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Fri 4th Jan 2013 - Admiral Taverns, InnBrighton and Spirit

Story of the day:

US private equity firm buys Lloyds Banking Group stake in Admiral Taverns: US private equity firm Cerberus Capital Management has bought Lloyds Banking Group’s majority stake in tenanted pub operator Admiral Taverns for an estimated £200m. The deal, on which Sapient Corporate Finance advised Cerberus, is the biggest in the sector since Heineken bought 916 RBS tenanted pubs in December 2011 for £412m. The new majority shareholder in Admiral, which has 1,100 pubs, has described the company as the “ideal platform” for acquiring more tenanted pubs. Senior managing director at Cerberus Lee Millstein said: “Admiral has one of the strongest management teams in the UK leisure industry and we are pleased to be working with them. Their successful transformation of the Admiral business into a leading UK pub group has put the business on an upward trajectory. Admiral’s business provides an ideal platform for the acquisition of additional tenanted pubs in the UK and we look forward to working with the company’s management team and employees to grow the company.” It is thought that Cerberus has paid an Ebitda multiple of sub-5x (pre-central overhead) to buy the Lloyds stake – and sub-6x post central overhead. The transaction follows a three-year transformation of Admiral Taverns fortunes. In 2009, Lloyds wrote off between £500 and £600m of debt in the company - reducing its debt level to around £350m - and took an equity stake. Since then, the company has sold the vast majority of its non-core pubs and used proceeds and cashflow to cut debt by £200m. The existing senior management team – executive chairman Jonathan Paveley, managing director Kevin Georgel, property and strategy director Andy Clifford and chief financial officer Glenn Pearson – will continue to lead the business and guide its on-going development. Commenting on the transaction, Paveley said: “This is a great transaction for Admiral Taverns and a tremendous start to 2013. We are delighted that Cerberus has chosen to invest in Admiral and that it recognises Admiral’s future potential. Cerberus’s support will help Admiral develop the business further and strengthen its reputation among pub licensees as the best tenanted pub group in the country.” The transaction brings to an end Lloyds Banking Group’s ownership, providing a complete debt and equity exit. Cerberus, which is based in New York, is one of the world’s leading private investment firms with interests spanning multiple industries including banking and finance, leisure, manufacturing and real estate. On the successful conclusion of the transaction, Paveley added: “Throughout this process, our over-arching aim has been to maintain the day-to-day support of our licensees and ensure continued smooth operations for our staff and our supply partners, and it’s pleasing to have achieved this.” Lloyds Banking Group and Admiral Taverns management were advised by PWC. 

Propel Opinion by Paul Charity: The deal to buy Lloyds Banking Group’s stake in Admiral Taverns is the biggest in the sector since Heineken bought 916 RBS tenanted pubs in December 2011 for £412m. It’s ironic that these two deals have both involved tenanted pubs given this is the part of the market that’s suffered the most since the smoking ban of 2007. However, value is value. In the case of the RBS estate, Heineken knew exactly what it was buying - very good quality tenanted pubs such as Guy Ritchie’s Punchbowl in Mayfair - given it had run the estate for 12 years previously under a management contract. Likewise, Admiral management has created a very solid set of community pubs, the pick of multiple purchases. Confidence about the value of the Admiral estate will also have been created through the on-going testing of the property market through the process of single-site disposals. With tenanted pubs very sensibly valued right now, few would be surprised by further bolt-on acquisitions from the estates of larger pub companies still selling bottom-end pubs.

Propel Multi-Club conference: The first Propel Multi-Club conference takes place at One Moorgate Place, London EC2R 6EA on Tuesday 19 March and multi-site companies can book two free places each on a first come, first serve basis. The speaker list will be unveiled later this month. E-mail to book places.

