By Andrew Starke
National Leisure and Gaming (NLG) will survive the downturn in the pub sector by being brutally honest with its shareholders and tougher then the prevailing conditions, according to CEO Andrew Jolliffe.
In a wide-ranging interview with TheShout, Jolliffe revealed that the past couple of years had been a steep learning curve for both him personally and his executive team.
“The past 18 months has been an unprecedented amalgam of issues and challenges with which to contend,” he said.
“I’ve used the phrase ‘triage’ before, because I think it really does best describe the application NLG and others have had to employ in order to mitigate and control, where possible, the many and varied challenges to profitability; including, but not limited to: amendments to smoking legislation causing sharp revenue contraction, the increasing cost of capital, erosion of discretionary spending, substantially increased cost of compliance, cannibalisation of high GP revenue streams by virtue of the Federal Government imposed RTD tax excise and augmenting yields putting pressure on already strained capital structures.”
Jolliffe believes it is fair to assume that the initial period of triage is over and says NLG is focused on a period of consolidation – looking to make positive amendments to its capital structure, whilst ensuring year on year organic growth is achieved.
Like a number of industry players, NLG’s balance sheet is heavily debt laden, which Jolliffe calls a ‘necessary evil’ over a period when the company quadrupled in size over a short period of time.
“In addition, two years ago if you didn’t have a debt to equity ratio of at least 60 percent, you could be accused of having had a lazy balance sheet,” he said.
While he concedes that debt is a big issue for NLG, Jolliffe clearly sees improving and adding revenue streams as his primary objective.
“Repatriating debt, whilst clearly attractive and a buzz phrase at present, is only strategically pragmatic if the means for repatriating the debt highlights a financially accretive proposition,” he said.
“By that I mean that selling assets which are yielding more than the cost of the debt you are seeking to repatriate is not, I would submit, financially prudent in the mid to long term.”
For a comprehensive report into both NLG and the pub sector, see the October issue of Australian Hotelier.