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Wed 29th Apr 2015 - Spirit reports like-for-likes up 1.5%
Spirit reports like-for-likes up 1.5%: Spirit Pub Company has reported like-for-like sales in its managed division up 1.5% in the 28 weeks to 7 March, with total net sales up 4.5%. Ebitda was £71m (2014: £60m). Profit before tax was £3m (2014: £1m) and there were net exceptional pre-tax costs of £21m (2014: £22m). Its leased division saw like-for-like net income up 2.3%. The company bought seven pubs in the period and invested £34m in the estate. Chief executive Mike Tye said: “We are pleased to report another strong half year performance at Spirit. Our results reflect the success of our proven, clear and consistent strategy, which continues to deliver value for all our stakeholders. We have made good operational and financial progress across both our managed and leased divisions, which have outperformed their respective markets and our expectations. Our consistent focus on investing in our estate, our brands and our people gives us a strong platform for future growth. Over the past few years we have fundamentally transformed the business, and while the market remains highly competitive, we have continued to gain market share and see significant further opportunity ahead. None of this would have been possible without the support of all of our team members and I would like to thank them for their continued focus and hard work during this period of uncertainty.”

Managed Pubs: The company stated: “Total revenue from our managed pubs was up 5% as a result of both like for like sales growth of 1.5% and the benefit of pubs acquired from the Orchid estate towards the end of the prior year. Like for like drink sales were up 0.9% and like for like food sales up 2.8% with the growth in food being driven by our strategy to convert our locals estate to our Flaming Grill and Golden Oak Inns formats. The sales growth, together with a relatively benign cost environment and strong cost control, has enabled us to grow divisional Ebitda by 6% to £59.8m and to deliver a further improvement in Ebitdar margin of 60 basis points. Our investment programme continues to deliver returns in excess of our hurdle rate of 25% with the proportion of our estate invested and branded now at 90%. During the year to date, we have completed 111 refurbishments, including the conversion of 22 former Orchid pubs. As well as the investment and integration of these Orchid pubs, our focus has been on converting our locals and John Barras pubs into our Flaming Grill and Golden Oak Inns formats which have a greater food mix. A further 14 pubs have been converted to Flaming Grill using our new lower cost format and we had increased the number of Golden Oak Inns from seven at August 2014 to 39 at March 2015. Our continued focus on disciplined capital spend has resulted in an average investment spend to date (excluding investment spend on acquisitions) of £136,000 per pub. We have also continued our planned refresh programme with focus primarily on our Chef & Brewer estate and we are pleased with the returns that we are achieving on this spend. With the exception of the 3% rise in the National Minimum Wage, the cost environment has been relatively benign, and we welcome the further reduction in beer duty which was announced in the 2015 Budget.”

Leased Pubs: The company stated: “Our high quality estate of Leased pubs has continued to perform well with like for like net income up 2.3%. Whilst like-for-like turnover for the Leased pubs was down (0.3)% in the period, the prior year performance benefitted from changes in the supply network ordering process which occurred over the first weekend in March, and in order to minimise disruption to our Lessees some March sales were brought forward into February 2014. Without this prior year impact, like for like net turnover would have grown 0.2% in the 28 weeks to March 2015 and like for like net income would have grown by 2.7%. Total Ebitda for the Leased business was slightly up year on year at £17.4m despite a 5% reduction in pub numbers, with average Ebitda per pub up 5% at £77,000. We have continued to improve the quality of the estate through investment, innovation and selective disposals. During the period, £4m was invested in 27 leased pubs, with returns in excess of our 25% hurdle. The proportion of the Leased estate invested is now at 69%. We sold 13 pubs, raising proceeds of £5m, ahead of book value, for a disposal multiple of c. seven times Ebitda. At March 2015, 19 of our pubs were on bespoke turnover-based rent agreements as we have continued to innovate our lease agreements. The increase in average annual net income per pub from £104,000 at August 2014 to £108,000 at March 2015, emphasises the improving quality of our Leased estate with 91% of the estate on substantive agreements at the period end.”

Capital Expenditure: The company stated: “Following the successful trials of our Golden Oak Inns format, we have accelerated our investment plan in the first half of the year, with capital expenditure of £30m invested in our Managed estate. We have acquired a further seven properties since August 2014 of which six are leasehold properties from the former Orchid estate. At March 2015, three of these sites had been invested and branded, and were open for trading under our Fayre and Square format, whilst the remaining four were closed for investment. Since the period end three of these have opened for trading under our Fayre and Square and Flaming Grill formats.”