Propel Quarterly magazine available online: The winter 2012 edition of Propel Quarterly magazine is now available to view online at

Industry news:

Menu flexibility key tool in 2013 in context of volatile food prices: Menu flexibility will be a key weapon in the battle against unpredictable food prices during 2013, buying specialist Lynx Purchasing has warned. Managing director John Pinder said: “To an extent, pubs and restaurants are used to steady price increases across the board, but we’re moving into a new, volatile phase where there will be sudden, sharp spikes in the prices of particular commodities, as we’ve already seen with potatoes as a result of the poor UK crop.” The latest figures from the Potato Council show that in the week to 14 December, the wholesale price of UK grown potatoes was £245.63 per tonne, more than double the £114.17 price in the same week a year ago. Pinder added: “One particular area of concern for 2013 is any product where wheat is involved, including meat prices due to the cost of animal feed. Operators will need to monitor suppliers’ prices closely and have the flexibility to adapt menus quickly.” While chefs may be aware of price increases on ‘centre-plate’ products such as meat and fish, staples such as vegetables and dairy are often ordered routinely. “Many operators don’t check the prices they’re being charged for staple items. Our advice is to query price rises, and be ready to substitute alternative products – or switch suppliers.” To compound the challenge, fierce competition for the available trade in the pub and restaurant sector is making it harder to pass price increases on: “Many of our customers are already telling us that there’s no prospect of raising their menu prices. Consumer confidence is fragile and customer spending is already stretched,” added Pinder.

Burger King launches chicken nuggets in the US: Burger King is taking on McDonald’s by introducing chicken nuggets to its US menus, replacing chicken tenders. The burger company has also added “molten fudge” desserts and a Whopper with avocado and Swiss cheese. The nuggests appear on menus starting 7 January, in four, six, ten and 20-piece servings starting at $1.00.

Hospitality Show launches new Save & Sustain initiative to promote the financial benefits of operating sustainably: A new initiative called Save and Sustain will enable visitors to the Hospitality Show to calculate how much money and carbon they can save in running their businesses. The online calculator enables visitors to estimate the savings in four key areas within their operation - water savings, training, waste and LED lighting. It is intended to show the scale of cost savings that can gained from resource efficiency, as well as identifying carbon savings. Said scheme originator Rebecca Hawkins: “Around two fifths of consumers are swayed by sustainability issues when selecting products and services. So making a sustainable choice can improve your image as well as providing multiple opportunities for cost reduction. With Save & Sustain we wanted to give operators a practical way to calculate the full benefits of sustainability, and especially highlight how much it can add to profitability.” The Hospitality Show takes place at Birmingham’s NEC between 21 and 23 January.

Company news:

Simon French – Spirit a candidate for sector consolidation if its shares do not re-rate: Panmure Gordon leisure analyst Simon French has argued that Spirit shares are undervalued – and is a prime candidate for sector consolidation if the shares do not climb in value. Issuing a buy recommendation and a 75p price target, French said: “Spirit is continuing to make clear headway in closing the profit-per-outlet gap relative to its peers in its managed pubs as it improves sales densities driven by LFL sales growth and a comprehensive refurbishment programme. EBITDAR per pub is now broadly the same as Marston’s managed pubs and only circa seven per cent lower than Greene King. The oft-highlighted gap to Mitchells & Butlers per pub profitability is now down to 23 per cent driven by ten per cent like-for-like sales growth in the last two years and a 260bps improvement in EBITDAR margin over the same period. Further value should be unlocked by the turnaround of its leased pub estate, which has suffered from a lack of capital and operational attention. The market struggles to understand how to value Spirit sensibly and so it currently trades at an attractive 16 per cent discount to the 2013 adjusted EV/EBITDAR pub, restaurant and recreation sector average. The market currently values it in line with managed pub company peers but we would argue it should trade closer to Greene King and Marston’s reflecting the circa 22 per cent of group earnings from leased pubs. If the stock does not re-rate we expect it to be a prime candidate for industry consolidation.”

Antic to open two sites in Brixton: Antic, the 27-strong London pub company headed by Anthony Thomas, will open two news sites in Brixton. It hopes to open the Effra Social, next to Hootananny’s on Effra Road, in mid-February. The company is also renovating the bar in the crypt of St Matthews church, Brixton Hill, though have not yet confirmed the name or plans for that project. A spokesman told the Brixton Blog: ”The Effra Social will be a bit like the Balham Bowls Club.” The new Effra Social will take the place of the old Conservative Club. It will have two bars, run events and have said they will be family and dog friendly.

