Reshuffling the pack

You’ve got to hand it to Peter Borg-Neal. Others in his position might have thrown up their hands and given up the uneven battle. Not the veteran Oakman Inns founder, who is made of sterner stuff.

Last month, in an acknowledgement of the task ahead, Borg-Neal reversed his move in July 2020 from chief executive to executive chairman and resumed the role of CEO. Meanwhile, Dermot King, who had been promoted to CEO, initally reverted to interim finance director while a successor was found, with John Leslie filling the chairman’s seat on a non-executive basis. Oakman has since appointed Tarquin Williams, formerly of City Pub Group, as chief financial officer.

The unwinding of the 2020 boardroom reorganisation last month was ostensibly caused by the exit of finance director Koula Achillea, but the wholesale changes suggest that the “cogent succession plan” declared at the time may not have been quite as cogent as hoped.

Mike Smith, the outgoing chairman in the earlier board reshuffle, declared: “It has always seemed crystal clear to me that it was Peter’s destiny to become executive chairman of the business that he founded and has led so brilliantly over the years.”

‘Need to be agile’

That destiny was rather short-lived, lasting less than three years, although Borg-Neal is in no doubt about the challenges ahead as he resumes the CEO position. The hospitality industry faces “a range of unique challenges never experienced simultaneously across so many areas”.

He says the company needs to be “agile and respond quickly to the extraneous pressures of supply, employment, energy, costs, taxation, environment and politics”.

Oakman was also forced to go cap in hand to its shareholders – again – and it secured a £5.3m “buffer” primarily to enable the company to “navigate the near-term challenges”.

At the beginning of this month, Oakman issued its full-year results for the year to July 2022. There’s no problem with its sales, which recovered from Covid with a 61% year-on-year jump to £54.4m, a like-for-like increase of 19.9% on pre-pandemic levels. Admittedly, it was helped by the addition of three new sites, lifting its total estate to 38. Underlying earnings (EBITDA) were also strong, up 49.2% to £5.4m.

Where the cracks appear is in its trading update for the subsequent 38-week period to 25 March. Again, sales are pretty strong, while two more sites have been added, but Borg-Neal admits that “converting our sales to the level of profit we have planned for has been much more difficult”.

He adds: “The pace and intensity of the inflationary pressures that have impacted our sector combined with the increase of VAT to 20% make a pretty toxic mix.”

Borg-Neal founded the business in 2007 under the Enterprise Investment Scheme (EIS) with support from friends and family, who have continued to back the company. The premium managed pub and restaurant group has raised c£45m from private individuals since its inception.

At MCA’s Pub Conference last July, he revealed that the group was in discussions with private equity groups for new funding to step up expansion. Borg-Neal said that given the global economic uncertainty, it was crucial for operators to be “well capitalised or sell their business”.

He explained: “I want to hold a bit more cash in the balance sheet, to be a bit more cautious. The world is an uncertain place, and it could get worse.”

Today, Oakman has 40 pubs across the North-West, Midlands and South of England, employing more than 1,500 people, but part of the issue for putative purchasers or investors is the rather disparate nature of the portfolio, from rural pubs to suburban hostelries to the luxury Woburn Hotel on the Duke of Bedford’s estate.

Word is, the company is considering a possible trade sale as one of its options this year, but its mixed portfolio, which was not cheap to put together, and its issues with converting its strong sales to a suitable level of profit, could conspire against that.

Price of pizza

On the subject of takeovers, I was not entirely surprised when the RNS popped up revealing that David Page and his Fulham Shore colleagues had received a bid. While many – most? – of the company’s casual dining peers have struggled through the pandemic and the inflation/cost-of-living crisis, Fulham Shore’s Franco Manca and Real Greek chains have prospered. Such success is attractive to buyers.

Given the tough times still ahead, Page obviously felt that folding his business into the safety net of a £1.5bn multi-national company was a sensible move. Toridoll, the Tokyo-listed global food company behind brands including Marugame Udon, has been rapidly establishing itself in the UK and Europe, while Capdesia, Toridoll’s partner in the move, has the investors to introduce to the Japanese group.

With directors and other shareholders already speaking for almost 50% of the company, it is looking like a shoo-in, although it will be interesting to see if any investors pop up to complain at the price.

The usual metrics were trotted out in the bid document to prove what a great deal it was: the offer price of 14.15p a share was a premium of 35.5% to the average over the past three months of 10.44p, blah, blah. But what it didn’t say was that this time last year, the shares were trading at 17.5p, and in September 2021 they were a shade under 20p.

There is no doubt that a quality business like this would normally be expected to command a decent premium and one banker argued Page had “thrown in the towel”.

However, these are not normal times and Toridoll already has 50% acceptances in the bag. Moreover, the current share price of 13.95p is still below the 14.15p offer price, which does not suggest the market is expecting a higher offer.

Page, despite his youthful good looks, is also aged 70, so exiting with his £13m of shares converted into cash doubtless looks a sensible move.

■ Dominic Walsh is a business reporter at The Times