Wed 22nd Oct 2014 - Spirit sets out potential of independent future Spirit sets out potential of independent future: Spirit Pub Company chief executive Mike Tye has set out how an independent Spirit Pub Company will expand its managed estate to its potential of 1200 pubs from the current 774 sites. The company has grown average weekly sales within its managed division by 25% since 2010 to £18,100 per week. Overall, the company had achieved a 31% cash-on-cash return from investment since 2010. Tye made no reference to the current bid by Greene King in a webcast to investors but rather focused on the bright growth potential for Spirit through internal investment and acquisitions. Tye said the company has around 100 high quality pubs within the estate that still represent investment opportunities, with £40m to be spent each year on organic capital expenditure – the remaining 100 pubs would see investment within the next 18 months. The company has seen “terrific returns to date” on its first seven Golden Oak Inns, slightly smaller pubs than suit its Flaming Grill brand but with good quality demographics. He cited the example of two Golden Oaks, one in Lymm (a 1,800 square foot site now producing £18,000 per week of sales from a previous figure of £12,800 per week) and one in Solihull (a 1,500 square foot site now producing £12,800 per week of sales from a previous figure of £7,800 per week), both producing a circa £5,000 per week sales uplift on a circa £200,000 investment. Tye said that Golden Oak was an “outstanding concept – not a gastro-pub but a high quality local”. Spirit now believes the concept, which originated in the leased division but had been ‘stolen’ by the managed division, had the potential to be expanded to between 150 and 200 sites – there is an immediate roll-out to 60 sites. The company foresees its John Barras community pub estate reducing from the current 230 sites to 70 sites as sites are converted to Golden Oak, Flaming Grill and Fayre & Square. Tye said that there is potential to add around 61 sites from internal conversions to its Flaming Grill estate of 109 sites to create an estate of 170 pubs, with the full market potential with acquisitions at 250 to 275 sites. He cited the example of a Flaming Grill in Derby that had added £6,000 of sales to hit £22,500 per week after a £135,000 investment. A 5,100 square foot freehold acquisition site in Birmingham, a failed Chinese restaurant acquired and refurbished for £1.2m, was achieving sales of £26,900 per week. Similarly, Spirit has the opportunity to add 22 sites to its Fayre & Square estate from internal conversions to create a total of 170 sites, with full market potential at 225 to 250 venues. Wacky Warehouse is another brand with substantial internal potential with the possibility of adding 75 to its current 95 sites to create circa 170 with full market potential with conversions circa 225 to 250 sites. Taylor Walker has seven more internal conversion opportunities to create an estate of circa 120 sites but the market potential is between 150 and 200 venues. Overall, Tye said the strategy would be to increase the value of existing brands and acquire more pubs to leverage its fixed costs, brands and skills. Tye said that in a large and fragmented market there will be “winners and losers” and Spirit had a significant opportunity to steal market share. He added that Spirit is so confident of its brand portfolio that it is prepared to trade new sites in close proximity with competitors. “We’re confident our brands can go head-to-head,” he said. The company has £75m to spend on acquisitions this year and there are ten sites where the company is currently bidding and 20 further sites “ready to go” – it acquired 22 pub in the last financial year. The opportunity here, Tye said, is existing sub-optimised pub assets, conversion on non-licensed premises and new-build opportunities. Within the company’s 444-strong leased division, now a source of income growth, there are further investment opportunities with only 63% of the estate currently invested (up from 33% in 2012). Finance director Paddy Gallagher said the average Spirit managed pub is now worth £1.5m, up from £1.3m in 2012 and the average leased pub is worth £600,000 up from £560,000 in 2012.