Cash Flow and Capital Structure: The company stated: “Cash outflow for the 28 weeks was £15m, due to the working capital unwind arising from our seasonal trading pattern and the timing of payments to suppliers, together with £34m capital expenditure and £7m of scheduled debt repayment on our secured loan notes. These cash outflows were offset by £22m of disposal proceeds, of which £15m was received for the sale of the Prince of Wales in London reflecting the development potential of this site in Earls Court. At 7 March 2015, the Group had £794m debt in the form of long-term mortgage type finance, secured on a portfolio of 1,059 properties. The debt fully repays over terms extending to 22 years and, due to interest rate swaps, is predominantly at fixed rates of interest. The weighted average interest rate of interest-bearing borrowings, including the effect of interest rate swaps, at March 2015, is 7.9%. At March 2015, the nominal value of net debt was £649m, with a net debt to Ebitda ratio of 4.0 times representing a reduction of 0.7 times when compared to March 2014. Within the Spirit debenture, net debt was £734m and the Debt Service Cover Ratio (DSCR) was 1.8 times at March 2015 (August 2014: 1.9 times) giving significant headroom against the default DSCR covenant of 1.3 times.”

Greene King acquisition of Spirit: The company stated: “We remain fully confident in the ongoing execution of our strategy across both our Managed and Leased divisions as an independent company and that its successful delivery and our strong balance sheet will deliver long-term growth and create significant value of shareholders. However, the Board of Spirit believes that the Greene King offer will create a leading pub company with the strongest brand portfolio in the sector and attractive positions in a number of the growing segments of the pub and casual dining market.”

Greggs to pay £20m special dividend: Bakery firm Greggs is to pay shareholders a £20m special dividend rather than buy back its own shares. The news comes as the company reports like-for-like sales in the first 16 weeks up 5.9% (2014: 3.8% growth) with 69 refits completed and 24 new shops opened plus 18 closures. The company stated: “We have continued to see a strong trading performance in the first four months of the year. Our total sales for the 16 weeks to 25 April 2015 grew by 5% and like-for-like sales in our own shops grew by 5.9% over the same period, ahead of our expectations. Customers are clearly enjoying our improved range of freshly-made sandwiches, including Balanced Choice products offering healthier options with fewer than 400 calories. In the coming weeks we will grow our Balanced Choice menu through the introduction of upgraded salads, a summer berry fruit pot and our new own-label drinks range, which has been developed with no added sugar and includes `Juicy Water’ options containing one of your ‘five a day’ .Breakfast has continued to be an important driver of growth and we have added new options to our range. Our £2 breakfast meal deal now includes free range omelette sandwich combinations, as well as new porridge flavours and a ‘fruit and oatie’ cookie. We have also introduced a breakfast baguette which features in a £3 meal deal. During the first 16 weeks we completed 69 shop refurbishments and will refit 200 to 220 shops this year. These continue to perform well as we transform the shop environment to strengthen our ‘bakery food-on-the-go’ positioning. We also opened 24 new shops, including 17 franchised units in transport locations. We closed 18 shops, giving a total of 1,656 shops trading at 25 April (comprising 1,594 of our own shops and 62 franchised units). On 30 April we will open a test site with the Irish motorway service operator Applegreen, at a service area located on the M2 near Belfast. Working with franchise partners like Applegreen allows us to extend our offer to markets which were previously inaccessible to us and will help us to assess Northern Ireland’s appetite for our `Always Fresh. Always Tasty.’ offer. The Board has completed its review of the appropriate capital structure of the Group for the medium term. In doing so we have considered the views of shareholders and our advisers. As a result of this review we will not carry out the proposed share buyback announced at the time of the Group’s preliminary results. Rather, given the current strong cash position and expected cash requirements for the year ahead, the Board declares a special dividend of 20 pence per share, a distribution of £20 million. This dividend will be paid on 17 July 2015 to shareholders on the register on 19 June 2015.The strong start to 2015 has been supported by rising consumer disposable incomes and low input cost inflation. We expect market conditions to remain favourable and support a good first half performance, ahead of our previous expectations. In the second half of the year we will come up against stronger sales comparables and a less certain cost outlook. However we expect to deliver good growth for the year as a whole and further progress against our strategic plan.”

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