations. Sheridan has purchased two sites which are in development and is in advanced negotiations on a third. Ormsborough is trading one site, has a second in development and is negotiating over a third. The site owned by Craft Beer continues to be marketed for sale. Valuation Performance at Downoak has allowed a write up to 1.10 per share, whilst Sheridan, OEK and Ormsborough being held at cost. Craft Beer, which represents less than 2% of the tranche by value, has not performed in line with expectations, and has been written down to 50p per share. The overall value of this Tranche 2 is 1.01 per share but individual investors may have different exposures to the underlying investments and therefore a different overall value. Outlook Whilst performance of the relatively small Craft Beer Pub Co has disappointed, Downoak is performing well and has been valued up. It is still too early to gauge the future prospects of Sheridan, Ormsborough and OEK although value appreciation is expected over time. Valuation by investee company 5.5m Sheridan 5.8m OEK Pubs 4.7m Ormsborough 2.2m Craft Beer 0.3m Downoak Number of pubs by investee company Total 18.5m 4 pubs Sheridan 2 pubs OEK Pubs 2 pubs Ormsborough 2 pubs Craft Beer 1 pub Downoak Performance summary Gross Total 11 pubs Net Subscription price 100p 70p Current value of Tranche 2 per 100p invested* 101p * Based on the overall portfolio value. Investors may have different weightings of the five companies depending on the timing of their application and may have a different valuation of their individual portfolio as a result. 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 central and southern England. The sites are fitted-out to a high standard and are focused on good quality food and excellent service standards. The company s operations are supported 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 Oakman Inns made a significant financial contribution to the company. The company owns four freehold pubs: The Akeman Inn, situated on the busy A41 between Aylesbury and Bicester, the Akeman in Tring, The Crown & Thistle in Abingdon, and The Blue Boar in Witney. 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. Three of the sites were purchased with little or no changes required. The fourth was poorly designed and significantly underperforming when it was purchased; significant works have been undertaken to reposition the site and bring it up to the Oakman standard. Performance The investment is performing in-line with expectations and supports a write up in value to 1.10 per share. Outlook Whilst the company is unlikely to make any further acquisitions, the structure of the investment should allow for further value appreciation over time. Amount subscribed 5 million Valuation 5.5 million ( 1.10 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 Downoak s recent performance has allowed us to uplift the company s share price to % income tax relief in 2013/14 (via carryback) or 2014/15 14 Downing Pub EIS

15 Downoak s sites Location map The Akeman Inn (Kingswood) The Blue Boar (Witney) The Akeman (Tring) The Crown & Thistle (Abingdon) Map data 2016 Google The Akeman The Akeman Inn The Blue Boar 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. Its focus is on identifying pubs in areas where the food and beverage offerings do not yet meet the needs of the changing local consumer base. The sites operations are supported by Antic London, an operator with a proven track record of repositioning pubs in this way. The company s first acquisition is well located on the High Street in Sutton, South West London, and the second is located in Lewisham, South East London. Both sites are closed and will be significantly refurbished before reopening. Performance Works are currently underway at the company s site in Sutton, in order to reposition it from a drink-led, late night focused bar to a more accessible café/bar which has the ability to trade throughout the day and take advantage of the site s high footfall. The site is expected to open in summer Works are expected to begin shortly at the Lewisham site, which will need to undergo substantial refurbishment before opening. In the meantime the company continues to trade the Ravensbourne Arms in Lewisham on a short leasehold basis. Outlook Sheridan is actively looking for further opportunities in other locations across Greater London and is currently in negotiations to acquire a third freehold site. This third site is relatively mature but also highly cash generative which the company believes will be a good match for the two earlier stage development sites. Amount subscribed 5.8 million Valuation 5.8 million ( 1.00 per share) Target exit date from Summer 2019 Location across Greater London Tax certificates EIS3 certificates have been sent to investors for all investments Tax relief/year 30% income tax relief available in either 2013/14, 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 sites Location map Lewisham High Street Sutton High Street Map data 2016 Google 67 Sutton High Street Downing Pub EIS 17

18 OEK Pubs Limited Overview OEK s strategy is to own and operate high quality freehold pubs in affluent, countryside locations in Southern England. Upham Group has been appointed to provide operational support for the sites. Upham is a well-regarded, multi-site operator with significant local knowledge and experience. Upham focuses on building strong, motivated local teams capable of providing high quality food and drink in a relaxing and welcoming atmosphere. Whilst not a significant part of the business, there is a preference for sites to have the potential to provide some accommodation as management believe this underpins the financial stability of the business. The funds invested have been used to purchase two freehold pubs. These are the Navigator in Swanwick, Hampshire, and the Winning Post in Windsor, Berkshire. Both sites were acquired as successful going concerns with the scope to improve trade by reinvesting profits back into the properties. The sites are fitted out to a high standard and are individually focused around the idiosyncrasies of the particular location/style of building. Performance The company is performing in line with our pre-investment expectations. Outlook Whilst OEK is unlikely to make any further acquisitions, the structure of the investment allows for profits to be reinvested into the properties. Indeed, both the Winning Post and the Navigator are in the process of room upgrades which we believe will enhance profitability. A new semi-covered seating area has been erected at the Winning Post in order to provide a refresh as well as additional covers. Finally, whilst this investment is less than a year old and is being held at cost, the performance of the sites and the structure of the investment should allow for a value uplift in the future. Amount subscribed 4.7 million Valuation 4.7 million ( 1.00 per share) Target exit date from Summer 2019 Location Southern England Tax certificates EIS3 certificates have been sent to investors for all investments Tax relief/year 30% income tax relief in 2014/15 (via carryback) or 2015/16 18 Downing Pub EIS