Walkabout operator Intertain reports like-for-likes up 8.6 per cent in December: Walkabout operator Intertain has reported that like-for-like sales grew by 8.6 per cent last month – ten invested sites saw sales up 15 per cent and 25 uninvested sites were up six per cent. Chief executive John Leslie told Morning Briefing that the company had been aided by a “helpful calendar” with Christmas and New Year not falling at weekends, and pre-bookings significantly up – they rose by 50 per cent to 78,000 people for the month. “Pre-booking are increasingly important,” said Leslie. “It’s very useful to be 99 per cent certain people are definitely coming.” Star performer were the Walkabout in Temple, which took £52,000 on New Year’s Eve and Bar Risa in Birmingham, which has a comedy club above and took £55,000 on the night. The Highlights comedy stores saw 80 per cent occupancy for the month with an eight per cent rise on revenue compared to December 2011. “We’re pretty pleased with the result,” added Leslie. 

YO! Sushi offers 40 per cent discount to members of its Love Club in January: Conveyor belt sushi firm YO! Sushi is offering a 40 per cent discount on conveyor belt sushi items to members of its online Love Club. Customers have to sign up to membership of the club and download a voucher to claim the 40 per cent discount between Tuesdays and Fridays, 8 and 25 January. The website states: “Just show your web voucher with your unique code each time you dine in at a participating YO! Sushi to stuff yourself sushi silly in January.” Harvey Nichols and London Selfridges sites aren’t taking part in the promotion.

Geof Collyer – considerable outperformance needed to maintain Wetherspoon momentum: Deutsche Bank analyst Geof Collyer has argued that JD Wetherspoon will need considerable outperformance to maintain last year’s share price rises. He said: “Since last year’s low point in May, the stock has risen by over 40 per cent, compared to our FY’13 Earnings Per Share forecasts that are only 8 per cent higher than at the Q2 IMS stage in January 2012, much of which is coming from share buybacks. So it could take considerable outperformance in like-for-like growth and/or margins to sustain the momentum. The group is extending its traditional January Sale to the entire month, including deals on food that have been absent for a year or so, which may further extend the margin pressure seen during the 2012 full year and the first quarter of the 2013 financial year.” 

InnBrighton opens latest pub, The Freemason’s, in Brighton: InnBrighton, the 44-strong multiple led by Gavin George, has re-opened an iconic Brighton pub - The Freemason’s Tavern - after a refit during November and December. Chief executive Gavin George said: “We’ve had good success with destination pubs like The Mesmerist in Brighton that are bold and imaginative and which encapsulate the heritage and spirit of the area. The Freemason’s façade is a Hove landmark and we wanted to do it justice by linking the interior with it. We’ve created an area of the pub that we’ve dubbed The Lodge because it contains images of famous, ‘supposed’ freemasons. Our customers are surprised that some of the most public of people from the last century perhaps had a more secretive side. The pub has been very busy for the first two weeks of trade, suggesting that the re-launch has been well received by the city.” He added: “It’s a free-of-tie commercial lease. The internal areas were completely incongruous with the external, given that it had been fitted out as some kind of late night bar at some time in the past, with an island servery. Our aim was to make it a pub again, so we have moved the bar to one side, and the whole place has opened up marvellously. It is a mid-19 century pub built when the fashionable Brunswick village was developed. It was part of the original Kemp Town Brewery business - a wonderful place.” 

Village group plan to buy Marston’s coaching inn: Villagers in the village of Slaley, in Northumberland, have backed proposals by the village trust to take over The Rose and Crown pub, a Marston’s coaching inn set to go on the market. Norman Watson, chairman of the Slaley Community Trust, said: “There is great interest in trying to buy the pub as a community asset.” The Rose and Crown has also now been certified as a ‘level three’ community asset by Northumberland County Council, which means the trust will be given six months in which to submit its buy-out bid when Marston’s place the pub on the market.

Douglas Jack – lack of sporting events will favour food-led operators in 2013: Numis Securities analyst Douglas Jack has argued 2013’s emptier sporting calendar should favour food-led operators. He said: “No real improvement in the consumer backdrop is expected, although one operator claims “out of London trading appears to have stabilised and may even be improving” and that “the corporate market is up 15-20 per cent on a couple of years ago.” What is clear is that record rainfall in 2012 and fewer major sporting events in 2013 should be very positive for food-led pub operators, favouring the regional brewers as well as Spirit Pub Company (Buy; TP 80p) and Mitchells & Butlers (Add; TP 400p).”

