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Morning Briefing Strap Line
Thu 14th Feb 2013 - Enterprise, Greene King and Marston's

Story of the day:

Barclays Capital – confidence returning across the pub sector: Barclays Capital analyst Richard Taylor has argued that major quoted pub companies are more confident about their prospects than a year ago, especially in the tenanted sector. His comments come after presentations by major companies at a Barclays Capital seminar on the pub trade. He said: “Despite the weak external macro backdrop, most companies seemed quietly confident in their strategy of delivering gentle revenue and EBIT growth. Unsurprisingly, eating out was a major component expected to drive growth, with operators expecting to make market share gains in the wider eating and drinking out market, especially at the expense of restaurants. This is still a highly fragmented market with even the largest pub groups having just circa 2% share of the overall eating out market. In contrast to last year, there was more confidence that the worst is over for tenanted pubs. Rents have largely been re-set in the last five years following the 2007 market peak, when the financial crisis and smoking ban led to material declines in revenues. There are still clear challenges, and capital is being withdrawn from bottom end tenanted pubs and recycled back into managed pubs which will create further pub closures. However, operators are focusing on how to generate growth once again in their core leased and tenanted sites either through innovation (franchising, or greater control of assets using in house managed resource), or capital expenditure (Enterprise is looking at a number of larger schemes, and catch up capex on underinvested assets). It is hard to disaggregate cause and effect, but many pub company debt prices have rallied significantly in the past year reflecting either reduced balance sheet risk, and/or the wider rally in risky assets. Either way, with many pub bonds once again trading close to par value, some companies commented on potential refinancing options given the greater confidence in debt markets. This would have been hard to imagine a year ago, and if this sentiment is sustained, it might create marginal buyers of shares given that many equity investors still see this as a materially over-leveraged sector.”

Industry news:

Merger of Britvic and AG Barr referred to Competition Commission; Britvic appoints new chief executive: The Office of Fair Trading has cast serious doubt over the proposed merger of AG Barr and Britvic after referring it to the Competition Commission. The OFT was concerned the merger could reduce competition. Angry Britvic chairman Gerard Corbett said: “Here we are, two British companies trying to strengthen ourselves against a vast US corporation (Coca-Cola) and being thwarted by the OFT. We’re in the long grass for at least nine months. The winners today are cracking open bottles of champagne in Atlanta, Georgia,” he added, in reference to Coca-Cola’s headquarters. The merger would have given AG Barr and Britvic a combined 14% market shares, half of Coca-Cola’s market share. But the OFT said it could not rule out the possibility of higher prices arising post-merger. Amelia Fletcher, OFT chief economist, said: “The soft drinks industry is an important one for many consumers in Great Britain. People spend over £9 billion each year on these drinks. This merger will see the UK market reduce from three to two main players. Our investigation has identified competition concerns relating to this deal with respect to Barr’s IRN BRU and Orangina brands which could lead to higher prices for consumers. In addition, we could not rule out the possibility of further competition concerns arising from combining the overall Britvic portfolio of soft drinks with the entire Barr portfolio. We are therefore referring the merger to the Competition Commission for an in-depth investigation.” Meanwhile, in the wake of the OFT ruling, Britvic has appointed Simon Litherland as its new chief executive. Litherland has been managing director of Britvic GB for more than a year, having joined from Diageo where he held a series of domestic and international roles over 20 years, latterly as managing director of Diageo GB. Paul Moody, outgoing chief executive, will retire from the company and will be available for six months on a consultancy basis to ensure a smooth handover to Litherland. Chairman Corbett said: “Simon has an excellent track record and has done well with our GB business in the last year. He is ideally equipped to take the group to the next stage. I’d like to thank Paul for all he has done for Britvic over the last 16 years. It has been a long innings full of much success and we wish him well for the future.” Paul Moody said: “Now is the right time for me to explore new opportunities and I’m pleased to be doing so at a time when the business performance is showing encouraging signs of improvement in all markets. Simon joined us as part of the board’s succession plan; I’ve enjoyed working with him and am confident in the company’s future success.”
Value of pay packets fallen to 2003 levels: Workers have seen the value of their pay packets fall to 2003 levels, according to the Office of National Statistics. For three years, rising prices have outpaced pay increases and workers have seen the wages drop in “real” terms by close to 3% a year on average. Meanwhile, consumer watchdog Which? has claimed that almost six million Britons are being forced to dip into their savings to pay for food and energy bills.

