Fuller’s reports ‘higher than expected costs’ after sale of brewing business

In an investor update, UK pub operator Fuller’s has reported “materially higher than expected” costs following the sale of its brewing operation at the start of this year, with share prices falling as a result.

Fuller’s announced the sale of its Chiswick brewery in January.

Fuller’s, which operates 179 tenanted and 206 managed pubs, said that it had been harder hit than expected following the sale of its brewing business to Asahi earlier this year.

In a trading update published at the end of last week, the company said that total sales at its managed pub estate continue to grow by 5.2% in the 32 weeks to 9 November 2019.

However, this growth has been dampened by unprecedented cost pressures, which have had a corresponding effect on share prices. Prices fell to hit a low of 900p, before bouncing back to 1,000p at the time of writing, still down from 1,070p recorded at the close on Thursday 14 November, the day before the trading update was published.

The statement referred to 2019 as an “unprecedented year of change”. It noted that while the sale to Asahi was completed in April 2019, the company’s transitional services agreement with the Japanese drinks giant was not set to end until May 2020.

Fuller’s added: “Whilst it was not underestimated that this would be a period of significant transition for the business, the costs associated with carrying the central overhead previously allocated to the beer company have transpired to be materially higher than expected, with additional resource required to assist the business through this complex separation period.”

It said this separation and transition period had been further impacted by the business moving to a new enterprise resource planning system “which has not yet delivered the expected benefits and additional costs have been incurred operating the system as a result”.

The business will announce is official half year results on 12 December. Currently, predicted profit for the year ending 28 March 2020 is expected to be “broadly in line with the prior year on a comparable basis”.

Chief executive of Fuller’s, Simon Emeny, commented: “There have been many moving parts to navigate and we have incurred some greater than anticipated costs as a result which have had a short term impact on our financial performance. Whilst we are taking the action to address these, the impact of this will not be felt in the current financial year.

“Trading is good in light of exceptionally strong comparatives last year and the continued challenge of cost inflation facing our sector. Our strategy remains on track and we will continue to execute our growth ambitions and maximise the opportunities open to us as a focused pubs and hotel business.”

Last month, Fuller’s announced its acquisition of Cotswold Inns for £40 million. The purchase consists of seven sites, as well as eight staff cottages, based in the Cotswolds together with two bars in the centre of Birmingham.

Last week it was reported that the new owner of Fuller’s brewing operation, Asahi, was to stop making Grolsch lager in the UK, after ceasing a brewing contract with Molson Coors.

The Grocer reported that the company had ended its relationship with Molson Coors after Grolsch, which has been sold in the UK for 35 years, was delisted by supermarkets Tesco and Asda.