Pubs with no cheer fearsChris VedelagoMay 20, 2009 PUB operators...

Pubs with no cheer fearsChris Vedelago
May 20, 2009
PUB operators should brace for rough times ahead as the industry continues to struggle with sluggish consumer spending, a massive debt hangover and the cost of government anti-binge drinking campaigns, one of the country's largest hotel operators has warned.

Andrew Jolliffe, chief executive of National Leisure & Gaming, told BusinessDay the sector faces a major shake-up over the next two years as operators sell off assets in a bid to pay down debt, cut expenses and weather the worsening economic conditions.

"There has been a bit of a perfect storm of things," Mr Jolliffe said.

A splurge of purchases by pub and gaming groups in 2006 and 2007 has left ballooning debt loads at time when asset prices have declined and consumers are spending more cautiously on trips to the pub.

NLG, which operates 38 leasehold pubs and gaming hotels in NSW and Queensland, was granted a reprieve when its lenders extended an estimated $200 million debt facility until the end of July 2010 after the group posted a $8.5 million loss for the first half of 2008-09. Several other major players have announced losses, while Cornerstone Hotels recently went into receivership.

"The industry has had 12 months of triage up until June 30 this year. It has really been a matter of survival, but we've survived," said Mr Jolliffe, who decline to comment further on NLG's financial status.

Operators that had made it this far would now embark on a period of "consolidation" and "recalibration" over the next two years that would see assets sold off to repatriate debt and improve revenue, Mr Jolliffe said.

The likely buyers would be those who sold out at the peak of the market, and cashed-up groups that see an advantage in the uncertainty about asset values.

But Mr Jolliffe said the industry was still vulnerable to revenue losses from the "sweeping" anti-binge drinking reforms that were being implemented by the federal and state governments.

While operators are still recovering from the mid-2007 smoking bans in several states, margins were being "substantially squeezed" by new compliance issues such as the tax on alcopops or ready-to-drink (RTD) beverages and the imposition of lockouts.

"That (RTD tax) effectively priced that product out of the market on premises. It steered those consumers to off-premise consumption of alcohol … and off-premise retail is the natural enemy of on-premise sales," Mr Jolliffe said.

Other mooted measures in NSW and Queensland include switching from glassware to plastic, and limitations on the number and placement of automated teller machines.

These reforms were harming the industry but doing little, if anything, concrete to address the issues, Mr Jolliffe said. "Will it curb antisocial behaviour? (It's) questionable in my mind."

Mr Jolliffe said NLG's gaming revenues were still in year-on-year growth on a monthly basis. The group's other great strength was its cash-based business model.

"That's why we've been able to exist in this 12-month period of triage," he said.


http://www.nationalleisure.com.au