Company news:

Marston’s – pub restaurants share of eating market is still small: Marston’s finance director Andrew Andrea has argued that there is an opportunity for pub restaurants to gain market share from both the £50bn a year spent on eating out in 2012 and the £85bn spent on eating-in. Addressing the Barclays Capital pub seminar, Andrea said the pub restaurant sector’s share of the eating out market is “still small” but that pub restaurants are “outperforming the market”. The opportunity to expand pub restaurant market share is linked to the convenience and the “low-ticket” nature of the experience, together with the on-going expansion of brands and improving service, standards and range on offer. “Value for money dining represents a significant growth opportunity,” he said. Andrea said that the organic drivers of growth are “upselling, premium experience and operational flexibility”. The company, which serves 28 million main meals a year, has calculated that selling one extra drink per main course would generate up to £30m a year while selling one starter or dessert with every meal would produce £10m of extra sales a year. At Marston’s Two for One brand evolution is focused on improving food presentation and quality, the creation of “intimate” dining areas. The Milestone brand is being evolved with an intimate “pubby” feel with real fires, and the creation of loggia inside/outside areas - one in three meals are being served from the on-site rotisserie creating a sense of food theatre. In a note on the presentation, Barclays Capital’s Richard Taylor said: “Management continue to focus on the “F Plan” (with a) focus on families with designated areas for (them) and a clean and safe environment for females plus table service rather than ordering at the bar. For (people in their) 40s and 50s – light bite alternatives and accessibility are also important. There is a focus on value for money. Only 3% of sales are on discount, and Marston’s is not investing in margin to drive sales growth; (it offers) Every Day Low Price (EDLP) rather than discounting.”
Award-winning wine retailer to open a wine café concept: Oxford Wine Co, which was awarded Independent Wine Retailer of the Year at Drinks Retailing Awards 2012, is to open a café concept in the city at Easter. Oxford Wine Café will occupy the site of the former Summertown Wine Café. The new incarnation will sell a house selection on wine for on-premise consumption, plus a special selection that will change every two months. PR and fine wine manager Theo Sloot’s Thirsty Thursday tastings from the company’s existing Oxford shop will be rebranded Tasty Tuesdays in the new outlet. The café will have 25 wines for sales by-the-glass and a 200-strong line-up for off-sales. Sloot said: “The previous owners were only able to buy in very small quantities and make very little margin, but we’re in a much better position because we already ship so much wine direct. We can offer prices well below what they were doing and still make a decent margin.” There will also be a small selection of locally produced beers and eight top-end spirits. The café will sell coffee and pastries from 8.30am and trade until 11pm, with tapas style food and two hot main course dishes served later in the day.
Industry veteran Mogford re-opens restaurant after £500,000 refurbishment: Industry veteran Jeremy Mogford, who created the Browns concept currently owned by Mitchells & Butlers, has re-opened Gee’s restaurant in Oxford’s Banbury Road after a £500,000 refurbishment. A new kitchen incorporates a wood-fired oven and a charcoal grill. The building has been home to Gee’s restaurant for the last 30 years.

Houston Brewing Company secures £720,000 of finance: A Renfrewshire pub and brewery business has secured £720,000 expansion funding from HSBC and won a landmark contract with a supermarket chain as it prepares to capitalise on the growing demand for real ale. The Houston Brewing Company, which runs the historic Fox and Hounds pub in the village of the same name, has clinched a deal to supply beer to Aldi. The German discount supermarket chain has placed an order for 7,000 bottles of Crystal beer.