Simon French – pub and restaurant 2012 share out-performance unlikely to be repeated this year: Panmure Gordon leisure analyst Simon French has argued that this year is unlikely to an out-performance in sector shares. He said: “2012 was a very good year for Travel & Leisure stocks with the sector increasing 27 per cent, strongly outperforming the FTSE All Share increase of 8.2 per cent. We do not think this strong performance will be repeated during 2013 as household disposable income will be broadly flat following the 1.5 per cent increase in 2012 which was the strongest since at least 2005 (source Longview Economics). There is no change to our view on the four key sub-sectors. We remain overweight on the Gaming Sector and underweight on the Leisure Travel sector. We remain neutral on the pub, restaurant and recreation sector and the hotel sector with a slight preference for the former over the latter. Consumer confidence is only marginally higher than it was 12 months ago and we think this remains the key determinant for leisure spend. We think the key drivers of consumer confidence are job security and real household disposable income, which is obviously impacted by inflation.”

Whitbread submits £7m Premier Inn and Brewers Fayre plan for Hanley: Whitbread has submitted a £7m plan to build a Premier Inn and Brewers Fayre on a vacant site next to Storey Carpets in Hanley. Whitbread believes the hotel will attract 28,000 overnight guests every year. The application states: “Of these, approximately one-third, around 9,300, would be expected to eat elsewhere in the town, providing a substantial boost to the local economy.”

Historic pub nearly lost to fire re-opens after a £750,000 refurbishment: The Abbot’s Elm, formerly known as The Three Horseshoes, in Abbots Ripton, Huntingdonshire, has re-opened after a £750,000 refurbishment – a fire gutted the Grade II-listed 17th century building in March 2010. The pub, part of Lord de Ramsey’s estate, is being run by husband-and-wife team John and Julia Abbey, who have many years’ experience in fine dining, most recently at The Leatherne Bottel in Goring-on-Thames. The £750,000 renovation, covered by insurance, took over a year to complete. Lord de Ramsey said: “When I was a boy, there were five pubs in Abbots Ripton but now there is only one left. It is important that it is a proper village pub. It’s wonderful to see it back in action.”

Quaglino’s owner D&D London to open first sites outside of London on 21 March: Quaglino’s owner D&D London will open its first two sites outside of London on 21 March, both in Leeds. The openings will be the 144-cover Crafthouse, showcasing British produce inspired by the history of Yorkshire and destination venue Angelica within the Land Securities’ Trinity Leeds shopping and leisure development in the middle of Leeds. The restaurants will occupy circa 12,000 square feet on the two upper floors of a new building adjacent to the main retail complex and will each have spectacular outside terraces with views towards the grade 1 listed Holy Trinity Church. D&D chief executive Des Gunewardena said: “This is an important venture for us. We have always thought that Leeds would feature prominently as part of our plans to expand in the UK outside London. It is a city where people enjoy eating out and Leeds has a significant and sophisticated business scene. We are also pleased to be working with Land Securities as part of what we think will be a very successful retail development and we love our location with its beautiful views of Holy Trinity Church.”

Pret A Manger appoints former Green & Blacks marketer: Sandwich chain Pret A Manger has appointed Mark Palmer, who was head of marketing at Green & Blacks for six years, as its new marketing director. Palmer will be responsible for the businesses marketing and advertising including local and national activity, digital, in-store and CSR strategy. Palmer previously worked with Pret a Manger as a consultant. He has also worked with brands including Union Hand Roasted Coffee, Valeo Foods, apple juice brand Cawston Press and natural cosmetic firm First Natural Brands, which owns the Barefoot brand.

Subway signs for Marine Point development to take occupancy to 92 per cent: Subway has signed to take a 1,000 sq ft site at the £60m Marine Point development in New Brighton, Merseyside. Subway has agreed terms for a 1,000 sq ft restaurant, on a 25-year lease at £23,000 a year. The sandwich chain follows Loungers at the site - it has taken a 20-year lease at £57,000 a year. Neptune Investments director Danny Hynd said: “Marine Point is flying. All the units are trading beyond their operators’ forecasts and with each new unit that opens footfall increases for everyone’s benefit. People said it couldn’t be done and we’ve proven them wrong.”