19 OEK s sites Location map The Winning Post (Winkfield) The Navigator (Swanwick) Map data 2016 Google The Navigator The Winning Post Downing Pub EIS 19

20 Ormsborough Limited Overview Ormsborough s strategy is to roll out the Potting Shed brand to a portfolio of freehold pubs across the North of England. In December 2015, the company acquired a trading freehold public house, in Bingley, West Yorkshire. The Potting Shed has a contemporary fit-out that primarily targets a young and relatively affluent demographic. It s success stems from giving commuters the kind of high quality offer they are used to visiting in the cities closer to home. Site identification, refurbishment and operations are being supported by Burning Night Limited, a wellregarded Leeds-based pub operator. Performance Since acquisition, and following the installation of a retractable roof over the first floor cocktail terrace, the Bingley site has continued to trade impressively with sales and EBITDA for the quarter ended March 2016 being 14% and 17% respectively ahead of budget. Outlook In April 2016 the company acquired a second site in the affluent market town of Beverley, East Yorkshire. It is currently undergoing a substantial redevelopment and should be launched as the company s second Potting Shed site during the summer. Ormsborough continues to seek new sites to acquire, and is in negotiations over a third site. Amount subscribed 2.2 million Valuation 2.2 million ( 1.00 per share) Target exit date from Summer 2019 Location Northern England Tax certificates EIS3 certificates are due to be sent to investors in June Tax relief/year 30% income tax relief in 2014/15 (via carryback) or 2015/16 20 Downing Pub EIS

21 Ormsborough s sites Location map The Potting Shed (Bingley) The Potting Shed (Beverley) Map data 2016 Google The Potting Shed - Bingley Downing Pub EIS 21

22 Craft Beer Pub Company Limited Overview Craft Beer was established to build a portfolio of freehold pubs in the South of England. It was expected that the majority of the pubs acquired would need 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 As previously reported, whilst the site has been refurbished to a high standard, trade continues to materially underperform. Outlook Since the company s first site has not performed in line with expectations, no further acquisitions are planned with the present manager. Whilst it continues to trade, the existing site has been marketed for sale since November 2015 although, despite an actively managed marketing campaign and a reduction in asking price, no credible offers for the freehold as a trading business have been received. An offer to lease the site is currently being progressed in tandem with an offer to purchase the freehold as an investment opportunity, although neither of these negotiations have been concluded. As a result of the above we have written down the carrying value to 0.50 per share whilst we continue to explore options for the site. Amount subscribed 0.6 million Valuation 0.3 million ( 0.50 per share) Target exit date from Summer 2019 Location Southampton 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 22 Downing Pub EIS

23 Craft Beer s site Location map The Tap Room (Southampton) Map data 2016 Google The Tap Room Downing Pub EIS 23

24 The Pub Investment Team All members of our investment team are available to transact and manage pub investments. In particular, the eight members listed here are key members of the team in this 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 organised, led and managed a number of investments across a variety of sectors. He currently focuses on the licensed sector and sits on a number of boards which gives him a deep understanding of the sector. 24 Downing Pub EIS

25 Chris Allner 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. He has transacted over 50 investments. Michael Hughes Michael has extensive cross-sector investment experience with special focus on licensed trade and renewable energy investments. He qualified as a chartered accountant in 2001 and spent seven years at Close Investments Limited as a director in the property and tax division. Sam Archer Sam has over 10 years investment experience across a variety of sectors. He joined from Bluebox Corporate Finance where he advised businesses on sale or fundraising mandates, and was previously with Bridges Ventures and PwC, where he qualified as a chartered accountant in Tom Phillips Tom has a dual focus on originating growth capital investment opportunities and working with our existing portfolio companies, across a range of asset-backed sectors including education, leisure and healthcare. Tom previously spent five years at Lloyds Banking Group. Fergus O Sullivan Fergus is an Oxford University graduate and qualified as a chartered accountant with PwC. As part of the financial due diligence practice at PwC he worked on mid-cap private equity and corporate deals, IPOs and capital markets transactions. He has completed investments in a variety of sectors. David Martin Smith David joined from Smith & Williamson where he qualified as a chartered accountant. He focused on advising owner-managed businesses on fund raisings, exits and disposals across a range of sectors including healthcare, speciality manufacturing and business support services. Nick Carter Nick monitors and evaluates investee companies performance for the purposes of investing, divesting and restructuring. He qualified as a chartered accountant and previously worked at Dixon Wilson, focusing on audit, due diligence and accounts preparation across a range of sectors. Downing Pub EIS 25

26 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. 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 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. 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. 26 Downing Pub EIS

27 About Downing Structure of the Service Downing is owned by its partners, has over 85 staff, and its main office is in Westminster, London. We have specialised in tax efficient investments for over 20 years and have raised in excess of 1.7 billion from over 35,000 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 70 million in more than 60 pubs (source: Downing, correct as at 16 June 2016). 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 27

28 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