Gordon Ramsay to close flagship restaurant for two months: Gordon Ramsay is to close his flagship Royal Hospital Road Gordon Ramsay restaurant for two months for a refurbishment. He said: “I think every five years at that level, to reposition yourself is important. We’ve got three Michelin stars, the longest time a British restaurant has had three Michelin stars. So every five years, it needs to be moved up because you get criticised easily. ‘Well, it’s not worth three stars anymore, he’s cashing in, he’s never there’ - all those kinds of things. So you got to silence those critics by constantly reinventing.”

McDonald’s franchisee in Australia trial full table service: A McDonald’s franchisee in Australia is offering full table service for its dine-in customers, complete with china plates, glassware and metal utensils in place of the more usual paper boxes and plastic. Meals are also brought to the table by waiters and waitresses. Glenn and Katia Dwarte, owners of the franchise in Warilla, some 62 miles south of Sydney, sought permission for the idea after their habit of serving Mr Dwarte’s parents with cutlery and plates caught the attention of other diners. The dine-in offer is open to customers who purchase premium meals between 5pm and 8pm each day. Last year, the franchisees caught the attention of McDonald’s head office in Chicago after developing an iPhone app that allows customers to place an order and pay in advance before they arrive in store.

Candy Cakes secures international franchise deal: Retail bakery Candy Cakes has signed its first international franchise with The Landmark Group in a deal that will see 14 new outlets open in Dubai in the next year. The business opened its first outlet in the United Arab Emirates last week, with plans to open further sites in the region in shopping mall locations during the next 12 months. Michael Thomaides, founder of Candy Cakes, told British Baker: “We were approached by The Landmark Group, which was looking for a cake brand to partner up with. At the time we weren’t really thinking about expanding as we are a small company, but they had the infrastructure in place to do it so it seemed like a good idea. Landmark has the manageability, resources and structure to make this process much easier, and partnering with a company of this size meant it could help us to save management costs and time.” Candy Cakes is also in discussions with potential franchisees in Canada, India and China.

JD Wetherspoon opens in Crook, County Durham: JD Wetherspoon has opened a new pub, The Horseshoe Inn, in Crook, County Durham (population of 8,573) after a £1.2m renovation. The pub is one of Crook’s oldest buildings and is believed to be the oldest surviving inn. The pub will employ 26 people.

PBR Leisure completes refinance: Living Room owner PBR Leisure (PBRL) has undertaken a refinancing deal that has reduced its debt by about two thirds via a debt-for-equity swap with its banking group. The deal leaves the 33-strong Living Room operator, which is owned by a banking group led by RBS, with debt of £20m compared to £61.1m at the end of 2011. The company said in accounts published at Companies House: “The company entered discussions with its lenders during 2011 to refinance the debt falling due on 15 December 2012. These discussions proved prolonged and, inter alia, involved the change of pub management company used by the group. On 14 January 2013 the company successfully concluded its negotiations with its lenders and was able to complete its refinancing, which included a substantial debt for equity swap leaving remaining debt of £20m. As the refinancing had been substantially agreed prior to 15 December 2012, the company’s lenders agreed to maintain the existing facilities for the period between 15 December 2012 and the date of completion of the refinancing.”
HMSHost opens new bar at Cork Airport with focus on artisan suppliers: Contract caterer HMSHost has opened a new bar called ‘Last Call’ at Cork Airport blending traditional pub elements with modern, industrial features – and a focus on artisan food. The industrial elements of the decor include a large beer pipe installation above the bar, large pendant lamps as well as a feature keg-wall. Paul Neeson, director of retail for Dublin Airport Authority, said there was a focus on local food from some of Cork’s best known artisan suppliers. Other concepts that HMSHost operates at Cork Airport are The Cork’s Food Market, The Red Bar, The Lir Café and The Cork Coffee Roasters. HMSHost operates in more than 100 airports around the globe, including 15 European airports and the 20 busiest airports in North America.