Spirit’s Chef & Brewer brand picks winning customer pie: Spirit Pub Company brand Chef & Brewer has named the winner in its Perfect Pie competition, which gave guests the chance to create a new pie for the menu. ‘Ultimate Venison Pie,’ created by Marcus Ball from Nottingham, will feature on Chef & Brewer’s seasonal menu to celebrate British Pie Week in 2013 after winning a public vote on the brand’s Facebook page. His recipe, which includes venison, bacon, wild mushrooms and garlic with light soy sauce, came out on top from 230 entries after fans voted in their hundreds for the pie. Marcus also claimed a family meal at his local Chef & Brewer, The Hutt in Ravenshead, Nottingham, and a foodie weekend break for two. Kevin Woodyet, Chef & Brewer’s menu development chef, said: “This is the first time that Chef & Brewer has launched a menu innovation contest of this kind and we were delighted with the response.”

A to Z Restaurants reduces losses: A to Z Restaurants, which operates eight sites, has reduced losses before tax to £873,724 in the year to 31 March 2012 from £1,458,845 the year before. Turnover dropped to £10,401,306 from £11,557,685 the year prior. The company stated: “The group operates in a highly competitive market and given recent conditions in the restaurant industry, the group has been subject to greater pressure during the year. As a result, the gross profit margin for the group dropped during the year. However, the directors expect that profits will rise in real terms through increased turnover. The group aims to grow sales and profits, generate higher cash returns, improve cash flows and reduce borrowings.” 

Ignite Group reports £2.3m loss after exceptional items: Ignite Group plunged to a £2,392,035 loss in the year to 31 March 2012 after exceptional items of £1,525,820 and a loss of £1,217,608 from discontinued operations. The company, which made a profit of £379,503 the year before, saw turnover drop to £11,215,116 from £13,224,106 the year before. Its profit on continuing operations in the most recent year was £507,211. The company stated: “The continuing operations performed well during the year and made good progress. Significant investments were made in people, processes and assets. We also funded a new overseas venture. There was losses from discontinued operations and the write off of an intercompany loan during the period that affected the overall result.”

Starbucks enters Vietnam market: Coffee company Starbucks has unveiled a partnership with Hong Kong’s Maxim Group to enter the Vietmanese market – its first site will open in Ho Chi Minh City next month. Starbucks president in China and Asia Pacific John Culver said: “Vietnam is one of the most dynamic and exciting markets in the world and we are proud to add Vietnam as the 12th market across the China and Asia-Pacific.”

Mitchells & Butlers Ember Inns site in food poisoning probe: A woman has died and around 30 others taken ill after eating a meal on Christmas Day at Ember Inns pub, The Railway Hotel in Hornchurch, Essex. A spokesman for the Health Protection Agency said: “Approximately 30 people in total have reported symptoms of gastro-intestinal illness after eating at the venue on 25 December 2012. One person has sadly died after being admitted to hospital.”

Joule’s to add nine pubs with £1m of funding: Shropshire-based Joule’s Brewery, founded in 2010, has secured £1m in extra funding from The Co-operative bank that will allow it is to open nine more pubs. The funding will help Joule’s to expand its Tap House branded pubs which now have locations in Shropshire, Staffordshire, Cheshire and Wales. Managing director Steve Nuttall said: “While many pub chains have been hit hard by the downturn, Joule’s shows how we are giving people what they want: really good beer, good food and stripped back and uncomplicated interiors in lovely historical buildings.” Joule’s, which employs ten staff, currently has 18 pubs in its estate, including The Red Lion in Market Drayton, which is the pub attached to the brewery. The fresh investment will help the company add nine more premises, as it targets a total estate of 25 Joule’s pubs. Its strategy is to limit its list of pubs to ensure each is unique. In November, Joule’s was handed a refurbishment award from Camra for the renovation of The Red Lion, in Great Hales Street, Market Drayton. The extra investment comes two years after the Co-operative bank agreed £2 million funding for the construction of the brewery, which produces 10,000 barrels of beer a year. Chrissie Nuttall, of Joule’s, said: “Our vision for our pubs is to create the very best houses we can. It’s not an easy challenge to be at our best for every single experience but it is our absolute goal.”

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