Fuller Smith & Turner Shares Drop 8% After Underestimated Costs

November 27, 2019

The pub and hotel group Fuller Smith & Turner (FSTA) has seen its shares drop 8% to a low of 970p. While the group released a trading statement this week, it was overshadowed by the news that the cost incurred in transferring their beer business to the Japanese Brewing company Asahi had been severely underestimated.

Simon Emeny, Fuller Smith & Turner’s Chief Executive, revealed to reporters that the costs of the transition had been far higher than had been initially estimated. This had a significant effect on the group’s financial performance, although Emeny stressed it was only a “short term” impact.

Transition Costs Grow

The deal with Asahi was announced by Fuller Smith & Turner back in January of 2019. The planned costs for the transition to Asahi, after the separation and reorganisation, was expected to be around £200 million.

A key factor of the transition to Asahi is the Transition Services Agreement. This agreement details the responsibility for paying the costs incurred from the beer business remains with Fuller Smith & Turner until May 2020.

This has had a significant impact on the pub and hotel group’s financial performance, with the anticipated profits for the year running to 28 March 2020 expected to be £31m.

This is a massive 26% drop in profits compared to analysts’ predictions. Market analysts pointed out that this also indicates that the sale price metrics were not nearly as attractive as investors anticipated before the sale in January.

This bad news came as the company also revealed that their migration to a new enterprise resource planning (ERP) system had not been as effective as they were anticipating.

Underlying Performance Is Good

However, other areas of the business have been performing well, with revenues growing 5.2% for the 32 weeks leading up to 9 November.

Fuller Smith & Turner has total liabilities of £368.2m. This is offset by cash reserves of £11.1m and near term receivables of £5.3m. While this means that the company has liabilities that are far beyond its cash and near term receivables, Fuller Smith & Turner does have a market capitalisation of £590.2m. The pub and hotel group could raise capital if necessary.