Little Chef mascot joins Twitter: Charlie, the mascot of roadside restaurant Little Chef, has joined the world of Twitter, to mark 55 years of the brand. Having gone on a diet in 2009 as part of a redesign, Charlie is now looking to engage with fans of the brand and get ‘Britain breakfasting Little Chef style’. It is said that his Twitter feed, @LC_Charlie, will cover ‘a diverse mix of food, music, British hotspots, motoring and roadside dining’. This marks his first step to reconnect with Little Chef customers and attract a new and modern fan base.
Paper and Cup to open second site: Coffee-with-a-mission brand Paper and Cup, run by the Spitalfields Crypt Trust (SCT), is launching its second venue on 14 February, in the heart of the regeneration area of St Paul’s Way, between Canary Wharf, Poplar and Mile End in London. It is four months since the first café opened in Shoreditch. Mentoring continues to be provided by Vincent Mckevitt, founder of Tossed, the leading group of healthier eating places in London and the south east. With his team, Mckevitt will lend support in all areas of the business to steer Paper and Cup towards a successful growth. Paper and Cup retains the essence of the original model, where a mixture of quality books, hand-picked collectors’ items, artwork from local illustrators and artists and bespoke branded goods are offered for sale, alongside food and drink. Books are also provided to read or browse over coffee and cake, and the family-friendly feel of the place aims to attract regular customers at different times of day.

Entrepreneur plans to launch Pint Shop in Cambridge: Entrepreneur Richard Holmes is planning to launch his first Pint Shop in Cambridge designed to revitalise Britain’s ‘bland’ pubs and revive the heart and soul of the bustling beer houses that packed in customers in the 1830s. It is aiming for its initial flagship site to open in Cambridge later this year: It is already in discussion with a prime location in the city. Holmes said: “Sadly, since the birth of beer houses the pub and brewing scene has become heavily commercialised, dominated by a handful of major corporations. The result is bland beer, bland food, poor service and outdated pubs. Not surprisingly this has created major problems in recent times for the pub industry with many closing. It’s time to move things on, and make pubs work again. We want to take the spirit of those original beer houses – craft beer, intimacy and fun – throw in some killer comfort food, cooked on a fire, just as it was in 1830 and deliver it with a bunch of amazing folks who love beer and live for food.”

Increase in applicants to take Enterprise pubs; confident of the next leg of the journey: Enterprise Inns has seen a large increase in applicants applying to take its pubs, chief executive Ted Tuppen has told a Barclays Capital pub seminar. Barclays analyst Richard Taylor reported that Enterprise claimed a circa 100% increase in the number of applicants with circa 1,600 in January, lots more than the same period last year. He added: “Currently (Enterprise) has no pubs to let in London. The company’s teams have also improved after a large investment in people. They have kept the same number of regional managers, but with disposals this means fewer pubs for each regional manager. There are also more regional directors, resulting in more control and more assistance. In addition, the company believes that property should be a profit centre given the large real estate backing of £4bn. (It) recently appointed a property managing director to ensure that this is the case. Another hire has been made to improve training, supply chain, distribution, and to look at other income streams. Overall, Enterprise believes it has weathered the storm, addressed the balance sheet risk, and now recognise it needs to deliver like-for-like net income growth for the next leg of the story, something which they appear confident they can achieve.”

Greene King – we’ve done a good job ensuring vendors choose us: Greene King chief executive Rooney Anand had told a Barclays Capital seminar that the company has done a good job in persuading vendors of high quality assets to choose it. Barclays Capital analyst Richard Taylor, reporting on the presentation, said: “Management believes that the company have done a good job historically at ensuring that vendors choose Greene King as the ultimate owner of their company, but also delivering on the numbers for shareholders. Deals hadn’t featured that much since 2006-07, but then three deals happened quite quickly which may have led people to believe that they are more of an acquisitive company. Greene King didn’t have a strong carvery offering until they bought Cloverleaf. The Greene King team say they learnt a lot from buying that business which is impossible to replicate by trial and error. Management also pride themselves for listening to the vendors of the acquired company to ensure that the deal is a long-term success.” 

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